Tag: startups

Sober Curious? The Non-Alcoholic Beer Market

Jul 23rd, 2024

As alcohol consumption declines worldwide, the non-alcoholic beverage market has expanded tremendously. Offering an alternative to traditional beer, consumers are seeking the flavour and experience of beer without the effects of alcohol.

Driving Factors

There has been a recent shift taking place when it comes to societal drinking habits, the market for non-alcoholic beverages allows significant economic potential in this sector with a number of factors driving the alcohol-free beer industry: market.

Health and Wellness Trends: With increasing health consciousness and concerns about the negative effects of alcohol, consumers are seeking healthier alternatives. Alcohol-free beer meets this demand as a lower-calorie, non-intoxicating option.

Changing Drinking Habits: Shifts in consumer preferences towards moderation, especially among younger demographics, have boosted the popularity of alcohol-free beer. It serves as a social drink for occasions where alcohol consumption may be limited or avoided.

Innovation in Flavor and Variety: Advances in brewing techniques and flavor profiles have led to a wider selection of alcohol-free beers. This diversity in taste and style appeals to a broader range of palates and preferences.

Social Acceptance: Growing social acceptance and the normalization of alcohol-free lifestyles have reduced the stigma associated with non-alcoholic beverages. This has encouraged more consumers to explore alcohol-free beer as a viable option for socializing and enjoyment.

Market Expansion and Accessibility: The increased availability of alcohol-free beer in supermarkets, restaurants, and online platforms has made it easier for consumers to find and purchase these options, driving market growth.

Statistics

Non-alcoholic beverages have so far chipped away at 3 percent of the global alcohol market, and is “forecast to grow to a whopping 31 percent by 2024.”

Another statistic shows that in the United States, sales of non-alcoholic beverages have increased since the pandemic occurred. Sales were up by 32% compared to the year prior to the pandemic. Besides the increased focus on health and wellness among consumers, the growth of non-alcoholic beverages also reflects clever marketing strategies by beer makers.

The global non-alcoholic beer market was valued at $22 billion in 2022. By 2032, it is expected to reach nearly $38 billion.

While there are currently no non-alcoholic beverage companies listed on United States stock exchanges, there are plenty of alcoholic beverage producers that are taking advantage of the recent boom by adding non-alcoholic beers to their supply.

Leading Name in the Market

The leading name in alcohol-free beer is Heineken, which launched in Europe in 2017 and is now available in 110 markets including South Africa, Russia, Vietnam, Japan, and Australia.

As the quality of alcohol-free beer has improved markedly over the years, the products now are improved in taste and quality. Being more widely available with marketing and campaigns drives awareness for the product too.

Investment Opportunities

With this growth in the market, investors may wonder how they could personally gain exposure to this trending niche. Experts state that it could be wise to invest in top companies in small, equal sums on a regular basis, known as dollar-cost averaging. Doing so over a longer period of time would minimise the effects of volatility on your cost basis.

Growth opportunities in the market are present, driven by factors such as health conscious consumer trends, a change in drinking habits, the expansion of product varieties, and a rising market acceptance and normalisation of alcohol-free beverages.

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How Inflation Helps Startup Investors

Jul 15th, 2024

The market is perpetually changing, and these changes should be taken into consideration when reevaluating one’s investment choices and strategies. Inflation is a salient element to consider when starting to invest as well.

Causes of Inflation

Inflation occurs when the economy’s prices rise, which in turn decreases the purchasing power of one’s money. It is the increase in prices across a sector or industry, not just for one item or service, that can be caused by a range of factors. Inflation can occur due to a rise in production costs associated with materials or labor, higher consumer demands, and fiscal and monetary policies such as tax cuts or lower interest rates.

Inflation can also be viewed as the devaluation of money, which is a concern because it makes money that has been saved in the present less valuable in the future – this element erodes both the purchasing power and the value of investments.

Protecting Personal Finances

There are a few ways to protect your personal finances during a period of high inflation. One method is by investing in stocks or commodities, which tend to prosper relatively more successfully in a high-inflation environment, as opposed to bonds, for example. There are also a variety of inflation-protected securities that will adjust in price to offset inflation.

Investment Impacts on Inflation

Not only does inflation impact investments, specifically venture capital investments have an impact on inflation by supporting innovative technologies that boost productivity and efficiency which in turn can counteract effects from inflation within an economy by reducing supply costs of production.

Moreover, when venture capitalists fund startups, it creates more job opportunities and contributes to a lower unemployment rate. Finally, startups backed by venture capitalists can increase competition between candidates which can drive prices down and mitigate inflation.

Inflation Risk for Startups

Investments and inflation have a complex and intricate relationship between each other. In terms of how inflation affects startup funding, a significant inflation risk is posed as it can affect the cost of capital for startups. Startups generally rely on funding from venture capitalists, although when inflation increases and is unpredictable the cost of borrowing money increases.

Additionally, inflation can put the value of startups’ equity at risk. Equity shares to investors, employees, or partners as a form of compensation or incentive is often offered by startups, although the value of these shares can decline because of high or unsteady inflation.

Inflation can also negatively impact the supply and demand of products or services the startup is trying to provide. When an economy is unstable and unpredictable, demand for products and services changes too which can create challenges for startups.

Startup Opportunities During Inflation

Although there are many risks associated with startups being created in highly volatile economies with high inflation, this inflation risk can also create opportunities for startups. Inflation can strengthen a startup’s flexibility and innovation. For example, startups may offer products and services that are inflation-resistant, like a digital or subscription-based product, that may maintain or increase its value overtime.

In order for startups to be successful, even when inflation is not viewed as high or volatile, they should adopt strategies that can help mitigate the risk from inflation and to help ensure long-term viability and growth.

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Preparation and Patience: The Ingredients for Riding a Recession

Mar 25th, 2024

The UK economy took a downturn in the last half of 2023, shrinking – by 0.1% in Q3 and by 0.3% in Q4. Since economic recession is generally defined as two or more consecutive quarters of decline in GDP, technically it’s an economy in recession. The Office for National Statistics recently released new data providing a number of insights into the evolution of the economy in the first months of 2024.

The good news is that Consumer Price Index (CPI) inflation is on a downward trend, which will probably bring overall inflation down to the Bank of England’s 2% target during the spring – a positive prospect for renewed growth – but it may well rise again over the year.

In a period of fluctuating recession like this, an investor needs to react to the state of the market but cannot simply cease all activity. To better understand how the economy works and how to handle a recession, we need to start with the business cycle.

Four Phases of the Business Cycle

The business cycle is generally composed of four different phases of activity, each of which can last for months or years. During the expansion phase, the economy is healthy and growing with share prices that can rise to all-time highs at the peak of expansion. On the flip side, prices tend to rise due to inflation but despite this, most businesses, workers and investors are enjoying the good times.

After the peak comes the contraction or recession phase, when production and employment begin to decline due to any number of reasons. Companies struggle to stay profitable; unemployment rises and consumer spending decreases in a vicious cycle of economic contraction. Markets are volatile with share prices experiencing wild swings, causing some investors to pull their money out of the stock market entirely.

The trough is the point where business activity moves from contraction to recovery. Production and employment bottom out, and stock prices start to increase after a significant decline. Troughs can be difficult to identify while they are happening, but they are recognizable in hindsight.

During the recovery phase the economy begins to grow again. Production increases, as does employment, while wages go up and consumers spend more. This allows companies to charge more for products and services, catalysing inflation that can bring growth to a halt and start the cycle again if it becomes too high. However, over the long-term most economies tend to grow, and each peak is higher than the previous one.

Being Prepared for Recession Phase

Previously, I’ve discussed portfolio diversification as an important element of your investing strategy that can be used to mitigate risks, because a well-executed asset allocation strategy allows you to avoid the potential pitfalls of placing all your eggs in one basket. Having a portfolio spread across different asset classes, industries and currencies is the essence of diversification.

Every investor’s situation is different, and your own investment choices should be made on informed decisions after extensive research into markets and assessments of risk factors. If you have clearly quantified your risk tolerance and diversified your portfolio, you should be in a good position to ride out the downturn.

If you haven’t, do it now – there’s always another recession in the future so be prepared.

Keep Calm and Don’t Panic

When recession hits, what should an investor do? Firstly, always remember that the market is cyclical. What goes up must come down, but the opposite is equally true, and downturns are only temporary. The market plummeted during the 2008 financial crisis, but it bottomed in March 2009 and eventually rose back to its former levels and well beyond.

It has also recovered from the initially brutal economic impact of the Covid 19 pandemic. Successful investors understand the cyclical nature of the market and the economy and position themselves to ride out the lows and take advantage of the highs.

So, when the value of your portfolio decreases significantly and your gut reaction is to start pulling money out of the market, you need to use your head instead and think long-term. Above all, don’t panic, because panic-selling will lock in greater recession-related losses in the long run.

This further reinforces the importance of establishing your risk tolerance in advance, when you are in the process of setting up your portfolio, and not when the market takes a downturn, and an emotional response tempts you to panic sell “before things get any worse”. It takes patience, not panic, to be a successful investor.

Is it Safe to Invest During a Recession?

During a recession, lower stock values can actually represent good opportunities for new and relatively cheap investments, but only if you have a strong enough financial position and the right attitude. During a recession, you can buy at a low and see the value go even lower just a few days later, so don’t check your portfolio obsessively every day because this can tempt you into hasty decisions and the panic-selling that I discussed earlier.

Investing in times of recession requires a truly long-term approach, so plan on leaving any new investments alone for at least seven years.

Best Investments During a Recession

While there’s no such thing as a ‘recession-proof’ investment, certain core sectors can provide insulation in an economic downturn. Consider utilities and consumer staples – people will always spend money on health care, non-durable household goods and food and beverage, regardless of the state of the economy. These stocks may not perform outstandingly in boom phases, but they are relatively stable when the rest of the economy is on shaky ground and can continue to provide steady returns during a recession.

We are investors, not economists, so understanding the business cycle is only useful if it translates into improved portfolio management and higher returns. Instead of joining the flight to safety and bailing out when recession hits, try to consider it as a time to prepare for the rebound that will inevitably arrive afterwards.

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Beyond the Blush: Beauty Tech as a Sound Investment

Feb 6th, 2024

Diversification is the winning strategy for mitigating investment risk in growing portfolios. If you’re passionate about investing in technology, you’re already familiar with rapid-growth sectors like AI and FinTech, but in the spirit of diversification across industries to minimise risk and maximise long term success, your next potential consideration could be in Beauty Tech.

The evolution of beauty

The beauty industry has evolved in parallel to cultural developments over the millennia, with a history as colourful and diverse as the wealth of products and solutions it offers today. Many traditional industries have innovated through the integration of cutting-edge tech, and beauty is no exception, now seamlessly fused with new advancements like AI and AR. At the intersection of beauty and technology, we find Beauty Tech.

While the traditional beauty and cosmetic industries were founded and prospered on an outdated ‘one shade fits all’ product offer, today’s pioneering beauty brands promote personalisation. As a result, now more than ever, consumers have a staggering number of competing brands and products to navigate and choose from. Beauty Tech is the industry’s response to this new need for a tailored, consumer-centric and often online approach in the vast cosmetic market.

AI, AR and beauty

As beauty consumers have become used to customised, online shopping experiences, AI and AR technologies have become essential to beauty brands’ innovation and digital transformation strategies. Beauty Tech may have its origins in early desk top computer paint and photo-editing programmes, but it has flourished with the development of AI and AR technology, alongside the exponential rise of the smartphone.

Beauty Tech today offers a vast range of options and applications, from AI-driven recommendations for personalised skincare solutions to AR makeup try-on experiences with custom-blended shades. These innovations make beauty accessible to all, anywhere and at any time.

If you’re interested in investing in Beauty Tech, you should keep a close eye on companies with a strong focus on innovative technologies.

The cosmetics market

The global beauty and cosmetic market is expected to reach US$ 416 billion by 2028. Recent years have seen a massive increase in the use of AI and machine learning within this sector, and the specific global market for AI in beauty and cosmetics is expected to reach US$ 13.34 billion by 2030.

Mass-scale consumer personalisation has catalysed customer engagement and fuelled remarkable sales growth for hundreds of beauty brands, further supported by a 14% growth in the global e-commerce market. Definitely an interesting proposition for a tech investor.

Is it worth investing in beauty tech?

Financial media don’t generally show much interest in cosmetics companies, and many tech investors tend to overlook them, but this sector provides a good blend of solid growth in a mature industry with dividend income.

Social media platforms and the influencer industry accelerate demand for beauty products, shaping market trends. It’s an appealing sector for investors, and Beauty Tech is already a lucrative market with more than £1 billion of equity investments over the last 10 years in the UK alone. It’s expected that North America will dominate the growth of Beauty Tech due to the expansion of the US cosmetics market and its e-commerce giants like Amazon and Sephora.

Benefits of Beauty Tech

Beauty Tech is a key driver of customer engagement, significantly improving conversion rates and order values, while reducing product return rates. It can help brands with product development by collecting and leveraging relevant customer data to identify emerging trends and gaps in the market that represent growth opportunities.

All of these benefits enable brands and retailers to make better strategic decisions and stay competitive within the fast-moving multi-billion dollar cosmetic market.

Beauty Tech provides a number of concrete benefits to brands, while providing investors with appealing investment opportunities in exciting emerging technologies. The world’s most powerful beauty and cosmetics giants are focusing on Beauty Tech. While it may not be the first sector to come to mind, it’s definitely worth investigating.

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Fintech: Reshaping the Investment Landscape

Dec 24th, 2023

In 2022, a nationwide poll revealed a striking trend in the United States: about 80% of Americans have turned to digital apps and services for managing their finances, with more than half of these users engaging with these tools daily. In recent decades, companies like PayPal have revolutionized financial transactions, while neobanks like Monzo and Atom have blazed a trail in digital-first banking. However, some of the most powerful applications for financial technology—or fintech—are actually in investment.

Fintech is also one of the fastest growing areas for venture capitalists. The fintech landscape in America is particularly vibrant, with over 11,000 startups attempting to carve out a niche in this sector—the country accounted for a staggering 53% of venture-capital funded fintech firms backed by venture capitalists in 2022. That figure has dropped to 38% as of May 2023, suggesting that the US’ dominance is beginning to ripple across the globe.

So, what do investors need to be aware of?

Fintech 101

Simply put, fintech is any form of software or technology used to support banking, transactions, or other financial services. Prior to the mid-1990s, fintech applications were primarily focused on the backend aspects of financial services. The introduction of the internet marked a turning point, ushering in the first consumer-facing financial technologies, but these were mostly static, offering limited interaction and functionality.

The true explosion of fintech, characterized by dynamic, consumer-centric applications, can largely be attributed to the widespread adoption of smartphones. This technological leap has made financial services more accessible and more thoroughly integrated into daily life, enabling consumers to engage with their finances with greater ease than ever before.

Fintech is increasingly recognized as a disruptive force, challenging the established norms of how consumers interact with financial services, revolutionizing everything from banking and money management to payment methods for goods and services.

How is Fintech Affecting Investing

The impact of fintech on the investment sector is profound and multifaceted, presenting investors with a host of new opportunities and tools, while also introducing new challenges.

Opportunities

One of the most significant changes brought about by fintech is the rise and empowerment of micro-investors. By eliminating traditional barriers such as account minimums and high fees, fintech investment platforms have leveled the playing field, and made investment accessible to a wider range of people, regardless of their initial capital or experience. For instance, social trading app eToro enables users to follow and ‘copy’ the trading strategies of experienced investors, while investment platform Robinhood has popularised ‘fractional share investing’, whereby an investor can purchase just part of a single share, further democratising the sector.

The integration of Artificial Intelligence (AI) is another revolutionary aspect of fintech, providing tailored recommendations, and making the investment process easier and more personalised. For example, robo-advisors like Betterment and Wealthfront use AI algorithms to analyse an individual’s financial goals and risk tolerance to automatically create and manage a balanced portfolio. With investors increasingly turning to AI for personalised investment guidance, this development is gradually diminishing the traditional role of financial advisors.

Fintech tools are making investment data analytics more accessible to the average investor, bringing comprehensive finance and stock information right to their smartphone. With more information, investors can make more informed decisions, reducing risk and increasing the chance of a good return. This has transformed the status of stocks, which are no longer seen as high-risk gambles reserved for experts, while fintech is also encouraging goal-specific investments, allowing investors to align their portfolios with their personal and financial goals.

Challenges and Complications Arising from Fintech

The rapid evolution of fintech has also presented multiple challenges—especially for VCs looking to invest in the sector. First and foremost, the regulatory landscape is complex, continually evolving, and varies across different jurisdictions.

Data privacy in particular has prompted industry leaders and regulators to navigate a fine line between innovation and consumer protection. Regulations—like the EU’s General Data Protection Regulation (GDPR) and Payment Services Directive (PSD2), and the United States’ Dodd-Frank Act—require careful navigation to ensure compliance. Given the rapidly changing environment, it’s key for investors in the sector to remain agile and proactive. Establishing a well-defined regulatory strategy is essential, as is consulting with legal and compliance experts.

The integration of AI in finance and investment can also present complications, raising questions about the limits of the technology and the need for human oversight. As AI systems become more sophisticated, another challenge lies in ensuring that these systems remain accountable and aligned with an investor’s best interests.

The use of AI in financial decision-making must be approached with a clear understanding of its limitations and potential risks, and ensuring that these tools are used ethically is crucial to maintaining trust in the financial system.

The Future of Fintech

There is little doubt that fintech is set to continue its trajectory of growth and influence, and as the technology evolves, it will undoubtedly shape the future of investing, both by enhancing accessibility for a wider range of people, and by providing new investment opportunities for VCs. Meanwhile, the leap forward in AI and data analysis holds the potential to transform how we approach investing, making it more personalised, efficient, and data-driven.

However, as investors embrace these technological advancements, caution and responsibility are paramount, especially when it comes to navigating the complex regulatory environment and considering the ethics of AI. Staying informed and adaptable is key, which means staying abreast of the latest developments and being mindful of the associated risks.

It’s also crucial to remember that investing in fintech is like investing in any new technology; potential returns will not be dictated by the technology itself but about how successfully it is applied and integrated. As always, investors must adopt a balanced approach, harnessing the potential of new technologies while remaining true to their sound financial and ethical principles.

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Market trends, and why it’s important to follow them

Dec 4th, 2023

In the realm of investment, change is the only constant. Today’s investment landscape is rapidly transforming, and regardless of whether one’s objectives are rooted in short-term gains or long-term growth, keeping an eye on the latest trends is essential, as it’s those trends which shape the future of finance and business.

What do we mean by trends?

Trends, whether in a particular industry or the market as a whole, signify the changes and developments occurring within a specific field. They can encompass a wide range of dynamic changes—from novel technologies to shifts in consumer behaviour – and have the potential to create both opportunities and challenges in the business world. Beyond market dynamics, trends can also be strategic, or guided by social or political targets, such as green investing and impact investment.

Take the current investment landscape as an example. It is marked by notable trends like renewable energy which continues to garner huge interest, reflecting a global shift towards more sustainable practices. Another significant (and related) trend gaining a lot of traction is sustainable agriculture, including water resource management, which not only aligns with worldwide objectives to combat climate change but offers lucrative investment opportunities. Additionally, Artificial Intelligence (AI) has recently arrived on the scene as a potentially transformative force across multiple sectors, attracting significant interest from investors, and being driven primarily by technological advancements.

Trends are not fads, or fleeting occurrences; rather they are developments that have exhibited enough staying power to potentially change the direction of a market or an industry. However, pinpointing these trends is challenging due to the multitude of factors at play—and predicting them is even more difficult.

Types of trends

Understanding the different types of trends—and, specifically, the timeframes that they operate over—is crucial for investors.

Intermediate trends are sudden changes in direction in the market, which often result from economic or political events. One example of this might be the surge in gold prices during times of economic uncertainty; another could be the dramatic increase in remote working during the early stages of the COVID-19 pandemic. Although they’re called ‘intermediate,’ in investment terms it is best to think of these as short-term, as they may only last for a few months. They are also the most unpredictable.

Long-term trends indicate sustained growth or decline in a particular market or industry, driven by deeper structural factors influencing supply and demand. Trends are thought of as ‘long-term’ if they’ve lasted for around 6 months to a year, although they also have the potential to become more established. The increasing adoption of electric vehicles (EVs) is a good example of this, reflecting a gradual but persistent change in consumer preferences and industry practices. The trend was initially driven by trailblazers like Tesla, but other automobile manufacturers have since consolidated it, while factors such as advancements in battery technology, growing environmental awareness, and supportive government policies have helped it to become established.

Secular trends (or ‘primary market’ trends) are the trends which stick around long enough to become thought of as permanent, for most purposes. They are driven by structural changes within an economy or society. These trends can last for decades, and significantly impact consumer or business behaviour. An example of a secular trend might be the ageing population demographic in developed countries affecting healthcare demand. The digital revolution that has occurred over the past several decades is another, and those who recognized this trend early on have made huge returns on their investments.

Importance of tracking market trends

Following market trends is essential for several reasons. First, it allows investors to anticipate potential opportunities and challenges, which can help them to make informed investment decisions. Second, it plays a crucial role in risk management; by identifying downward trends as early as possible, investors give themselves the best chance of minimising potential losses. Finally, understanding current trends – and what is driving them – can provide crucial insights into the future of the market. However, it’s worth remembering that markets are inherently volatile, and no one can truly predict the future.

Strategies for tracking market trends

Tracking market trends effectively requires several approaches. Utilising financial management tools, like personal finance apps or stock market tracking websites, can ensure an investor is able to access the latest prices and market data in real-time. These platforms often include multiple features like investment news, portfolio tracking, and stock alerts.

Current national and global events can have a huge impact on the stock market, so staying up to date on economic and political news is another key strategy. This includes tracking interest rates and commodity prices, as high interest rates can drive stock prices down due to higher loan repayment costs for companies. However, as always, investors should be patient and avoid making hasty decisions based on short-term market fluctuations or world events.

Listening to relevant niche media, such as financial investment-based podcasts, provides a convenient way to stay updated without having to seek out and read market news or headlines. Diversifying sources by listening to several podcasts is recommended for a more rounded view.

Lastly, regularly checking in on companies’ financial announcements, and particularly their quarterly earnings calls, can offer valuable insights. These calls will provide a deeper understanding of a company’s financial health and reveal details not included in earnings releases.

Recognizing market trends: one key part of the toolkit

While analysing market trends, an investor should be considering how to leverage these insights with two goals in mind: how to adapt to the current market, and how to anticipate and capitalise on the opportunities of tomorrow. The ability to identify and adapt to market trends can significantly impact short, medium, and long-term investment outcomes, and may well be instrumental in determining the success or failure of one’s investment strategy or philosophy.

However, understanding trends is only one part of an investor’s toolkit– albeit a vital one. While navigating through the complex and dynamic world of investment, remembering one’s core investment principles is always essential. Aligning current trends with these principles is key to paving the way for successful and sustainable financial growth.

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Should I Invest in AI?

Nov 20th, 2023

It’s the question on the lips of many an investor today. There is currently a huge amount of hype around Artificial Intelligence (AI)—and it’s easy to understand why, as the potential of the technology becomes increasingly apparent.

The integration of AI into our everyday lives began in earnest with assistants like Apple’s Siri and Amazon’s Alexa, but this was just the prelude to the main event: Generative AI. Exemplified by tools like ChatGPT, Generative AI has numerous advanced applications, and its future appears limitless.

However, alongside the excitement, there is caution. There are many unknowns, there are teething troubles to resolve, and the technology poses potentially seismic disruptions for many industries—especially for professional content creators like artists, writers and graphic designers. Investors are left weighing up whether the promise of AI is worth the financial risk, or if the current hype is just another fad in the ever-evolving tech landscape.

Too Good to Be True? Unpacking the AI Hype…

AI has suddenly become mainstream, making its way into everyday technology at lightning pace—Chat GPT became the fastest-adopted new consumer technology in history earlier this year when it hit 100 million users in its first two months. It’s therefore easy to forget that it’s still an incredibly new technology, and the burgeoning AI industry has been met with both enthusiasm and skepticism.

For its supporters, AI is not just another new technology; it’s a paradigm-shifting advancement, akin to the internet or the smartphone, with unique applications across every sector and business function. It’s true that AI is already providing powerful solutions for industries as diverse as healthcare, finance and entertainment, as well as more obvious sectors like robotics and automotive.

On the other hand, tech companies continue to grapple with persistent challenges—especially when it comes to AI language models. A prime concern is their tendency to ‘hallucinate,’ or generate false information, a problem yet to be fully resolved. In response to this particular concern, Google has pointed out that their AI offering, Bard, is an ‘experiment,’ emphasizing the importance of user fact-checking. This admission only goes to highlight the fact that the industry remains in its nascent stages.

Indeed, predictions of AI’s inevitable dominance may be premature, and both tech companies and investors would be complacent to assume otherwise. Users are unlikely to embrace a technology that continues to fail in unexpected and frustrating ways. Furthermore, there’s also a growing risk of AI tools being exploited for malicious purposes by hackers.

It’s possible that the term ‘AI’ itself may be contributing to inflated expectations. It has become synonymous with ‘Machine Learning’ (ML) in popular discourse—a conflation which can be misleading. AI is the buzzword, but it is a broad, somewhat nebulous term that doesn’t denote specific methods or outcomes with any consistency. As such, it can oversell the practical capabilities of ML—and, thanks to a lack of strategic focus, only a minority of ML projects deliver on their promise. However, if implemented with a clear focus on adding value, machine learning has the potential to make tangible improvements to business processes. Understanding a new AI tool’s precise objective and function is therefore key in assessing its value.

So, should you invest in AI? Navigating the Investment Landscape…

Deciding whether to invest in artificial intelligence requires a nuanced understanding of the landscape. AI’s potential to enhance productivity is monumental, and with predictions suggesting it could add an estimated 7% to global GDP by 2030, the short-term outlook for AI is incredibly promising. However, identifying a sound investment opportunity in this rapidly evolving and unpredictable sector remains a challenge. And for investors, it’s essential to recognize that higher exposure to AI equates to greater potential rewards but also increased risk.

Reasons to Invest

One compelling reason to invest is the anticipated high growth rates in the sector. As the workforce in AI expands and their capabilities to innovate grow, artificial intelligence is expected to become even more influential. Investing in AI now positions investors to reap potentially huge rewards from its predicted growth in the coming years and decades.

Diversification is another key consideration. If we accept the premise that AI will fundamentally reshape economic operations, then investors can expect many of their current investments to be impacted. Including AI-focused companies in a portfolio can provide a shrewd hedge against any disruption caused by the technology.

Risks and Considerations

Of course, investments in AI are not without risks. Rules and regulations pose one of the most significant considerations. National governments and international organizations are currently playing catch up with the technology, and it’s unclear what restrictions, if any, will be placed on AI. However, the industry could potentially face prohibitions, taxes, fees, or added bureaucratic hurdles, leading to increased operational costs and potentially slower growth rates for companies in the AI sector.

Another critical risk is the inherent uncertainty in emerging and disruptive markets. The mortality rate of startups and new ventures in innovative sectors is high, and separating the future winners from the losers is never a straightforward process. The AI industry is based on a very young technology, so it will be particularly challenging to identify the companies and innovations most likely to thrive and generate sustainable cash flows for their investors.

Approach the Bubble with Caution!

AI is undoubtedly a key part of the future, but it’s crucial to approach it with a healthy skepticism. As always, investors should beware of the allure of tech ‘bubbles’ and the seduction of shiny new acronyms. Sticking to fundamental investment principles—rigorous research, solid market intelligence, and trust in a company’s founders—is essential.

Transforming a nascent technology into a viable business venture is about more than just the tech; it’s a complex, messy journey of iteration and adaptation. While the full scope of AI’s potential and its myriad opportunities are still unfolding, maintaining a balanced, informed perspective can guide investors through the disruptions and towards the rewards that this transformative technology may offer.

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Getting to know the founders before you invest

Oct 16th, 2023

You’ve found an interesting startup, you’ve done the necessary research, and you feel it could be worth investing in. Now it’s time to meet the founders. This initial meeting between founder and investor is very important. Beyond being decisive for you as an investor, it also sets the foundations of the future relationship you’ll have with the entrepreneurs.

Early stages and growth stages

If my startup candidate is at the pre-seed or ‘idea’ stage, then my assessment focuses mainly on the founder, evaluating his or her background, such as educational qualifications, experience and any previous business ventures. If there are cofounders, then I’ll also look at the complementary knowledge and skills they bring to the table. Market size should always be evaluated to get an idea of future potential in the specific sector.

Once a startup has reached growth stage, then it can be assumed that it has already achieved product market fit. I would expect it to have a clear value proposition, a growing revenue pipeline with predictable sales cycles, and of course an established database of paying clients. I also assess the management team and examine the marketing strategy, distribution channels and the scalability of the venture.

With a company which is already at the unicorn stage, it’s not advisable for an individual investor to participate. At this late stage, the startup’s valuation and minimum investment requirement will be very high, while the upside potential will be relatively low. An individual investor risks having a lot of capital locked away in a company that has limited potential in terms of valuation and linear growth.

Meet the founders

As discussed in my previous post “How to choose a startup for investment”, the complex world of startup investment has immense potential but by its very nature is also characterised by risk. Even after I’ve studied the pitch deck and done my own research, I usually have further questions for the founders, to be 100% sure I’m investing in the right startup.

It’s essential to assess the management team because, to put it bluntly, if the team is incompetent or inconsistent then the startup won’t survive for long. In fact, 23% of startups fail because of management problems. Both the founders and the team must have the business-specific skills and knowledge required, and individual skill sets must complement each other. I also want to understand how strongly motivated the founders are – if they’re working on the business full-time and have no fallback option, then they’re probably very focused and hungry for success.

Market demand and competition

Lack of market demand is one of the main reasons why startups fail. This aspect is usually researched during the early development stage, but if the market research wasn’t done properly, there’s a high probability of future failure.

The founders should have clearly identified the target market and the existing problem that their product or service can solve – it’s a huge mistake to believe that a product or service can simply create market demand if it doesn’t already exist. Negligence in this respect will probably mean the company joins the other 42% of startups that fail because they underestimated the importance of market demand.

Founders should have identified the competitors, their strengths and particularly their weaknesses so these can be leveraged to gain a competitive edge. By completely ignoring the competition, a startup will probably join the 19% of failures who have made this fatal mistake. However, there must be a healthy balance between overconcern and total disregard when it comes to assessing the competition.

Founders’ questions

Startup investment is a two-way relationship. You can expect questions about your personal investment philosophy so the founders can assess whether it aligns with the company’s own goals and values. Founders usually want to know about my previous experience in their specific sector because an investor who understands the unique challenges they may have to face and has knowledge and connections in their industry can bring significant advantages.

Other aspects that founders frequently ask me about are my investment style and level of involvement, timelines for making investment decisions, funding range and exit strategy. It’s a good idea to be prepared for these questions when you go into an investment meeting.

Setting expectations

A strong working relationship between investor and entrepreneur is often key to long-term success in any business venture, so the sooner you start to build one, the better. Having clear ideas about what each party expects of the other is essential for a productive collaboration with the best possible outcomes.

A good place to start is transparent and regular communication. I want to have a clear understanding of how the company is progressing – after all, I can only help solve a problem if I know that it exists. A solid business plan is one of my key criteria when identifying startups for investment, and while this plan needs to be flexible, it’s also important that it is maintained as an organized roadmap for growth and development, as well as a reference point for decision making.

Getting to know the founders is a crucial step in the investment process, because a strong bond between investor and entrepreneur leads to a mutually beneficial relationship that will ensure the success of the business in the long run, with both sides reaping the benefits.

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Copper wire, wood base. I created this piece in late 2008. For this work, I aimed to convey both the industrial heaviness of an airplane, but also the cloudlike floating quality you feel when you’re in one.
How to Choose a Startup for Investment

Oct 2nd, 2023

In today’s dynamic market, there’s no shortage of investment opportunities, each promising its unique path to success. As an investor and entrepreneur, I often find myself navigating through this sea of possibilities, and I’ve identified a distinct set of investment criteria over the years, especially when it comes to the complex world of startups—a realm characterised by risk and uncertainty, but also immense potential.

The two main criteria

Investing in startups differs from traditional investment avenues in significant ways. Unlike established companies, startups lack a documented history that provides insights into past performance and predictions for future trajectory. Startup investments aren’t ‘safe’ and the inherent uncertainty means that extensive research and due diligence is fundamental before making any investment decision.

My criteria help me make informed decisions about which startups to invest in. A strong and detailed business model is the first crucial aspect I look for, and my personal second priority is young entrepreneurs and startups when considering where to allocate my capital. Let me explain why.

A strong business model

At the core of every successful startup lies a strong business model. This isn’t just a theoretical plan, but a detailed blueprint of the relationships between all aspects of the business and how these relationships function. It answers important questions about the target consumer of the product or service, the value proposition and the scope of business operations. The model must include an analysis of the competition in the specific market niche, as well as information about marketing strategies.

A clear and comprehensive business model injects a vital element—stability—into the inherently volatile startup scenario. It transforms what might initially seem like an enthusiastic leap of faith into a realistic proposal with a viable future that is worth backing. This very stability is what draws me towards innovative startups with sound business models.

Furthermore, a strong business model is not rigid and static, but flexible and dynamic. It can, and must, adapt to the ever-evolving market tendencies, changing and improving along the way. In business, as in life itself, adaptation is key to survival and growth.

Five Ms of startup investment

However, my research isn’t finished yet. A robust revenue-generating model isn’t enough in itself – in fact, it’s only the starting point for my assessment process. The model is just one of the ‘5 Ms of startup investment’, alongside management team, market, money and momentum. All five elements are inter-linked, influencing and being influenced by each other, and all need to be examined for potential deficiencies as component parts of a much bigger picture. This brings me to the second of my personal startup investment philosophy – the management team.

Why choose young entrepreneurs?

Young entrepreneurs driving a startup bring a fresh perspective and what can seem like limitless energy to the table. They are more inclined to disrupt the status quo, think beyond conventional boundaries and actively drive change and innovation. These qualities certainly resonate with my personal passions and my investment philosophy, but they also have a concrete impact on the startup business itself and its potential for success in today’s fast-paced hi-tech world.

Beyond fostering innovation, young entrepreneurs also have a magnetic effect on top-tier talent. Innovative startups are magnets for those who want to be part of groundbreaking ventures, creating a pool of like-minded individuals which is an incubator for new ideas and rapid development within a startup. With change consistently accelerating and modifying market needs, young talent helps a startup stay ahead of the game.

Young entrepreneurs, typically digital natives, have a natural affinity for technology and its seamless integration into business processes – a huge asset in a business landscape where technological prowess is essential for competitiveness and growth. In addition, those who have recently completed their educational pathway are open to new ideas, willing to experiment, and able to learn from both successes and failures. They also have a remarkable degree of flexibility and adaptability—traits that are as important in the management team as they are in the business model itself.

Investing in young talent

An injection of fresh, enthusiastic talent into an existing team can act as a potent and refreshing motivator, creating a positive ripple effect that enhances overall productivity and cultivates a thriving workplace culture. Where a management team is composed of both younger and older resources, a mentoring system is mutually beneficial.

The collaborative cross-generational exchange promotes knowledge-sharing, enables younger talent to refine skills and improve engagement across all levels. Young professionals who are deeply committed to a startup’s vision tend to stay the course, contributing to the organisation’s continuity and stability.

The investment journey

As you can see, investing in startups isn’t just about simple capital allocation. While it can offer significant returns, it is also a journey that nurtures innovation, embraces risk and change and provides essential support to visionary entrepreneurs shaping the future.

To start your own journey, you need to identify your own approach and your personal criteria. I’ve shared mine – what are yours?

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Current Shows ↗

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Airplane

Copper wire, wood base. I created this piece in late 2008. For this work, I aimed to convey both the industrial heaviness of an airplane, but also the cloudlike floating quality you feel when you’re in one.