Portico in the FT: A Difficult Pivot Looms for Venture Capital

Portico’s founder, Michael Casey, wrote the FT’s Markets Insight column on 29 March 2023.

The piece argues that U.S. venture capital needs to pivot from a focus on software & consumer startups, to those advancing deep tech — and that most VC firms are unlikely to execute a pivot successfully.

Venture capital blossomed from an artisanal strategy into a behemoth over the past decade, raising $163bn last year in the US alone. But the run on Silicon Valley Bank is raising questions about the industry and its prominent voices.

While levitating on the vapour of tantalising valuation mark-ups, many of these leaders mistook the advantages of low interest rates and globalisation for their skill, and anointed themselves prophets of innovation.

In truth, the wall of cash in recent years led many VC funds to rely less on discrimination and judgment and more on playing a numbers game, investing in an array of start-ups in the hope that one delivered a vertiginous return. This has always been part of the VC playbook but it became more gamified, descending into an undisciplined play on the momentum of industry and market trends. The standards of due diligence deteriorated.

Rising rates and the collapse of SVB have laid bare that reality. Yet some persist in the belief that VC’s problems may disappear if we return to a world of declining interest rates and cheap money — that the assets in VC portfolios will return to their high-water marks; that a buyer will pay a price as dear as SoftBank’s Vision Funds have done in the past.

These sentiments are delusional. The real problems are broader. We are living in a world of deglobalisation, geopolitical competition and the elevation of resilience over efficiency. These conditions demand rapid advances in science and technology, for markets that are sub-global in scale. For many US VC firms, executing a pivot is not so simple.

Why? First …