Twitter’s valuation trend on the public market is an interesting case: its market capitalization fell from its $40 billion pick in 2013 down to $10 billion recently, lower than the valuations of some private companies like Pinterest ($11 billion) or Snapchat ($16 billion). Such a fall in Twitter’s value might be led by the company’s fundamentals; still, data show that the number of private companies’ investments valued more than $1 billion has grown significantly, while the number of divestments exceeding $1 billion remained almost stable and even decreased in 2015. More precisely, in 2015 the number of private investments above $1 billion in value was 79, against 19 divestment above $1 billion. PitchBook’s data also show that 2015 recorded the lowest value of total divestments in software companies since 2011.
Digital entrepreneurship seems therefore threatened by a potential new speculative bubble in the late stage, venture capital business. The soar of investments in late stage venture rounds by hedge and mutual funds recorded in 2014 and 2015 could be a signal in this direction1. This does not necessary mean that the golden age will turn into a dark one, but highlights the need of going back to the fundamentals of the real economy. More generally, a recent McKinsey study shows that returns from equity and bond investments in the next 20 years might be lower than in the 1985-2014 period, as real macroeconomic and business conditions have significantly changed. Based on this scenario, how can we therefore find the golden nuggets in the digital entrepreneurship that can really create value based on their fundamentals?
The Open Innovation 2.0 framework and its Quadruple Helix Model can represent an appropriate answer. User-oriented businesses, developed in a collaborative environment linking corporations, citizens, academia and government bodies, offer higher chances of value creation, as they can be established being grounded on real market needs (both B2B or B2C) and find a friendly ecosystem to growth. More precisely, market driven business models, with early stage involvement of corporations, are the key ingredients for the successful growth of a startup company. The steady growth of corporate venture capital is a positive signal in this perspective: early stage investments led by corporations grew from 22% of total venture capital investments in Q1, 2015 up to 27% in Q1, 2016. The combination of longer term investments, with respect to financial standards, and industrial approach of corporate venture capital might represent an interesting area for future innovation policies in the EU: a starting point for rethinking the traditional venture capital fund model, which might be among the causes of present and past speculations.
The European ecosystem has the potential to exploit innovative ideas in digital entrepreneurship at global level, grounded on basic economic fundamentals. In future, we would see consistent financial returns only if supported by real economic ones: this could be achieved leveraging market-driven projects, flanked by corporations since their early stages, and pioneering the design of new approaches in venture capital.
The content of this opinion piece does not reflect the official opinion of the European Union. Responsibility for the information and views expressed therein lies entirely with the author.