The "who," "how," and "what" of venture investing have changed dramatically over the past 100 years. Thanks largely to innovative technology that makes it easier (or sometimes harder, but always more mobile) for VCs to do their job. 

Let's glance at the past and future of the tumultuous relationship between venture capital and IT.

Leap of faith into technology's arms

Venture capital and technology have gone hand in hand since the middle of the last century. At the time, the American Research and Development Corporation (ARDС) showed that financing businesses beyond the 100% guaranteed payback, such as industrial plants and agricultural farms, was worthwhile. 

ARDС drew the attention of global investors to high-tech, completely new, and, therefore, risky undertakings. In 1957, ARDС invested in the emerging computer company Digital Equipment Corporation (DEC) — and within a few years, the initial investment of $70,000 grew to a staggering $355 million. It was a bold, innovative move that set a precedent and forever linked venture capital and technology.

Demand was thrust by technological advances — the advent of personal computers, then the arrival of the Internet and social media changed everything. Check out the growth (take the US as an example):

• By 1980: 30 VC firms managing $3B
• By 1990: 650 VC firms managing $31B
• By 2008: 800 VC firms managing $260B
• By 2021: 1,300 VC firms managing $444B, and $120 billion in dry powder (i.e., capital that has not yet been invested in startups)

During this period, technology could lift venture angels to heaven, as well as easily drive them into the abyss. At the turn of the century, the dot-com crisis stood out as one such prominent example. Although the industry survived the Great Recession of 2008, the Covidien Shock, and the bellicose 2022, it was the dot-com bubble that snatched the rose-colored glasses and taught (at least should have taught) the VC players to be more cautious.

In the early 2000s, Internet companies sprang up like mushrooms after a rainstorm, eager to grow at any cost and capture the market as quickly as possible. To do so, they sold below cost and willingly spent huge sums on advertising — and venture capitalists, dazzled, happily backed them, counting on a quick return.

The lack of profits didn't bother investors because the market was swamped with analysts and media promising a bright future: In five years, from March 1995 to March 2000, the Nasdaq index rose 500%-600%, and the number of Internet users increased from 57 to 430 million, according to the World Bank. In the end, the technological fairy tale ended in a bloodbath.

The story of Pets.com, an analog of Amazon for pet owners (incidentally, Amazon owned half of this company), well illustrates the scenario at the time. Shortly before going public, Pets spent more than a million dollars on a thirty-seconds video aired during the 2000 Super Bowl. And to attract customers, it offered discounts and sold goods for even less than their cost. So while the business functioned and was in high demand, the perceived success didn’t translate into profitability. In its first year, the company made $619,000 and spent almost $12 million on advertising. And its stock fell from $11 to $0.2 a share in 9 months.

A Pets mascot at the 1999 Macy's Thanksgiving Day Parade. (Image: Fandom)

Faster than to say "unicorn"

We would like to say that venture capitalists have since learned their lesson and are more sober about the prospects of the companies they back.

But so far, the news does not point to a recovery. By 2021, venture capital money had swelled to unprecedented levels, "a surge that should have given investors a pause," as Jeffrey Pichet Jaensubhakij, the chief investment officer of GIC, one of Singapore's sovereign wealth funds, would later say. But it didn't, and euphoria returned to the market. 

So the venture capital world is already experiencing the consequences of the hype around blockchain, web3, and AI. In 2022, big techs started laying off people in droves, the Nasdaq plummeted again, and FTX, the world's second-largest crypto exchange, like Binance and Coinbase, went under. And a few months ago, Silicon Valley Bank, the bastion of tech startups and the 16th largest bank in the US, collapsed.

Image: Imgflip

This is by far not a classic bubble but rather a mix of inflationary, geopolitical, and epidemiological distortions. Anyway, according to CB Insights (and many other solid analysts), venture capitalists have grown more cautious after a decade of bullish growth.

Indeed, global venture capital funding reached $58.6 billion in Q1 2023, down 13% sequentially, shows CB Insights. Granted, that's already a slower rate of decline than Q4 2022 and Q3 2022, when the drop was 18% and 31%, respectively. This means that the end of the venture winter may be closer than it seems. 

Image: CB Insights

The same technology will help us return in the spring with renewed vigor and clearer investor minds. You might say it's naive to think so, but we at Uniborn are truly convinced — and here's why.

Twenty-five years ago, if you wanted to buy shares in a super-technology company, you had to go to the stock exchange or talk to a broker on the phone. It was not until the 1990s that venture capitalists began to exploit the innovations they or their predecessors had backed. And until the last few years, VCs' IT tools were limited to email, Excel, Zoom, and 25/8 surfing on Twitter and Facebook.

Well, now smart AI models can crunch mounds of data faster than you can name all the unicorns born in the first quarter of 2023 (and there are only 13 by the way). And identify potential investment opportunities that humans might miss. It's like having a personalized Sherlock Holmes, only without the pipe (although that would be pretty cool).

Of course, the AI boom, in its turn, generates extremes of varying degrees, from unreasonably high expectations to the idea that AI will replace humans in the VC industry. But we know the truth is somewhere in the middle.

Do-it-yourself investor era

So why do we at Uniborn believe that technology will now be sobering and helpful rather than intoxicating and seductive? It's because thanks to modern inventions — especially AI — investments are becoming:

• More effective

Too many investors have had their dreams shattered by focusing on the short term instead of the long term and relying on chatter instead of data-driven results. In contrast, intelligent systems and advisory bots can help you manage your portfolios and make better decisions.

Here's a piece of proof:

1. ML models excel at deal screening, matching the accuracy and recall rates of top investors (with their 80% efficiency) while outperforming the run-of-the-mill investor by 30%-40%.
2. AI and data analytics will dominate startup valuations by 2025, adding up to more than 75% of reviews.
   
3. GPT-4 generated pitch decks double the persuasion power of those created by humans.
   

For more numbers and sources, see our article on how large language models can make investors' jobs easier.

• More accessible and inclusive

Thanks to new-generation apps and platforms, private investors can now access information and opportunities that were once only available to professional traders and the wealthiest investors. On this topic, check out our thoughts on how VC investing is opening up to regular people without possessing incredible connections and deep pockets. 

And this is not the end of the transformation. Over time, do-it-yourself investing will become so ubiquitous that every internet user will act as a microventure investor.

However, the numbers are already impressive. (Image: World Economic Forum)

Cover image: Unsplash