Death of The Global Corporate
Big companies cannot innovate but why?
“Even the very best large companies operate by a set of procedures that make them good at harnessing “sustaining technologies” (the new technologies that help make existing products better) but terrible at identifying and capitalizing on disruptive technologies (the new technologies that usually emerge at the margins of an existing market but eventually stand to remake it)” The End of Power, by Moisés Naím
Step-change Innovation displaces incumbent technology. This will continue to be conducted by smaller businesses and the trend will continue.
- R&D Intensity for large corporations has stagnated;
2. M&A activity continues to flourish
- Global M&A deal value (US$tn) has nearly doubled from $2.7tr to over $5tr from 2010 to 2015.
- Biotech – Across US/Europe since 2010, total deal value has risen from $60bn to over $100bn, as big pharma finds acquiring innovation more effective than fostering R&D in-house.
3. Corporate Venture Capital (CVC) activity has boomed;
- Global actively investing CVC groups has increased from 389 to 780 since 2010, and the number of new CVC groups establishing has risen from 35 to 107 since 2011.
- From 2012 to 2016, UK CVC investments ($m) has increased from $313m to $1.1bn, and the number of deals has increased from 28 to 62 during this period.
Why have SMEs Flourished?
The proliferation of disruptive technologies and the convergence of innovation has driven down the barriers of setting up businesses, allowing smaller entities to have a global reach.
Convergence of Innovation
“With research and development capital flowing more freely to more locations and less and less up-front investment required in physical plants, scarce inputs, communications, and marketing, the dilemma is poised to relentlessly grow, not decrease, in intensity.” The End of Power, by Moisés Naím
Notable UK Example:
What they do?
Use machine learning to enhance visual processing on web, desktop and mobile. Founded by two Imperial College Graduates who developed algorithms that create high-quality videos from grainy footage.
From humbly registering Magic Pony in 2014, to selling their business to Twitter, the publicly listed social-media platform, in 2 years with just 11 employees and a staggering 80 times increase in valuation, illustrates the power of UK innovation and the global hunger for it.
“Traditionally, Innovation has been carried out in silos, such that Technology, Media, Life Sciences and Communications companies have had their own cadence of growth. In the last 10 years, however, a new series of enabling technologies have been created; thus building new eco-systems, which will lead to convergence and overlap between these sectors. This will continue to drive down the barriers to company formation and allow smaller sized businesses to generate the lion’s share of innovation output over the coming decades.” Hitesh Thakrar, Director at LBA Venture and Venture Partner at Syncona
About LBA: One of the most well established private investor groups in the UK having supported early stage companies since 1982. LBA has been deploying FCA regulated EIS funds since 2010, and in order to further support the proliferation of innovation across the UK, LBA is now raising a £2.5m “Scale-up” Fund.
About Syncona: Syncona Partners LLP was founded as an independent subsidiary of the Wellcome Trust in September 2012. Wellcome created Syncona in response to the lack of patient capital in life sciences in the United Kingdom, with a long-term vision of building sustainable life-science businesses around highly-innovative academic science.