The new year is fast approaching for investors and many are turning to alternative investments to gain an edge. We speak with VentureCrowd CEO Steve Maarbani and Ten13 investment syndicate partner Stew Glynn to hear their take on emerging investing trends.
Q. Are there any key trends that stand out in your investing space?
Steve Maarbani (SM): Overall, there is increased interest and demand for purpose-driven and sustainability-oriented investments. When Rio Tinto destroyed an Aboriginal sacred site to expand its WA coal mine earlier this year, many investors opted to sell their shares to distance themselves from the company. This is just one example of how investors demand opportunities that are good for humanity and business founders, as well as their bank balance.
When it comes to trends related to different industries, investors are looking for opportunities to back the companies and products they believe in. Health and wellness, renewable energy, and industries that support poverty reduction are popular right now, and companies in this field are set for a period of stellar growth.
Stew Glynn (SG): There are limited world events that impact and force such widespread changes in the lives of people across the world. This creates a rare opportunity for entrepreneurs to adapt and deliver exciting new technology solutions and products that meet changing needs. As an investor, the key is to try to understand which trends are permanent and which will pass.
Some current key areas that have seen significant change include:
- E-commerce solutions have been rapidly adopted and applied to every shopping touchpoint, including grocery stores, restaurants, and direct-to-consumer fashion and furniture.
- Communication work tools such as Zoom and Microsoft Teams are experiencing a significant increase in users and the emergence of cloud-based work tools.
- In healthcare, there has been rapid adoption and acceleration of telehealth to triage illnesses.
Q. What are the top 3 things investors should consider before investing in emerging spaces and trends?
- Find out what a company’s sustainability plan is and make sure the investment aligns with your personal values.
- Always support the jockey and not the horse. As incredible as the idea is, assess the capability of the leadership team up front before choosing to back a business.
- Make sure the investment has secure intellectual property through copyright protection or patent registration. An investment must be protected by this so that competitors cannot copy what makes a company or product unique.
- The depth and skill of the founding team – Do they have unique insight, experience and courage to pursue ambitious problem sets?
- Market Opportunity – It is often difficult to understand the size of accessible and addressable markets. Some may be expansionist, like Uber or Airbnb, both of which have been successful in creating new markets. Others may be software-as-a-service (SaaS)-based, like Canva, which could seek to take market share from incumbents in native desktop tools, such as the Adobe suite.
- Market Timing – Often the question to ask is: why now? Too early and technology or market adoption may be ahead of its time. Too late and the opportunity is already being sought by better funded competitors or incumbents.
Q. What changes have you seen in investment behavior since the pandemic?
SM: The pandemic has reminded us that our world is fragile and now more than ever, we need to take care of it. At the start of this year, investors sat on their hands and avoided spending money unnecessarily for fear of the possibility of a difficult economic climate. When the economy didn’t implode as many thought, there was a renewed drive to support sustainable and ethical businesses.
We are fortunate in Australia that the economy is strong, and the investment community is regaining its appetite for high growth companies that can deliver high returns. This can be attributed in part to high-flying investors cutting spending on things like air travel and other activities that were banned during the lockdown, and the better-than-expected economic recovery supported by spending and government initiatives.
OS: There is currently a greater appetite for technology investments. Public markets showed a run towards fast-growing tech players such as the majors, i.e. FAANGs, but also on the NASDAQ, which is an index skewed towards smaller-cap tech growth stocks . This change has been observed because the adoption of the technology has intensified across many verticals given the flow and changes created by COVID-19.
Investors have also extended their investment range outside of their usual cities and places of travel. They are now willing to make investments without meeting in person, which greatly expands their addressable investment market. This is exemplified by the fact that we are now seeing international investors from the US and Europe entering the Australian market looking for great companies to back.
Q. Why do you think that is?
SM: Investors seek high growth opportunities driven by a strong sense of purpose. The pandemic has forced the world to come together in a way that has never been done before, and for the first time in modern history, every person on the planet has been affected equally. We have been forced to face the pandemic as a collective, which has caused many people to change their perspective and turn to ethical investments that go against traditional investment options.
OS: Technology has outperformed all other asset classes thanks to the changes brought about by the pandemic. The NASDAQ, which is heavily weighted as a tech stock, has outperformed the more industry-focused Dow by more than 20% this year. This really demonstrates investor interest in the tools and services that are being used during the pandemic for work and play.
International investing is also showing great potential for returns in emerging markets with big tech players being built in Latin America, Southeast Asia and Africa. Increased saturation in larger, mature markets will mean more opportunities to take known solutions or business models and adapt them to national markets.
Q. Any advice for investors heading into 2022?
SM: My main advice would be not to accept sub-optimal returns on your investment dollars. With a wide range of innovative companies and alternative assets on the market, many traditional investment opportunities, such as bonds and stocks, simply don’t compare. There are amazing entrepreneurs across the country who are doing great work, and it’s important to seek out these people and find out how you can get involved to support them.
OS: Considering the huge amount of change we have witnessed this year alone; be adventurous with where you place your interest and time. Often the opportunity lies off the beaten path.
We also need to be cautious about the entry point for valuations. Yield is currently much more difficult in mature markets, there is an abundance of capital available and investors are pushing the risk curve higher in search of better returns. This means that valuations are above historical norms and may not reflect long-term sustainable levels.
Main image source: WAYHOME studio (Shutterstock.com)
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