Don't predict the Venture Capital Hype, Focus on the Acquisition

Most people don't distinguish the difference between VC and M&A. I will boil it down for you. VC sounds cool (High Risk, High Reward). M&A (Lower risk, purchase consistency). This blog is a brief description of why you should consider M&A strategy rather than evaporate an R&D stockpile.

Venture capital (VC) has long been considered one of the most attractive types of investments, driving innovation and economic growth for decades. From the technology boom of the late 20th century to the early 21st century's startup frenzy, VC has been instrumental in turning fledgling companies into industry giants. Investors eagerly poured money into promising startups, hoping to capitalize on the next big breakthrough. This period was marked by significant returns, fostering a competitive environment where firms vied for the most lucrative deals and promising entrepreneurs.

However, the landscape of venture capital has shifted dramatically in recent years. A major challenge facing the industry today is the phenomenon known as "dry powder"—the vast amounts of capital that remain uninvested. Despite an abundance of funds ready to be deployed, VC firms are finding it increasingly difficult to identify and invest in startups that can promise substantial returns. This surplus of unallocated capital has led to intense competition among VCs, inflating valuations and creating a highly saturated market. The oversupply of funds, combined with fewer viable investment opportunities, has resulted in a bottleneck where money sits idle rather than fueling new ventures.

Compounding the problem is the issue of liquidity. Many VC funds are struggling to liquidate their investments, making it difficult to return capital to their limited partners. The prolonged holding periods and challenges in achieving profitable exits through IPOs or acquisitions have left funds in a precarious position. This inability to liquidate effectively stifles the cycle of investment and return that is crucial to the venture capital model. As a result, the once-celebrated allure of VC has been tarnished, with the industry grappling to adapt to these new realities while continuing to support innovation and growth in a rapidly evolving market.

What can the small business owner learn from this?

It is extraordinary difficult to create the next moonshot of Apple or Facebook. The VC world is so crowded with finding the next colossal thing. The secret is not in the one-off invention. Between uncomfortable interest rate movement and crowding in the venture space, there lies liquidity risk. (slippage). These funds cannot liquidate these monstrous valuations if they don't have a successful IPO. So why invest in another founder's fate? Starting a new venture will be difficult over the coming 4 years, simply due to the economic conditions ahead. Not impossible, but the age of free money is on pause, for now. You will have great luck at studying existing companies. What can you observe about your competitors? Sam Walton was the master of this scope of business. Are you able to acquire your competitor? Have a friendly check in with those who compete in the same arena. What are their strengths, weaknesses, and potential gaps? I think you'll find less young people entering into the business realm. They are too distracted. That means your competitors are probably ahead or older than you. There is a massive wave of older folk and retirement arriving in the years ahead. Your competitors might be tired of doing business. You win the game of business simply by being consistent and outlasting. Huge advantage if you are young or expanding your business. VC sounds really cool, but M&A is where you can build a predictable empire. As a small business owner, you should be focus on existing spaces, marketplaces, and circles.

Ask yourself this question? How can I CREATE wealth, and what market can I CAPTURE in the process.

There is plenty of wealth creation to be found in your current arena. How can you excel in your own domain? (And RULE your domain). Something to chew on.