GCC investors are seeking alternative asset classes such as venture capital to further diversify their portfolios beyond real estate, fixed income, and listed equities, a webinar hosted by Kamco Invest heard.

“Ultra-high-net-worth individuals and family offices are looking to follow sovereign wealth funds by investing in tech-companies abroad,” said Fahad AlSharekh, founder and managing partner of TechInvest, an advisory firm that provides investors with early and growth stage investment opportunities in US tech companies.

The COVID-19 pandemic has transformed the venture capital scene from an unpredictable state to an opportunity filled industry led by the fast-tracked shift towards digitization, said Faisal AlOthman, director of Third-Party Solutions at Kamco Invest, who moderated the session.

As quarantine and isolation protocols were implemented worldwide, the effects have proved to have a positive impact on the technology sector, he said.

A major concern with the ongoing pandemic was the impact it would have on exits from VC-backed companies. However, not only did high-profile exits continue in 2020, but they also increased liquidity to new levels. The total exit value in 2020 amounted to $290.1 billion, exceeding the total value in 2019 over 1,101 exits. While IPOs, M&As and buyouts were active, enormous IPOs drove the record exit value.

Opportunities and risks

Jake Zeller, partner at AngelList, said that when looking at venture capital, the focus is on the areas where all the returns are happening and that is usually a few outsized examples that drive all the returns. He preferred investing in a single opportunity like Doordash, Uber or Snowflake where returns are concentrated and capable of achieving gigantic scale versus other 100 startups that end up being irrelevant.

His platform for startup investing supports over 2.5 billion in assets under management with 77 unicorns in their portfolio.

The panelists agreed that the risk of venture capital is overstated and based on historical data that goes back to the 90s with 51 percent loss ratio and 65 percent impairment ratio. Today the average loss ratio is closer to 20 percent and performance could be higher if working with good managers and calibers.

This makes venture capital as one of the best performing asset classes as the risk factor decreases and the possibility of higher returns increases, they said.

In 2020, a total $73.6 billion was raised, higher than the previous record in 2018 of $68.1 billion. Some of the main factors that led to the record amount were the shifts in industry dynamics, accelerated technology adoption rates, and role of technology in enhancing life during the pandemic, in addition to a strong IPO market.

VC firms raised 44 mega-funds in 2020 consisting of $500 million or more, nearly double the 24 funds closed in 2019.

Venture capital industry has evolved since 2000, and fund managers are implementing a more rigorous, risk-managed assembly of companies, said Ihsan Sancay, executive director of Private Equity at Kamco Invest.

The funds are surrounding themselves with “incubator” forums and core communities of advisors, as well as setting aside capital for follow-on needs, he said.

(Writing by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com

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