You’re Wrong – Private Investing Will be Disrupted

Here is the typical series of events when it comes to disruptive innovation:

1. Incumbent ignores threat of disruption
2. Eventually admits that disruption is a risk
3. Doubles down on the most profitable business activities
4. Points to small internal projects as proof of internal innovation
5. Gets nervous and throws money at a hodgepodge of efforts, hoping that something sticks
6. Panics when that doesn’t work (potentially makes an overpriced acquisition)
7. Replaces the CEO (or someone else to blame)
8. Probably continues to lose market share

The world of private investing is walking down a very familiar path. I’ll attempt to generalize and put Private Equity in phase #3-4 as the successful funds raise more capital, resulting in bigger and bigger deals (#3) while some funds scramble to get into deals earlier (#4). Venture Capital is moving from phase #4 into #5, as VCs emphasize their “post-close value-add” (#4) and more VCs turn into venture foundries and try to become incubators (#5).