Striking a Balance in Venture Capital

In the world of venture capital, generalist firms have long dominated the landscape, leveraging network effects and capturing the best deals. However, a shift is occurring, accelerated by changing market dynamics, where specialist firms are gaining prominence. Having been through many market cycles, I continue to see the benefit of this shift and argue for a hybrid model that combines the strengths of both specialism and generalism, which will be crucial in addressing global problems and creating unprecedented investment performance.

The shift will serve both investors and operators well in this macroeconomic environment; for whatever it’s worth, I also think it’s exactly what our planet needs.

The age of “[x] but online” investing is over, and not a moment too soon.

The urgent global problems that private markets need to solve now are just way more complicated. Solving them – and capturing the massive profits those solutions can create – demands equal parts huge ambition and deep domain expertise.

We’ve built Anthemis with those opportunities in mind – as a hybridization of that long standing dichotomy between specialism and generalism. Our thesis and approach allow us to simultaneously capture the unique benefits of a specialist investor, without losing the addressable market and diversification of a generalist.

The financial services industry, the world’s largest by earnings, is continuously evolving and remains fragmented, with no institution holding even a meaningful plurality of global market share. As industries, geographies, and demographics begin to adopt digital financial services infrastructure, promising opportunities emerge daily.

Consider these statistics: The Americas have 11,651 FinTech startups, the most globally, with a staggering $239 billion invested in FinTechs in 2021. In 2022, the Americas attracted over 40 percent of total sector investments, solidifying its position as the leading region for FinTech investments. (Statista Research Department, May 16, 2023)

Bored Apes and ride-hailing might be global and universal, but so is customer loyalty, cash management, insurance underwriting, the desire to build wealth and retire with dignity.

Outside of life sciences and climate, there’s no other sector with so much opportunity combined with such high experiential barriers to entry, combined with such massive addressable global markets. A new class of venture firms is optimizing around precisely that array of unique structural attributes – and leveraging them to create unprecedented investment performance.

In industries as diverse and expansive as finance, a purely specialist or generalist approach can be limiting. Specialists can drill down into the intricacies of financial innovations, but understanding (and profiting from) broader economic and technological shifts is quintessentially a generalist’s strength. And while generalists can capture macro trends in global finance, the nuanced expertise required to evaluate, say, a niche insurance product’s viability is a specialist’s domain.

It’s no coincidence that three of the most resilient sectors for venture investment in 2023 have been financial services, health care, and climate. In health care, a balance between general knowledge of healthcare trends and specialized insights into biotechnologies or telemedicine platforms can be the difference between spotting a unicorn and missing out. In climate, specialists bring a nuanced understanding of the interplay between technology, environment, and market dynamics – discerning truly transformative solutions from the merely incremental, and ensuring that capital is channeled into ventures that promise genuine, scalable impact.

This shift isn’t just a strategic advantage; it’s a moral and social imperative. A more holistic and interdisciplinary approach will revolutionize the venture capital ecosystem and, by extension, the nature of innovation and problem-solving at a global scale.

Investing in a complex world demands an approach that encompasses social, technological, economic, and environmental aspects. This is where the hybrid model shines. Imagine a venture capital firm equipped with specialists in AI ethics, blockchain technology, clean energy, and public health. Such a firm could evaluate investment opportunities not just based on their potential for financial returns, but also their societal impact, regulatory landscape, and long-term viability.

This sort of multi-dimensional analysis would be difficult to achieve with either a purely specialist or purely generalist approach. Generalists, with their broader perspective, can foresee how different sectors intersect and influence each other, while specialists can provide the depth of understanding needed to evaluate each opportunity on its own terms. The two combined can create a symbiotic relationship, elevating the entire investment process into a more strategic, insightful endeavor.

Not only do these hybrid venture capital models serve the goals of investors and entrepreneurs, but they also align well with emerging consumer demands and societal expectations. As we progress further into the 21st century, consumers are increasingly demanding that companies are not just profitable, but also socially responsible and sustainable.

Investments that don’t account for these factors risk obsolescence.

The future belongs to firms that can seamlessly meld the depth of specialization with the breadth of generalization. This is the way forward for venture capital, and by extension, for addressing the myriad challenges we face today.