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Venturing on: Why and how to invest in global innovation
On Monday 20 th January 2025, while the world’s eyes were trained on Washington and the inauguration of Donald Trump, Chinese start-up DeepSeek released the latest iteration of its generative artificial intelligence (AI) chatbot. And while Mr Trump kicked off his second term in the White House with a deluge of executive orders, the ripple effects from DeepSeek’s launch soon similarly began to make waves on markets.
We’ve written about the immediate response to, and ramifications for investors of, these events already. What is particularly interesting in a private equity context, is how these events underscore the broad, global innovation that is happening at pace in this most disruptive of sectors, much of it financed by venture capital (VC).
Beyond the headlines, it is the dynamism and innovation of start-ups with bold ambitions to disrupt the status-quo that is the main attraction of venture investing. It happens around the world, throughout market cycles, and offers the promise of generational opportunities that can turn into the very biggest investment wins.
OpenAI, the company whose AI models are most directly challenged by DeepSeek, itself began life as a small upstart start-up, albeit one with big ambitions and rich backers, among them Elon Musk and current CEO Sam Altman, himself a serial venture investor. At the end of January, and in spite of the market ructions, it was revealed the company is in talks for a new funding round that would value the business in the region of $300bn (source Financial Times, January 30, 2025).
That may sound like a big number for a pre-profit business, but the potential of the technology is clear and era-defining. The same was true of companies that now make up eight of the top 10 most valuable public companies, with notable VC firms among their early investors. These investments have generated phenomenal returns for the venture backers equating in many cases to three-figure multiples of the first institutional financing.
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