The venture capital industry has been a catalyst for innovation and job creation in the United States and around the world. Over the last couple of decades, venture investments in innovative companies have been instrumental in providing insights into public market trends and future public equity investment opportunities.
With the acceleration of innovation and availability of capital, the longevity of successful companies has never been shorter. In 1964, the average tenure of companies in the S&P 500 was approximately 33 years. As of 2016, that number has decreased to 24 years, and S&P 500 forecasts the average shrinking further to just 12 years by 2027.
Over the last couple of decades, the largest companies in the S&P 500 have been replaced by new venture-backed corporations. Our research of the top companies in the S&P 500 over time highlights that the shrinking lifespans of companies are in part driven by technology shifts, economic downturns, and continual business model innovation.
As the S&P 500 average lifespan continues to decrease, we believe that the emergence of Amazon vs. traditional offline retailers and AirBnB’s displacement in the hospitality industry provide compelling public market opportunities now and in the future.
Amazon vs. Brick and Mortar Retail
A decade ago, the future and growth of offline retail looked bright. Amazon was valued at a mere $17.5bn, while some of the largest brick-and-mortar retail companies including Sears, JCPenney, and Macy’s accounted for a majority of the retail market share.
As investment in venture capital has indicated, disruption often comes without warnings. Over the last decade, offline retail sales have fallen significantly, and retailers have shut down department stores as consumers have increasingly sought to purchase goods online. The figure before showcases, how the industry changed between 2006 and 2016 and further highlights venture capital investments’ significance in providing market insights. It’s worth noting that Walmart, the best performer among retailers, has also been the most aggressive with its online strategy, having recently acquired Jet.com, Bonobos, and Moosejaw, among others.
While venture capital can be difficult to navigate, the implementation of a consistent and focused strategy can provide strong portfolio returns and future public market insights into the economy. If you are interested in learning more about the role of venture capital within family offices, feel free to contact us at email@example.com.
Originally published in the February 2018 LVAM Newsletter.