There’s a view that coming into 2023, or by the second half of 2023, valuations and entrepreneurial mindsets will have reset.
Dr Michelle Deaker is the founder and Managing Partner of OneVentures, one of Australia’s largest VC firms. The business has almost $800 million in assets under management and has a focus to support women across all parts of the firm and the venture capital investing landscape.
Deaker thinks the current climate could lead to enormous creativity across sectors and industry in 2023, particularly in healthcare, AI, personalised medicine, the metaverse, and supply chain and logistics disruption.
“When I came into VC, I was one of the first women in Australia to launch a VC firm. It was unusual then. And still, even when you look at the market today, there are more female-led firms, but there is still a majority of male-led firms and so there’s still a need for change.
“Women tend to get to a certain level and then often leave, fall away. That can be cultural driven reasons. Sometimes it’s family driven reasons. They’re making some lifestyle choices, but there’s no acknowledged pathway of that. It can be because they feel they hit a glass ceiling and they don’t know how to move beyond that, and then they start thinking about their career progression,” Deaker says in an interview with Forbes Australia.
The AIC, the Australian investment Council, has been working very hard to try and correct this, she says. “They’ve brought out a diversity, equity and inclusion framework that goes beyond that to include belonging and they’re trying to make sure that both venture capital and private equity firms sign up to that.
“As a firm, we have our own policy. OneVentures is highly unusual, because we have gender parity across all levels of the firm, partner level, investment teams. In fact, I think our investment teams are slightly skewed women. It’s because we don’t have any preconceived idea around what a candidate should look like. We’re looking for the best people for the role, first and foremost and then we also think about drawing from quite diverse backgrounds.”
Deaker explains that with a few other female-led firms, OneVentures formed Women in VC this year. There were a few key goals for Women in VC to foster the success of women investors: through sharing of information, collaboration, providing support networks, attracting women from diverse backgrounds, not necessarily coming from the strictly traditional background, but people who might have transferable skills that you can bring into the industry and encourage them into the industry, Deaker says. “We want to raise the profile of women-led VCs because we find that a lot of women leading VCs don’t necessarily get the same media coverage and profile as some of our male their peers.”
“The last point, what we’re trying to do is to see the development of more female ownership in firms. You’ll often find that the glass ceiling can be set because the owners of the firms are male. And there’s no pathway to ownership or shareholding in those firms.”
The importance of diversity
Deaker says the best quality of thinking is what drives top performance. “If you don’t have diversity in your teams, you’re not going to see that. We even also see more women led businesses as a result, I believe. So that also supports female entrepreneurs trying to raise capital for their businesses. We’re solving a problem there too. Ultimately, we want our funds to perform because we’re a performance driven organisation, by having diversity and the diversity, by the way, for us is broader than just male, female gender. Diversity of thinking ensures we have the best possible performance and decision making in the investments that we select, as well.”
OneVentures has been operating for about 12 years and has about $800 million in assets under management.
“I think if you’re not looking at people from those diverse backgrounds, you may actually miss some really big global opportunities that are highly bankable and can generate great and successful outcomes.”
– Dr Michelle Deaker, founder and Managing Partner of OneVentures
“We’ve invested in more female led businesses than I think all our peers. So OneVentures has won the diversity and inclusion award four times. Out of the five years they’ve run it we’ve applied four times. It has to do with what you’re doing within your firm, but it also has to do with your portfolio companies, and also their policies and processes, and beyond that, so diversity of leadership and management, diversity within the workforce, as well.
“Women need role models. I definitely believe that women need to see where they’re going to so there’s the female voice in the boardroom, there’s the female voice in the decision making, and for female ownership, so they actually feel ownership. One of the things that I think by having a profile, it allows me a platform to actually help support and create some of that role model for the future generations to come through.”
Experience has shown Deaker that people from diverse backgrounds see different problems that they’re trying to solve. “Ultimately, we’re looking for big problems to solve. We’ve got a company that’s trying to find a cure for fibrosis, a woman-led business, and a massive, underserved global need.
“I often find that in female-led businesses, there is some common good outcome that they really want to see. They’re very purpose-led and driven. Often more than men, but not always, but, you know, it’s definitely a strong thematic for women. They like to see a need and they’d like to solve a problem as part of the business that they’re generating and delivering on.”
Deaker says, “We have another company that was working in a fem-tech area, to create a technology to help women with menopause and post breast cancer. They had sought investment through many firms, including in the US, and I found that were largely pitching to men who didn’t understand the size and magnitude of the problem.
“So that’s another reason why you want diversity, but then it could be an entrepreneur that comes from an Indian heritage background, and they’ve seen a massive problem in their own country, which is a huge unmet need in the way their hospital systems work perhaps needing to drive much greater efficiency to service the large populations.
“I think if you’re not looking at people from those diverse backgrounds, you may actually miss some really big global opportunities that are highly bankable and can generate great and successful outcomes.”
If you just want to look at male and female, you could be missing 50%, Deaker says, but then “if you don’t extend into other areas of diversity, and whether that’s different cultural backgrounds, different ethnicities, different sexual orientations, and ages because some people are quite ageist, they won’t look at a business that has a 60-year-old managing director or founder and actually they might be the best business ever because those people have a huge amount of experience”.
Where’s the money going?
In 2022, there was a huge amount of capital in the market, but when the war in Ukraine broke out, and there was rising inflation, a lot of capital was pivoted back to value stocks and also moved into lower risk asset classes, Deaker acknowledges. “So, the market went from being risk on to risk off almost overnight. That meant that we’re now back seeing the amount of money deployed into VC almost at the same level per quarter as pre-Covid times. We’ve sort of seen it normalise.”
“What we actually found was there was almost too much money in the market the last year or two, and that was driving very frothy valuations. There was a bit of a bubble happening. I wouldn’t compare it to the bubble of 2000. I think it was a different sort of bubble. We’ve got very good companies here, very good underlying business fundamentals, but there was just too much money, and it was too cheap.
“We’re reserving more money for our own portfolio companies, and obviously, there’s a view that coming into 2023, the second half of 2023, valuations and hopefully entrepreneurial mindsets would have reset somewhat.”
“Now we’ve had that swing to risk off, which means that a lot of people have pre-committed a lot of money, so there’ll be a while before that sorts out. We may move into a period where there’s more capital scarcity, and most VC managers are preparing for that capital scarcity. We’re reserving more money for our own portfolio companies, and obviously, there’s a view that coming into 2023, the second half of 2023, valuations and hopefully entrepreneurial mindsets would have reset somewhat.
What are the coming trends?
The optimisation and AI will continue because as businesses start to tighten their belts, they’re going to be looking for efficiencies, Deaker forecasts.
“The way to get efficiencies is to drive automation for better decision making; more efficient decision making. You need platforms that do that, so more SaaS type businesses that create business efficiency, and in particular, more specialised platforms, what we might call vertical SaaS, that just target one industry niche problem that’s still a big problem, but just hasn’t been tackled yet.”
Deaker believes there will be more investment in a changing workplace, after Covid “completely unravelled the workplace”. She sees a big opportunity in collaboration tools. “If you’re going to have a fully remote workplace, for example, how do you do that? I don’t think anyone knows how to do it well, yet,” Deaker says.
The changing workforce will create new issues to solve such as how do we maintain wellbeing?
“There’s going to be a couple of really big problems. We’re going to have sedentary people, and we’re going to have lonely people in the workforce, who don’t feel the same connectivity to their peers as they used to. I think there’s going to be a lot of problems that technology and investment can help with.
“Sustainability is going to continue to be a big area. That’s across food security, it’s across clean energy. Agriculture – there’s a lot of areas there under that sustainability framework – new types of food, new foods.”
Deaker says OneVentures also likes personalised medicine and genomics and expects more development into personalised medicine, with more wearable devices that people will have to monitor their health.
Investment could also increase into areas around data, trust and security. ” We’re seeing more and more personalised information out there on the web. People feel invaded, I think it would be fair to say, and people don’t know how to control it. So being able to rebuild trust, be able to manage that data securely, and businesses that play into that space, I think will have a really important role and continue to get investment.”
Automation and autonomous vehicles will “continue to be an ongoing trend”, whether in the form of drones or more technology for cars and the automation of supply chains.
“I look back at the times in my life where I was actually my most creative and it was when I was having career changes. People are most creative when they’re pushed out of their comfort zone.”
The increasing need for resilience and security of supply chains will drive investment there and in logistics, Deaker predicts, with investors looking for ideas that discover areas that are yet to be disrupted.
There’s a massive need for resilience in the supply chain and people that can deliver that and deliver solutions around that, Deaker says, particularly around prescription drug delivery.
“One more thing I think is interesting is the metaverse. I know there’s been a lot of talk and hype about it, but if you just look at the young generation, they live in a connected world and it’s only going to continue. As investors we do think five or 10 years out but we’re already starting to see things like, as an example, we have a portfolio company in digital VR broadcast, and they’ve just done Fashion Week in the metaverse.”
“Now you can have a million people turn up to your catwalk for Fashion Week and do it through the metaverse. I think we’re going to see more of that. Who the winners are going to be and the losers, I don’t know. There’s so much potential; so much possibility, but there’s also so much unknown.”
Deaker believes a change in sectors and industries being funded will be an interesting development over 2023.
“I think we will see the emergence of some really substantial companies next year. Because obviously when markets go into decline, and there isn’t capital free flowing, the best performing companies still manage to attract capital and really move ahead. Out of every downturn, you actually see the next generation of quality companies come through.
“There’ll be a flight to quality for investors. There’ll be really looking to invest in the next high-quality opportunity that’s coming through. And those businesses will continue to get funded. And then probably what we’ll also see is some M&A (merger and acquisition) type activity happen. Companies that do manage to get funding will start looking to acquire new products or new geographies to expand their footprint and a lot of the smaller companies that may be struggling to get funding will come to market and decide to sell their businesses.”
With redundancies in so many of the tech companies, it frees up people resources, who could be needing to find an alternative for themselves. Deaker notes that her career went from being a technology entrepreneur who decided to set up a VC firm.
“I look back at the times in my life where I was actually my most creative and it was when I was having career changes. People are most creative when they’re pushed out of their comfort zone.”