The Agenda 👇
- Applauding Rocket Internet’s contribution to the tech world 👏
- How much does a VC firm’s ecosystem drive its returns? 🤔
- Value investing might be a thing of the past 👀
- You still need to learn more about China 🇨🇳
👏 In Praise of Rocket Internet 🇩🇪
I wrote quite a lot about Germany over the past months, and my take is rather negative. The country as a whole is confronted with economic challenges, needing to reposition its export-led economy in a more fragmented world. It also faces demographic and political challenges. And all that’s without mentioning the fact that the EU, which is so critical to Germany, is going through a period of uncertainty.
As for tech, well, it’s difficult to build startups in Germany. There’s the lack of density due to the decentralized nature of the economy (and the country in general). Nothing in the business environment has been tailored for the Entrepreneurial Age. And Germany, like France, is obsessed with the upper links in the value chain: there’s too much focus on high-tech and not enough on consumer applications.
In this context, it sounded like even more bad news that German tech champion Wirecard has been wiped out due to fraud. And then last week Rocket Internet announced that it was delisting to focus on long-term growth. This, I must say, is the opportunity I was waiting for to write more about Rocket Internet—and if you read my latest column in Sifted you’ll see that my take is, in fact, positive!
Europe being Europe, the narrative that dominates here is that innovation takes precedence over imitation. The Silicon Valley ethos, however ill-fitted to Europe and the rest of the world, still looms large...because that’s who we think we must look up to. Many are impressed by what Rocket Internet has achieved, but feel they’re not allowed to say it out loud. Read more.
💸 Ecosystems Drive Returns
Everybody talks about entrepreneurial ecosystems. Yet few attempt to answer the simplest question: What, exactly, is an ecosystem? We all have a feeling of what it is, a generally superficial impression. But if you actually try to turn that feeling into a proper framework, it becomes clear that it’s not a simple exercise. We had to wait until very recently for practitioners and researchers to make it all clearer.
It’s more than a theoretical game. Understanding entrepreneurial ecosystems makes it possible to get better at building tech startups. It’s also of great help for those whose job is to allocate capital at the global level. If venture capital is bound to grow as an asset class, what should you look at if you want to increase your exposure? This is the question that institutional investors have to answer every day.
Indeed, my view is that global asset allocators will grow more and more interested in entrepreneurial ecosystems. There used to be a time when it was enough to concentrate your VC allocation in Silicon Valley and maybe a few other places. But now that the world is fragmenting and VC funds are popping up everywhere, the underlying ecosystems become critical when preparing allocation decisions.
Read more in my essay here: What Determines VC Returns 💸
📉 Are Value Investors Toast?
Why do the biggest stars in the investment world belong to the narrow category of value investing? I think it’s a combination of two factors. One is that value investors are the brahmin of the investment world from an intellectual perspective: they tend to write down their thoughts and publish them, in the form of memos (as with Warren Buffett and Howard Marks) or books (see this one by Seth Klarman).
The other factor is that value investors deploy capital in assets that everyone understands: shares of companies listed on public equity markets. And so if you cross the two (writing a lot and investing in public equities just like every other retail investor), you end up with the perfect recipe for becoming an influencer in the investment world.
It should come as no surprise, therefore, that many tech investors willing to share their ideas voice their admiration for renowned value investors (see here and here, for instance). And yet, at the same time, I’m reading so much about value investing delivering subpar performance these days that I decided to continue to dig into the matter. Check out the results here: The State of Value Investing.
🇨🇳 China Isn’t Going Anywhere
So, the world is fragmenting, you say, which means we should concentrate on our own realm and ignore what’s happening elsewhere? Not so fast! Fragmentation doesn’t equate complete independence, and the Great Fragmentation itself is a process that has so many far-reaching consequences that no person interested in entrepreneurship and finance can afford to ignore it.
A big part of that story is happening in China. In an essay published on Monday, I write about the reasons why it’s difficult to understand China and the organization that rules it: the Communist Party. This is why I wrote a primer synthesizing everything that I’ve read over the years—from the role of the CCP to how its leaders have made their career to the country’s historical background.
Also, yesterday I shared an English translation of my answers to a French AFP journalist’s questions about China, the new Cold War with the US, and the TikTok ban. Here’s a glimpse:
There’s already an open debate in the US regarding American VC firms that raised money from Chinese institutional investors (two years ago the same debate occurred regarding Saudi Arabian LPs). It’s very possible, most particularly if Trump is reelected, that the federal government will toss more sticks into the wheels of American investors who are managing those funds.In Europe, we could soon see similar things happening: startups refusing funding that is directly or indirectly coming from Chinese sources, out of fear that they won’t be able to be purchased later by the American tech giants—Google, Facebook, and others that are currently the most active in the M&A market.
Bonus reading (and listening 🎧) about China: A conversation b/w Erik Torenberg and Bruno Maçães about the latter’s book History Has Begun (notes by Mehdi Yacoubi)
We have this idea that US tech companies don’t do business in China because of the ‘Great Firewall’, but that’s not true. All have some kind of presence in China, on at least one side of their business model (for instance, although Facebook the social networking app is not used in China, Facebook the advertising network deals with Chinese counterparties).
And in case you missed it:
- The Future of Consulting (Round 2)—for subscribers only.
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From Normandy, France 🇫🇷