Innovation Comes in Waves, and the Next One Could Be Tidal

The world has seen five major waves of innovation in the past 275 years, and many venture-capital experts think we might be on the cusp of a sixth. Here’s some history:

Wave 1 (1760–1830): Mechanical weaving looms and other mechanizations launched the Industrial Revolution as the world began transitioning from handmade goods to machine made.

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Wave 2 (1830 – 1900): Steam power and steel were the breakthroughs that led to railroads, steamships and skyscrapers.

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Wave 3 (1900–1970): Assembly lines and other economy-of-scale techniques, coupled with the harnessing of electricity and invention of the combustion engine, led to the mass production of automobiles, airplanes and a host of other consumer goods.

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Wave 4 (1950 -1990): The semi-conductor launched the Computer Age and a litany of advances in electronics and mass communications.

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Wave 5 (1985–2020): The internet and digitalization created the Information Age and gave us smart phones along with increasingly sophisticated software applications that gave rise to today’s gig economy.

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Many venture capitalists believe Wave 5 has crested and a sixth wave is welling up. If so, what will its hallmarks be? Will it be a green wave marked by climate-related technologies, including nuclear fusion? Will it be synthetic biology and the bioeconomy? Will it be the rise of artificial intelligence? Quantum computing? Nanotechnology?

AMG believes that a convergence of all these technologies is quite possible and could transform the world with a speed and magnitude never before seen—a tidal wave. That’s good news for investors, who in 2022 and 2023 saw the worst annualized performance for venture capital in more than a decade.

The next five years are critical. While return expectations today for public-equity markets remain modest, venture capital offers investors a chance to get in on the ground floor of the next innovation cycle and the opportunity to generate attractive returns. Consider these factors:

• The next innovation cycle is expected to be long lasting and impact multiple sectors of the global economy.
• AMG has access to top venture-capital managers who are positioned to gain access to and select high-quality deals to help drive chosen portfolio companies to success.
• Focused, collaborative strategies deploying smaller fund sizes ($250 million or less) with discipline around valuations should have more attractive return prospects.
• A backlog of IPO-ready companies exists that will potentially provide meaningful liquidity to investors, giving them the option to roll profits into new companies and maintain a steady and consistent allocation to venture.