— High Growth / High Risk —
Innovation with Intellectual Property
High Growth
Ventures having the potential to rapidely expand in terms of company value, with or without generating revenues.
They often operate in emerging, innovative market segments and will be required to pivot strategically from a "Bench-to-Market" approach, where their concept originates, to a "Market-to-Bench" mindset. This shift is essential for delivering on their promises and achieving market adoption.
The degree of disruption these ventures aim to create greatly varies. Yet, there is no standard correlation between disruption and value (it would be too easy).
High Risk
Being considered a risky investments due to the uncertainty they face. These ventures often have unproven business models,
and may rely on technologies that could fail or face stiff competition.
High risk doesn't refer to R&D or market adoption risk; rather, it qualifies a financial risk : the standard deviation profile of the expected IRR (Internal Rate of Return) for such assets.
The hallmark of High Risk in innovative ventures is a distribution of financial outcomes that is highly heterogeneous, even among holders of securities within the same company.
Navigating the Venture Challenge: The Human Element. For those engaged in High Growth/High Risk, the challenge is threefold. It’s about the ability for all key parties involved in the venture (management, board, shareholders) to collectively manage the pivot "Bench-to-Market" to "Market-to-Bench", build optionality, and make decisions that outsmart statistics to achieve better outcomes.
Another challenge within the challenge is, ensuring that each invested party receives a fair reward for their contribution, while also ensuring that the innovation aligns with the founder’s vision and dreams. At the venture level, however, these considerations are secondary.
This makes the human journey—comprising founders, management, board members, and securities holders—particularly complex, with alignment fluctuating over time and across events.
Ultimately, it makes each venture, each journey, and each innovation unique.
Generating and repeating alpha in High Growth / High Risk remains a nerve-wracking pursuit, even for the sharpest minds or the most seasoned instincts.
Innovative ventures walk a thightrope, where creativity is pushed by 3 constraints : Time, Cash, and People.
The path to success is both ambushed and accelerated by a multitude of internal and external factors popping up over time, often beyond the venture’s control.
One day, a construct seems ideal; the next, it falters—and vice versa.
The real question is: how well are entrepreneurs and investors prepared to face this ?
Entrepreneurs
Entrepreneurs drawn to High Growth/High Risk often have an unconventional relationship with risk, making them willing to take bold bets and embark on journeys that defy the odds. The profiles of these entrepreneurs are diverse, with a notable presence of neurodivergent minds compared to the general population. Their unique ways of processing information, their ingenious ways of adapting to situations, and their relentless drive and tenacity provide them with an exceptional skill set for tackling audacious goals—what might be seen as "moon missions".
Investors
Investors drawn to High Growth/High Risk are enticed by the potential for high returns, more attractive than in other asset classes. However, in High Growth/High Risk, the IRR distribution curve tends to be more log-normal than normal. Investors are acutely aware that the risk of loss is significant, with limited or no recovery value in some cases. They constantly assess where the company—and particularly their stake—stands on that IRR distribution curve. Decisions are made not only on an asset-by-asset basis, but, perhaps more so than in other asset classes, on a portfolio basis. This is due to the highly uncertain and ever-shifting equation of Time and Resources until Exit, in High Growth/High Risk ventures.
In this High Growth / High Risk environment,
Management must stay a step ahead
Continuous scanning of the horizon-market dynamics, emerging trends and opportunities is vital in High Growth, High Risk. It enables proper benchmarking of innovation from R&D, IP, and value perspectives. This proactive approach is crucial for generating optionality for the company and its shareholders, while mitigating potential vulnerabilities before they affect long-term success.
Neuro + cultural diversity to solve problems
There is much to observe and much to solve, with great complexity. While there is little to communicate, it must be spot on. Diverse focus, expertise, and talents are essential to forming a robust team. In High Growth / High Risk, a team extends beyond internal, full time resources. It includes board members and external key advisors/experts, all contributing to the venture’s success.
Expectations are high, trust is limited
High Growth / High Risk companies and investors thrive on uncertainty—at least a set of uncertainties they collectively agree on at the time of investment. Each party involved has its own expectations of reward, notably aiming for a greater IRR than what the bond market, large-cap stocks, or even private equity can offer. However, while parties are bound by contracts, uncertainty is not—it deviates. More often than not.
Generating aligment is nothing trivial
Alignment is not a permanent state, nor is it the default mode in High Growth / High Risk. Instead, it is a fleeting moment, at deal execution (financing, R&D, or exit deals). Is it always "fair"? At times, certainly. But often, it reflects a point of despair for certain parties in contrast to others. Problem is, motivation is essential to sustain momentum on uncertain ground. Alignment during critical times (or sustained over the long term) lies somewhere between a sport and an art.
Track Record or First-Time Drive? Both Matter.
This environment gives a distinct edge to those having a track record: they may not lose time on the learning curve.
Time is IRR, time is key. However, this alone is insufficient to turn an asset into a secured success. Some may also have a robust network, which is a clear benefit, when adapted to the venture's specific needs.
First-timers bring unparallel drive and an unconstrained mindset. Even better when this is contagious !
Ultimately, each journey is unique, and no one can perfectly train for or replicate the course of events.
This is how vivid High Growth / High Risk is.
That´s why maximizing insight, understanding the context and its specifics, identifying vulnerabilities, building optionality, speeding up the learning curve and strenghthening governance are key to navigate High Growth / High Risk ventures.