Why We Must Think Bigger by Charles Moldow, General Partner, Foundation Capital

Charles Moldow, General Partner, Foundation Capital

Why We Must Think Bigger

FEBRUARY 22, 2013 AT 3:01 PM PT

One day, about six billion years from now, the sun will burn out.

This cataclysmic inevitability was brought to my attention over the holidays by my 6-year-old son. Far off though it may be, he believes our solar system’s imminent demise is cause for alarm sooner rather than later. (For him, that means sooner than getting a flu shot — but later than downloading the most recent service pack for Minecraft.)

Of course, I recognize my 6-year-old is thinking too far ahead. Too big.

But he did get me wondering, are the rest of us thinking big enough? Especially those of us who develop — and invest in — new innovations.

If not for being stuck on an antiquated United Airlines plane unequipped with Wi-Fi (is there any other type?), I may not have found the time to commit this thought to paper — I would likely have been overwhelmed by the next flurry of emails or meeting requests. It’s easy to lose sight of the big picture. In fact, as I survey the current startup landscape and consider the kinds of companies attracting VC dollars, it seems like the investing community isn’t thinking of the big picture at all.

Today, investors are less interested in transformative companies and more interested in trendy ones. Funding is flowing — and flowing fast — toward “quick-response startups.” These companies, more often than not, are launched during all-night hack-a-thons. They’re the wired brainchildren of eager coding buddies and Costco-like volumes of Red Bull.

Do many — or even any — of these startups, still in incubation, believe they can create a billion-dollar company on the heels of a market that’s already matured? No. And we don’t expect them to.

Because typically, companies like these aren’t founded to solve big problems — but rather immediate, narrow (and sometimes trivial) ones. For example, we now have dozens of VC-funded apps that help friends share photos, plan their weekend activities and order drinks more quickly in a bar. Yes, the first mobile photo-sharing app leveraged the social graph in unique ways and was — without a doubt — transformative. Three years later, however, startups continue to evolve the concept, but to what end?

Don’t get me wrong. I enjoy a cool app as much as the next guy. But we can’t continue funding the companies that produce them at the expense of companies that produce truly breakthrough technologies and experiences. It’s bad economics, and, to the extent that this mindset pushes out true long-term transformative thinking, bad for humanity as well.

Indeed, these quick-response startups reflect — and perhaps are causing — a new and worrying trend: As a recent article in the Economist — “Has the ideas machine broken down?” — points out, today’s inventions are producing far less “economic impact” than inventions of the past. Progress actually appears to have slowed since the early 1900s.

It seems, in short, that we have reached a plateau when it comes to the more recent megatrends that stimulated great innovation: Games, social, local and mobile. Now that these digital revolutions are maturing, we’re just tinkering around the edges. Making marginal improvements. Tweaking the charger ports on our iPhones.

This trend, by the way, is not all that different from what happened in the late 90s — when the spread of the Internet was followed by VC investment in every dot-com commerce play imaginable, including dozens of pet-related dot-com startups. (In retrospect, one may have been too many.) In some ways, the early aughts saw a dearth of fresh ideas, too — right after the Web 2.0 innovations hit the market.

Now, we seem to be trapped by the narrowness of our own thinking again. And we have to ask ourselves: What will it take to buck this worrying trend, to push past this period of creative stagnation?

The answer? The same thing it took in the 90s and the early aughts: more companies like eBay, Google and Facebook — startups that brought to life world-changing and enduring ideas.

These companies may have been founded by “hacks” like the ones portrayed in “The Social Network.” But they were hacks that created massive waves of innovation, as did the founders of Yahoo!, Amazon and Twitter. They pioneered at the front end of huge emerging trends, from Web to commerce, from social to mobile.

Today, there aren’t enough of these front-end innovators. Years after these companies created new markets and experiences, we still have startups paddling out into the surf, hoping to catch the big tsunami that long ago passed them by.

What we need, in other words, are more wave-makers. More pioneers. More Yangs, Bezoses, Zuckerbergs, Brins and Pages, not to mention more Jobses, Fords and Edisons.

And make no mistake, the investor community — especially the VC investor community — has a role to play in encouraging that level of genius. In many ways, we just have to return to our roots.

It used to be that venture capital was the most ambitious kind of capital there was. Investors like me would fund startups, and not expect to see the payoff until five to 10 years down the line. We did so because we chose companies of extraordinary promise that trafficked in big ideas — businesses that, with enough time and money, could create products that changed the way humans interact on a day-to-day basis. Microsoft, Google and Apple — these are companies built with long-term VC investment. And they gave rise to the Age of Information.

So, going forward, let’s be as ambitious and smart with our capital as we once were. Let’s take more risks and be more encouraging of big ideas and bold leaders. We can’t get trigger happy with our funding dollars and settle for a quick fix or a “me too” idea.

Let’s also remember that innovation can benefit those living in the developing world. After all, innovation brought automobiles to India that cost less than $2,000 — and stoves to Africa that also charge cellphones.

And, most importantly, before we invest, let’s ask ourselves some crucial questions:

  • Will this startup change the world — not just my world? Is the problem it solves large enough and its appeal wide enough?
  • Does this company meet a critical, unmet need — or does it just bring simplicity or efficiency to an already-tackled issue?
  • How difficult is the problem I want to solve? And is my solution unique, based on strong intellectual capital or a patentable idea? Or is it a piece of Web functionality that could be easily and quickly cloned, copied and resold?

In the past, investors haven’t always asked these questions. But if we start now — and answer them honestly and correctly — then we can unleash a new era of greater creativity and better returns.

If my tenure at Foundation Capital has taught me anything, it’s that investing in truly meaningful companies pays off. There are startups with world-changing ideas out there. And discovering what they are — and bringing their ideas to life — will require each of us to slow down and devote some time to big thinking.

If my 6-year-old son can do it, so can we.

Charles Moldow is a general partner at Foundation Capital, focusing on consumer Internet companies. He was previously a founding executive at TellMe Networks and at @Home.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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