I am posting an article by Somesh Dash, General Partner at IVP, published today in Tech Crunch.
In 1989, the creators of “Back to the Future 2” imagined a 2015 very similar to the one we live in today – accurately predicting technologies like flat-screen TVs, Google Glass and drones being commercially available and in popular demand.
If someone acted on building those technologies back in 1989, we’d likely be more accustomed to seeing the remote-controlled skateboards and handlebar-less Segways that zoom down Market Street just north of Silicon Valley these days. And while we may not have flying cars yet, Audi did build a car that drove itself to CES this year, and the show floor was filled with voice-activated devices similar to those that brought Marty McFly’s smart home to life.
After 26 years, the predictions of life in 2015 aren’t that off base. That’s because the film’s creators didn’t try to invent entirely new technology, but rather imagined how we would improve and innovate the technology that was already widely in use in 1989.
As a VC always on the lookout for the next big thing capable of massive adoption and global scale, watching the film now reminds me of some of the startups that turned into empires based solely on the entrepreneurial concept of striking a balance between old realities and new ideas.
For instance, office workers used to be tied to their desks or carry a USB drive in their pockets until Dropbox and Box enabled hundreds of millions of users a simple way to access files from any computing device. Booking a vacation was once an arduous, time-consuming task until online travel services like Orbitz and Kayak took travel and airline booking agents out of the equation and gave travelers more choice. Spotify and SoundCloud have helped revolutionize the digital music industry by offering listeners a new way to discover music.
All of these venture-backed companies have transformed the status quo in billion-dollar markets. While each investment entails a certain amount of risk, these companies filled a gap with a much-needed new solution. From the investor perspective, it’s sometimes easier to back the radical new invention rather than recognize advancements that address or innovate more traditional or foundational technology. Although harder to spot, these ideas can present just as much opportunity as the brand new ones.
Probably the most recent, visible example of innovating on an existing and widely used technology is the seemingly overnight success of Beats by Dre. Frustrated by the low quality of audio provided by Apple’s earbuds, Dr. Dre partnered with noted record producer Jimmy Iovine to build a headphone that allowed listeners to hear music the way the artist intended. By redesigning the headphone to reduce distortion and equalize the frequencies, consumers now have a superior audio delivery option, and Dr. Dre can now claim his title of the world’s first billionaire rapper.
While headphones may not be the “sexy” tech that comes to mind when thinking of Silicon Valley, this idea is one example of reimagining the possibilities of what an antiquated product could be. To a similar degree, I recently joined the board of a startup, Pindrop Security, an Atlanta-based company that focuses on phone fraud prevention.
While phone fraud may not be as headline grabbing as cyber crime, security on the phone channel has remained static for nearly 40 years, and Pindrop’s technology enables them to futuristically secure voice as likes of Siri and Amazon Echo create a shift toward voice as the preferred interface – much like Marty McFly and his family portrayed all those years ago in their voice-commanded home.
The type of forward thinking about aged technology led me to look more closely at the entrepreneurs I meet every day and their commonalities. The competitive startup culture can lead entrepreneurs to fall into the trap of walking the well-beaten path of those Silicon Valley success stories they aspire to be like.
However, every company looking for venture backing is claiming to “disrupt” an industry with something entirely new – and the promise of new technology begins to fall on deaf ears. It is the companies that take the road less traveled that I am more excited to speak with.
For companies in their very early days, there are a few key things to consider in order to differentiate from the other startups chasing VC cash:
- You don’t have to have the shiny new thing. Consider what technology exists now that can be improved on to disrupt the industry.
- You don’t have to be in the Valley. Technology hubs have been developing globally and some of the most promising startups are located outside of the U.S.
- Solidify your company’s vision. If your idea truly is “disruptive,” competition will arise. How will your company continue to lead the market without losing sight of its core mission?
- Does your idea stand the test of time? While your idea may be groundbreaking today, how will it stay innovative 5, 10 or 20 years from now?
When it comes to investing, there will always be a shiny new thing lobbying to become the next Silicon Valley darling. But we must not overlook those innovators that look back to the future – reimagining how an old technology can address new problems for the consumers or enterprises. It’s in finding the right balance between supporting foundational technology and the “new new” that sets leading innovators apart from the noise of Silicon Valley.