As the New Year dawns, new opportunities are emerging for savvy venture capitalists in a number of different fields.
From new companies building businesses based on the genome, to businesses built on the blockchain, distributed applications, teams, genes and geographies will shape the future of the venture capital industry.
A, T, G, C
We are moving from a world based upon the 0s and 1s of binary code to a world built from the A, T, G and C nucleotides that comprise DNA base pairs. The first commercial computers were big and expensive. But over time, Moore’s Law held true — the number of transistors per square inch on integrated circuits doubled every year since their invention, eventually democratizing access to computing power.
In biotechnology, the drop in the cost of DNA sequencing is called the Carlson Curve, and it has outpaced Moore’s Law. This means that the costs of reading and writing DNA have dropped dramatically, so opportunity abounds.
Many of the businesses that will be built on biological data will scale not like biotech therapeutics, but like the software companies with which we tech investors are already familiar. There will be companies storing data in DNA, companies applying AI to drug discovery and companies developing personalized health recommendations based upon our DNA. And as CRISPR technology matures and we have the ability not just to read and write DNA but to change it, expect to see consumer-facing companies selling all sorts of biosynthesized materials.
It’s no secret that starting a company in San Francisco is expensive. One of the biggest expenses? Talent. Glassdoor estimates that entry-level software engineers in San Francisco earn about 15 percent above the national average, and the gap for top-notch talent is likely to be far greater.
A couple of months ago, a founder confided that he was having trouble competing for talent against the likes of Google and Facebook. He was toying with the idea of assembling a distributed team. “But aren’t VCs biased against them?” he wanted to know. Perhaps historically, I said, but I think that distributed teams are the future. Our portfolio company GitLab has a fully distributed team — their sole “office” is CEO Sid Sijbrandij’s kitchen table. I expect many more companies to follow suit.
According to First Round Capital’s review of their own holdings, female founders’ companies out-performed their male peers’ by 63 percent in terms of value created for investors. Yet only 5 percent of all VC-funded firms have women in their leadership team and only 2.7 percent have a female CEO.
We at August Capital have backed incredible teams that also happen to be led by women. We’ll continue to back incredible teams of all stripes in 2018. (And if you want to join one of these rocket ships, check out Kelsi Kamen’s list of female founded startups to join in 2018.)
Searching for blockchain’s killer d-app
As this goes to press, CoinMarketCap has the market cap of BTC at $311 billion and ETH at $82 billion. The $393+ billion dollar question then is, how much of this value is attributable to speculation versus the market’s expectation of blockchain’s true utility?
To date, very few people are yet transacting in cryptocurrency, despite the original Bitcoin whitepaper’s stated purpose of creating “a peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.”
But the potential that they might someday, and that society will become more and more accepting of blockchain’s emergent use cases over time, is tantalizing. Just as email was the web’s killer app, and photo sharing and messaging have been mobile’s, there likely will be a killer application to emerge on blockchain. (For a well-reasoned and surprisingly sober view of crypto, check out Adam Ludwin’s interview on Patrick O’Shaughnessy’s podcast, “Invest Like the Best.”)
When I worked at the White House, one of the things I studied was “clusters” of economic development. A “cluster” is a regional concentration of related industries in a particular location — think about biopharmaceuticals in Boston, or the semiconductor industry in Silicon Valley, or the financial services sector in New York. They are places where technology, specialized talent, competing companies, academic institutions and research programs come together and feed on each other synergistically, creating ever-more specialized talent and deeper research agendas over time.
Earlier this year, the wonderful Candice Faktor invited me and my partners to the Elevate Toronto Conference. Walking through the MaRS innovation district — a gleaming, government-funded conference center where AI tech and healthcare startups work alongside venture capital firms and research labs — it is clear that Toronto has all the magic puzzle pieces in place to become a deep AI cluster.
The Midwest is rising, too
Steve Case and JD Vance’s Rise of the Rest seed fund is the latest in a string of firms betting on the Midwest (see also: Flyover Capital, M25 Group). These are not social impact funds, but rather, they are there to generate top-dollar returns. I think the thesis is a strong one. Also helpful: a burn rate that is half that of their SF peers (see the second point above).
Keep on sharing on
We share our homes, our land and our cars. What are the next most expensive assets tying us down? Our furniture, our clothing… expect innovations in rental models as we move toward the utopia of a truly variabilized existence.
Vocational education, at home and abroad
As of the last Bureau of Labor Statistics report, there were 6 million job openings in the United States. Job openings have been at or near record high levels since June. On the plus side, this shows that American businesses are ready to hire. But on the down side, employers increasingly report they can’t find skilled workers to fill their open positions. With congressional budget plans proposing to slash job training, it will fall to the private sector to upskill American talent. And this is not just an American problem. According to the OECD, Latin America as a region has the highest gap between the skills people have and the skills that businesses require.
The great unknown
Venture is the perfect job for an infinite learner. One of my favorite things about this job is that each meeting, each introduction could be with someone doing something that I’ve never thought of or heard before. In 2018, I’m excited for entrepreneurs to continue showing me the way.