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Where VCs Are Putting Their Money

Monday, October 24, 2016 5:41
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What’s the next big thing? If you knew for sure, how much money would you plow into it?  The WSJ asked that question of several venture capitalists.  Interesting answers.  One tip, if everyone agrees on what the next big thing is, it’s already happened.

A better question for venture capitalists might be what is something everyone thinks might be the next big thing but they don’t think it is.  Knowing what people dislike is almost as important as knowing what they like.

For example, my friend Bryan Johnson started a new company.  It’s called Kernel.  They are a human intelligence company developing the first neuroprosthesis to mimic, improve and repair cognition.  VCs wanted to invest with him, but I don’t think it was because of the exact idea.  My gut says they wanted to bet on the jockey since Bryan was successful before.  Bryan didn’t take outside money to startup his last company either.

When most people read about what they are trying to do, they will think it’s crazy.  Detractors will say that it’s a guaranteed loss of money.

Being “short” venture is similar to selling options premium.  If you sell calls and puts, most the time you will accumulate cash.  Volatility dropping becomes your friend.  But, that one outsize move on one day will cause you to hemorrhage cash.  You will make money by betting against innovation because failure happens a lot.  But, when it works, it works big.  Add to that the binary nature of investment.  Either you are in or you are out-and when it hits there is no entry door.  As an investor you will be stuck holding the bag.

One thing that many new ventures are rubbing up against is government regulation.  Bryan will get a strong taste of that when Kernel has to deal with the FDA.  Regulators are not on the innovator’s side. It’s not just medical innovation that encounters big obtrusive government.  Finance does, farming does, energy does, transportation does, real estate does, and telecommunications does.  Virtually every industry is heavily regulated with big, massive, entrenched crony corporate players that do everything in their power to curb innovation.  They do it to protect their market share.

As an investor, I see a massive tidal wave building.  When things get too entrenched, they tend to get lazy and fat.  Process inside the entrenched companies gets less precise.  That’s when they get swept away.


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