expand_more Why AGFA will be worth $4T in the next 10 years
Apple, Google, Facebook and Amazon (AGFA) are the 4 horseman of the Web 2.0 wave. We love the founders, their products and most of us would love to work in any of these companies. These companies are now worth $800b in aggregate and are growing their revenues more than 40% a year.
The AGFA group is creating the most value in the tech sector and I argue that they will continue to do so because they all represent the Best 3 P's - Product, Platform, Protocol.
Each one of these companies has managed to carve out a large segment of the digital lifestyle of the future. Hundreds of thousand's of partners have tied their future to each one of these platforms and they all use the API protocols published by these companies to enable e-commerce in hundreds of billions of dollars.
The surprising fact is that none of these companies has yet captured more than 25% of the market share in their core segment and thus still have plenty of growth ahead of them.
expand_more The "Startup Cambrian Explosion"
In 2011 the overall investments by Angels have for the first time exceeded the total investments by A round venture funds, the "Startup Cambrian Explosion" driven by a combination of hype from Facebook, Twitter and other successful startups combined with the highest unemployment in the 18-35 year old professional in 70 years and glut of Angel money chasing the next big exit has resulted in thousands of new startups being launched nationwide.
With the explosion of cheap cloud based services and API infrastructure of hundreds of Web 2.0 platform companies it now costs less than $100,000 to launch a full beta service on the web or a mobile platform, thus the barriers to a product launch have been cut by 90% from where they were 10 years ago.
Many of these services have managed to get over 1,000,000 users in less than 12 month with NO marketing, relying entirely on their social network and the extended social graph to create a chain reaction of subscription and adoption which in turn drives free but valuable feedback which drives iteration and improvement of the service. The best startups of the past 5 years have emerged successfully scaling this model.
These young companies still need capital and so an ecosystem of angel investors have sprung up in all major cities to take pieces of such companies and bet on their future. All such investors hope to be part of the 3:30:300 explosion which came to symbolize the level of valuations startups can expect if they can deliver the hockey stick growth Venture capitalists are looking for at the Seed, A and B rounds.
The unseen and devastating part of this explosion is the inevitable death of the vast majority of these startups as they try to leap from the seed stage to the A round safety of Venture funding. Like the gazelles trying to cross the Mara river in the Serengeti many will perish but the strongest and fastest will make it to the other bank of the river and continue the journey of life.
In this chasm of A round death is where fast iteration and constant pivoting separates the leaders from the followers. In the words of Steve Jobs "Innovation distinguishes between a leader and a follower" the best startups win by fast innovation and we all know what happens to the followers.
The problem facing all of these survivors is that there is not enough "A round ramps" on the other bank of the river to receive all these new gazelles. They all think they are destined for greatness. Only the top stars will be able to leap over the rest of the herd to safety in the ranks of the few A round investors who still have dry powder to fund new startups.
These survivors are nurtured and supported with A round funding, recruitment and networking and as long as they continue to scale on the hockey stick they can quickly join the ranks of legends like Groupon and EBay which are the two fastest growth companies in history. If they fail to deliver they will not receive the coveted B round and may be even abandoned as less and less capital is available to fund fewer success stories at ever higher valuations.
The "Startup Cambrian Explosion" is everything we experienced in the 2000 bubble but it is 10x bigger in absolute numbers. Natural selection now works much faster and in a much more brutal way. New startups die within months and their teams scatter to help others bet for the fences with new ideas. It is not uncommon to meet twenty something coders who have already been on the teams of five or even ten startups.
I continue to learn new lessons in this new boom as both a founder and angel investor in more than 50 companies, I can say that is it harder than ever to figure out which companies will make it and what is a good investment at any stage of the game. But it is fascinating game which I love.
expand_more Are we in the beginning of a new bubble
Its mid 2011 and many have already forgot that we just had the worst recession since the great depression. companies are going public at valuations not seen since 1999. Every downturn brings opportunity and allows new ideas to take hold, I believe that despite few abnormalities with specific web companies we are in the beginning of another 10 year boom cycle driven by several major trends. Its not a bubble but it could easily become one. The following listing represent long term sustainable trends that should support long term higher valuations:
- Globalization - China, India, Brazil & Most of Africa are experiencing such fast growth that their needs for technology and infrastructure will drive demand in the US and EU for the next 10-20 years.
- The Web - While Web 1.0 was all about infrastructure Web 3.0 is all about services which include social and commerce applications. This new boom is long lasting since it engages over 2 billion people worldwide who have just recently joined the web and are still exploring new ways of socializing and transacting. Expect re invention of all the popular services you currently use - Amazon, Ebay, Google and others.
- Energy - the production and distribution of electricity is up for a reinvention. Hundreds of billions of dollars were invested in new ways to produce energy and clean tech innovations over the past 10 years, finally many of these are of scale and are starting to hit the main markets. I expect to see major breakthroughs in the next 10 years that will transform how we generate and consume electricity.
- Transportation - The transition worldwide to electric transport is a major global trend that involves many industries and millions of workers. This transformation will help ensure that we don't hit another recession any time soon.
With all these macro trends hitting at the same time you can expect many new winners in each category. As each of these trends takes hold and involves more and more people around the world greater disruption and opportunities will arise, Expect new companies to replace old ways of doing things and create new industry leaders. Identifying such opportunities and creating the companies that will transform such industries or investing in the leaders is hard and full of land mines. Its always hard to judge timing and adoption cycle of new ideas, its also very hard to find the right people and put them together to create an industry leader.
Change is opportunity and there is more change than ever hitting us from all directions.
expand_more Future Energy - Reverse cold fusion
With Oil nearing $100 a barrel, there is heightened demand for ideas that can economically and safely replace burning oil and coal to generate electrical and locomotive power.
As we all know from Einstein’s famous E=mc2, there is a lot of energy to be had if you can break down mater or move it from one atomic state to another. All recent efforts to create a contained chain reaction that generated over unity from fusion have failed but alternatives which include wind and solar power are not going to solve the world's needs.
A controversial idea which has its roots in NY over 100 years ago was raised by Nikola Tesla, he proposed extracting electromagnetic energy trapped in the ether. His idea that creating a disturbance in the electromagnetic universe around us could result in a standing wave which we can tap into and extract more energy than was invested in the disturbance ,was called by many, a violation of the basic rules of energy preservation.
It is amazing to me how conservatism and lack of innovation can keep good ideas under wraps for so long. While I am a believer in the preservation of energy, these rules must apply to closed circuit measurement and not the energy state of the universe as a whole. Extracting energy in one part of the universe will be compensated in another with no overall violation. Zero Point Energy or (ZPE) which is a proven fundamental part of Quantum Mechanics Theory (QMT) tells us that while difficult, tapping such energy when a disturbance takes place is possible and clearly within the rules. The appearance of matter is due to such disturbance of the electromagnetic time space medium.
A great example of such quantum disturbance is an electric storm or Lightning. It’s an "open circuit phenomena" which moves electromagnetic energy from one point to the next many times without touching the earth or the ground. While we don't know how to tap it, electrical storms generate several times more energy than all human power plants combined.
Another example is the earth’s magnetic fields which were measured to generate over 500,000,000 Amperes of equivalent power and to which we have not been able to tap as well. It is all around us all the time.
My point is, what we miss is an Energy conversion mechanism not a power source.
One idea I am working on is to create a self sustained electromagnetic flux inside matter and then tap such flux to generate electrical power. Many experiments have been made over the years but they were not based on scientific formulations that broke new grounds, rather they relied on experimentation with electromagnetism to try and discover new ways to create energy.
If matter can be fused to create heavier elements, matter can be un-fused to create lighter elements and in the process we can extract the E part of Einstein's equation. It is easy to do so with unstable radioactive materials but try to do it with Copper or Lead.
The key is to do so in a contained and controllable fashion that balances the chain reaction with extraction and do it without the need to use high temperatures and Plasma containing magnetic fields.
expand_more When you don't know what you don't know
We have recently witnessed several Web 2.0 companies invent new user mediums and gather over 100m users in a few years. Until their launch, no one thought they were necessary. This process has proven that the web is just beginning its transformation of the world as we know it. None of these company founders knew ahead of time what they were building or that their applications would be so successful with so many users. They did not think of monetization or cash flow. Their lack of knowledge about what needs to be there to make it a good business allowed them to make their venture a smashing success.
So what do we know about the web? Well nothing, it is so fundamentally changing what is possible and how things will be done in the future that prior business knowledge is an obstacle not a benefit. We really don't know what we don't know.
Berkeley Rice was quoted saying "visionary people are visionary partly because of the very great many things they don't see". That has never been truer than with the new wave of web applications. All these old economy barriers we are taking for granted as part of life, melt like butter in the wake of this massive heat wave that is expanding at the speed of light from the super nova called the Internet. The speed of development and deployment is so fast that it is exceeding the ability of most of us to absorb and digest and then implement in our daily lives. The gap between the web life and the normal life is growing so fast that a new culture exists out there to which most of us don't belong. The price to pay for admission is spending at least 10 hours a day tracking everyone else to ensure you are still in the race. In this world if you are not creating content you don't belong and what matters more than money is your recognition by your peer group.
None of the traditional global businesses feel endangered by this new culture but there is a fundamental decoupling of lifestyle and commerce taking place between the Web 2.0 crowd and the rest of the economy. As the number of these global web users has reached a critical point we will start seeing commercial ventures which owe their entire existence to their popularity and their connection to the future mass crowds of web 2.0 users. It would be as difficult to unseat these new brand giants as it is impossible to imagine that Coca Cola or Nike can loose their dominating lead today. But then if we knew it, it would not happen.
expand_more Globalization and its impact on the US economy and investments worldwide
"Think globally, act locally". This philosophy is becoming less and less possible in a world where not only every product but every service has become a commodity. This rapid shift is slowly forcing the US economy, traditionally the largest in the world to adjust to a new world order.
Globalization is certainly not a new phenomenon but its impact on the world economy has accelerated to the point where global brands and low cost producers are increasingly dividing the spending dollars of the world's consumers. We no longer care that products are made in China or Vietnam nor do we care if any of their components or intellectual property was created in the US.
To its credit, the United States has been transforming itself into a services economy and has successfully managed to retrain over 50 million workers to find new service jobs. By innovating and leading the technology revolution the US continued to create value and expand the standard of living. However, a dramatic change over the last three years has put the US at a cross roads. On one side security and protectionism have caused the US borders to partially close to top talent and to foreign made goods due to world events while on the other side the technological gap between the US and the new Asian economies has steadily been shrinking. As the largest economy in the world the US can wait and do nothing or even protect our lifestyle with tariffs and restrictions. History teaches us though that even the largest world power that closes itself off from the world around them out of arrogance will quickly lose their dominance and more importantly the talent that made them succeed in the first place. The current trickle of talent going back to India and China will become a flood unless we change our policy and accept the new world order in which being an aging service economy is not a sustainable competitive advantage.
The telecom industry is a striking example of this phenomenon. After the 1996 US telecom deregulation the FCC and the State Department began pressing the WTO (World Trade Organization) member nations to lower international telephone rates and deregulate their telecom monopolies. This single act created a second wave of globalization - the commoditization of services.
With a VOIP call to Bombay costing the same as a local call to New York the obstacle that kept many of these developing nations from competing for services in the US & Europe was eliminated. More and more of the 100 million US workforces were forced to compete against almost one billion Indian, English speaking workers who make less than $100 a month. It is my position that the only way the U.S. economy can survive in such an environment is to transform ourselves again by creating new markets with new products and services that will continue to attract the world's best talent to come and live in the USA. This painful process will take 5-10 years and will eliminate 5-10 million low skill service jobs in countries around the world.
How to transform ourselves is obviously the BIG question. Successful solutions and new markets reveal themselves only through the natural selection of trial and error and of course, risk capital. Right now, the US has global dominance in this area but that is about to change. As skilled US entrepreneurs go back to China and India and tap a skilled workplace hungry to succeed in this new globalized workforce, it will become more and more difficult for US companies to maintain their dominance.
The increasing ease of being able to move capital around the world freely and to pluck talent from so many different regions will make it possible to create these new global businesses with relatively small investments with very high growth rates which of course is the dream of any venture capitalist.
While most of the media and the investment community is focused on China's manufacturing miracle, this century also belongs to India. As the world’s largest English speaking nation and the world’s largest democracy it is bound to outpace China as it produces an increased number of components for the globalized service economy with higher margins and sustainable competitive advantages that China may not have.
Though it may take thirty years, it is my prediction that India will eventually take over as the world's largest economic driver. What should the US try to do in that period of time? My suggestion is to keep innovating and invest in India so that as a country, we can share the in the value and the profits which will be created there in the next decade.
expand_more The age of intelligent software
In the eighties and nineties we saw standardization and commoditization of hardware, prices have tumbled and we got to buy more of everything more often.
The first half of the 21 century will be dominated by the commoditization of software, driven by early effort such as Java and Linux a new breed of open interoperable language for the internet will emerge, it will incorporate XML, Semantic Web, web services and other initiatives which will for the first time allow computers to dynamically transact with each other and allow logic and meaning to process the content that was amassed on the internet in the past twenty years.
The significance of this transformation will only emerge as companies and individuals come to depend on such functionality in their daily lives just as we depend on our email and cell phones today. Dynamic and seamless Internet commerce will explode and will forever replace expensive and proprietary traditional software we use today.
These new opportunities, emerging from this transformation will create new industry giants which will lead the second wave of the internet boom. All of this innovation will not be possible if the infrastructure built in the past decade did not secure the US as the country with the lowest communication costs in the world.
The recent telecom debacle which has wiped $600b of investments and over 2 trillion dollars of equity value is the foundation for the US service economy of the 21 century. America has invested billions in its optical highways which guarantee a long supply of low cost digital oxygen to the internet and its users.
expand_more Management of networks Feb. 2000
The management of networks and information flows is going to be far more important and valuable than owning the networks themselves.
The past 50 years of computing and telecommunications have been dedicated to the development of core technologies, and to the build-up of infrastructure. The dawn of the Digital Age has led to an overwhelming increase in the availability of information, both current information and the digitization of data from the past 20 centuries, as well as the convergence of multiple information delivery networks.
While the build-out of infrastructure will continue the management of transport mediums and the management of information delivery will become more important than the network itself.
Entirely new value chains will be created in the next 20 years that will dwarf the Yahoos and Cisco's of today, they will enable managed peer-to-peer transactions via wire and wireless communications to be as seamlessly integrated into our daily lives as electricity is now part of everything we do.
My focus is to create management solutions for these new networks and to position the companies offering these solutions in the center of the new value chains.