Mental Models and Technology Investing

As a lower risk operator in the technology investment markets, I operate well behind the venture capital frontlines, where hype and momentum reign supreme (because that’s just how that game works). Yet, it is still helpful to consider where the Seed-Stage and Early-Stage VC technology investment horizon is heading. What trends are real versus hype? Now that hype has worn off and the opportunists have moved on to the next buzz word, who is left doing real work? Which companies are emerging as winners from overfunded early-stage areas? What is realistically going to occur over the next 5-7 years with a winning company? What market segments are perhaps cheap due to investor biases? (AdTech?) Even though I might not make a move for years, pondering these questions is helpful to form a prepared mind.

HBR Transformative TechnologyConstantly questioning technology’s evolution is why I found the mental model shown at left from this HBR article interesting. This model highlights the differences in proliferation between foundational versus transformative technologies, comparing Blockchain today to TCP/IP (i.e. the Internet) in 1972.

While this model is helpful to compartmentalize things, the reality is that investing in technology is sloppy business. Sometimes it is hard to see where technology is heading, like driving in the fog. Other times, it’s obvious – less a matter of if, but when. Yet, even if a technology trend is obvious and the timing of its proliferation is roughly predictable, determining the winning company for investment is difficult, especially when squared with entry valuation and the number of “horses in the race” on a hyped technology trend. (more…)