There is a lack of useful ventures in the health-care and energy industries, and an overload of software and apps, says IVY Thought Leader Norman Winarsky in a recent Opinion piece on Market Watch. Norman Winarsky is the former president of SRI Ventures at SRI International, an independent research institute. He was a founder of SRI’s venture strategy and process, which has resulted in more than 60 ventures worth over $20 billion, including companies such as Nuance, Intuitive Surgical, and Siri. Winarsky and Henry Kressel are co-authors of a new book, “If You Really Want to Change the World: A Guide to Creating, Building and Sustaining Breakthrough Ventures.”
“How many of you, after all, would invest in a basket of all the unicorns and expect to make money?”
Private companies that have reached valuations of at least $1 billion — so-called unicorns — are the stuff of dreams for entrepreneurs.
Recently, some of these mythical beasts — including Uber, Airbnb and Palantir — appear to have become real. For too many of the other unicorns, however, we believe that they are a mirage, with hyper-inflated valuations that are leading to another bubble and the subsequent return to reality. How many of you, after all, would invest in a basket of all the unicorns and expect to make money?
But let’s forget our skepticism about unicorns generally, and look more deeply at them. According to Fortune, as of January 2015 there were 144 of them. Of those 144, four are in health and medical devices, two in drug discovery, three in energy, one in space technology and zero in clean water. Or to put it another way, about 7% of the companies are non-software related in areas that involve deep and potential breakthrough technology, and with potential great benefit to the world. Digging even further, many of the companies were built before most of the current unicorns were created. So why are there so few unicorns in areas that can truly make a difference?
Here’s the thing that people aren’t talking about. The unicorns that can really change the world with their breakthrough technologies are rarely being created or being invested in by traditional investors. This is a real tragedy since there have never been more opportunities to help the world (profitably) with new sources of energy, new medical technology, new ways to clean the environment and new ways to help the sick and disabled.
“The unicorns that can really change the world with their breakthrough technologies are rarely being created or being invested in by traditional investors.”
There are two reasons: First, investors that can invest in a venture that might become a unicorn without having to worry about technology risk will usually invest there instead. Venture capitalists are attracted to opportunities that have maximal potential return and minimal perceived risk. Without being funded and nurtured, these types of new companies cannot exist.
The second reason for these “missing unicorns” is that the current fad of “fail often, fail fast” is not a good model for building such ventures. Great entrepreneurs with visions of creating breakthrough companies need to build their venture with well-conceived value propositions before they launch their venture. In the words of venture capitalist Mike Moritz, “they need to know true north.” They need to understand the market segment they are serving, their potential customers and the compelling product solutions they are proposing. They need to encourage great investors that now is the time for a technology breakthrough to reach the market, and that the depth of technology is a source of differentiation. They need to have sufficient funding — usually millions of dollars — at 10 times what is commonly thought to be necessary for a “software app” startup to advance the technology from the prototype stage to a product that can serve the market. They need to have a stellar team that’s exquisitely focused on the market problem, not one that is built to solve any market problem. This is not easy.
How, then, do we inspire the creation and development of the missing unicorns? First, we need to give entrepreneurs a constructive model for creating these ventures. They have a higher bar to gain investor interest, but they really are building breakthrough companies that are not mirages: Beyond that, there are great investors who truly want to put their investments into ventures that are based on great technology and also have a real interest in benefiting mankind. These are the investors whose performance usually comes out on top when there are ratings of venture capital firms. The constructive approach to launching ventures — a process proven over several decades that the best entrepreneurs and venture capitalists are familiar with — has a much higher probability of success.
“…when the bubble breaks, investors will seek the opportunities that are truly differentiated by their technology and management, and have a chance to make the world a better place.”
Second, we need to be patient. When the current market starts to turn, investors will seek opportunities that have great lasting impact with great technological depth. These types of ventures are counter-cyclical, and when the bubble breaks, investors will seek the opportunities that are truly differentiated by their technology and management, and have a chance to make the world a better place.
There have never been more opportunities in markets and technologies than now. We’re all part of remarkable revolutions in business and technology, with breakthroughs in artificial intelligence, robotics, personalized medicine, medical devices, new small satellite systems, new materials and new energy sources, to name a few.
Ventures based on these breakthroughs will have the capacity to help all of us in every way, making us happier and more productive in our lives, fixing the damage to our environment, helping the elderly, providing new treatments for diseases, and more.
Let’s build unicorns in the areas that really matter, taking advantage of the great technology breakthroughs that we’re all experiencing, and not trust the future of our most precious resources — our passionate, brilliant entrepreneurs — to chance.
IVY is a social university dedicated to inspiring connection, collaboration, and growth. To learn more, visit IVY.com.