VC Cliché of the Week

I've been thinking a lot lately about getting "ahead of the curve".

I am not sure what curve this cliche refers to, but for me its the market adoption curve of any technology or business model.

It's hard to make money in the venture business if you wait until the adoption curve starts to slope upwards to make your investment(s).  I believe that you must always try to look ahead to get a sense of what's next and make your bets before they are obvious.

Not everyone takes this approach. Certainly there is a momentum investor style in the venture capital business, but that is not our style.

If you get too far ahead of the curve, you can find yourself on the bleeding edge and that is no good either, so its a careful line you have to walk and nobody does it perfectly, not even the best venture firms.

But I am convinced that if you spend a significant amount of your time looking ahead, trying to get ahead of the curve, you'll have a better performing fund than if you simply invest in whatever is the hot trend of the day.

Comments

[Simon]

In addition to being the best strategy, staying ahead of the curve is also the most fun! :)

That said, as you correctly point out, it can be dangerous since you never know when the zeitgeist will arrive.

It could be six months or six years.

In order to limit the downside, there are two good risk management strategies that you can employ.

The first is to only invest in companies that provide a solution for an existing problem, where there are already manifestations of demand.

This way, although you may be early, you will at least know that a demand exists.

The second strategy is to only invest in companies that have a short road to profitability.

This way, if you need to tread water, you will be able to for as long as necessary until a chance for liquidity arrives.

I don't know what the financials/business models of companies like Keyhole Corp or @Last Software looked like but I imagine that they were structured in this manner.

[Peter Cranstone]

At the risk of “predicting the future” vs. a willingness to learn and adapt (from customer feedback) I would like to offer up this suggestion. Mobile is getting a lot of attention lately (not earth shattering news) – I think one of the more interesting areas is figuring out how to enable the current 70 million web servers to correctly identify when a mobile device is asking for something. Very few currently do this.

Secondly for those of us who have ever tried to complete an SSL transaction on a mobile device something clearly needs to be done in this area. It is simply ludicrous to encrypt the entire page when all that really needs protection is the credit card field. Of course this will require a re-work of SSL – something which is sorely needed anyway. Anyone in the ecommerce business uses SSL so there is a opportunity to monetize there.

Thirdly – data transmission. Lets make a simple but reasonable assumption… bandwidth levels will improve to all mobile devices (it’s in the carriers financial interests to do this). Customers will be able to access more data. In turn they will be faced with increased latency issues. CDMA/WCDMA is NOT the same as DSL/Cable etc. So it will be necessary to improve content acceleration techniques to deliver more data efficiently. Send less data and only send the appropriate data.

Forth – personalization. The Mobile phone is an extension of “ME”. It contains (or could) contain a wealth of information which makes my life easier. Unfortunately as I travel (surf) the web, the web has NO idea about ME… try and type in data a few sites on a mobile phone – it’s a nightmare. This problem needs to be solved. The server should recognize me, recognize my device and deliver the appropriate content.

Fifth – this is very simply – TLC… or Top Left Corner. Two worlds are colliding – Desktop and Mobile. Web designers will become much more aware of TLC. People don’t mind scrolling up and down on a mobile device (it’s easy to do) going left or right is a pain. Content needs to adapt to the customer i.e. ME. The future is all about marrying contact with content, providing the customer with faster, cheaper and easier access to more AND understanding ME.

Now to me that’s getting ahead of the curve (in my opinion)

[Keshava]

So where do you look to get inspiration to stay ahead of the curve?

[Howard]

As a VC, my push-back on your viewpoint would be that there needs to be a caveat based on the capital needs of the company as it waits the market to play catch-up. For venture investments in more capital intensive areas (comm equipment and semi devices come to mind), being ahead of the curve can be an excruciating experience as companies bleed cash before they know whether they've got a differentiated product in the marketplace. Understandably, for many of today's Web 2.0 businesses, this is less of an issue given their capital efficiency advantages, and so your statement is appropriate.

[Charles Plotnick]

I agree 100% on trends and being ahead of the curv. Maybe someone here can see a good investment opp.

I currently have a company based on the east coast that is involved with Video Central Station Monitoring. The Video Monitoring industry is new but a very fast growing end of the security industry, we are a licensed guard company that integrates or replaces ordinary guards on site and uses IP technology to monitor the site with video and audio.

We currently have accounts that vary from small to large in size. A normal contract right now is 2-5 year binding contact that can start at $500.00 per month to $10,000.00 per month depending on services rendered. It is my belief that the industry will include more video monitoring and over the next two years will be a standard.

Please let me know if your firm is interested in speaking to us further, you can contact me Charles on my cell phone at 646-708-4407.

[Mathew]

If it were simple to be ahead of the curve but not too far ahead everyone would be a billionaire.