As fantasy and reality converge in the 4th industrial revolution, innovation has now reached the realm of multiple disciplines coming together. The hyperobjects, thus created, are difficult to grasp but even more difficult to pass as investment targets for the discerning investor.
Suppose John heard (and John will, if John hasn’t already), “US Govt. is setting aside a $1.3 Billion fund for quantum computing”. John knows this is close to the boundary of emerging technology and that whatever progress we have made in the last 2 centuries since the 2nd industrial revolution will seem like Prologue to the mega-volume that humankind can write when this technology goes mainstream.
As the glory of the opportunity sinks in, John’s brain processes the next and now logical response: what does it mean for him in the short run? The investor in John has fired millions of synaptic connections as John grapples with some questions:
Is this good for my wealth? Or is it bad? Or does it even make a difference?
Do I have an equity exposure that I need to shore up? If not, do I get in now? If yes, which companies?
Is this even real? I mean they’re saying setting money aside… but when was the last time that something that money was set aside for actually happened and how long did it take?
Which of the companies — where I am currently invested — will be disrupted ?
And obviously, next will be calling up some ‘experts’ (who maybe your next door neighbor, a cousin you see only on weddings in the hyper-extended family, an office colleague and in the rarest of rare cases, maybe your boss) to get their opinion. From here onwards, depending on what John hears, he will choose to cross the chasm of inaction (followed by ruthless propaganda of his opinion) or shrug his shoulders and perk up his ears for the next juicy tit-bit to process.
John is not alone. Most new technologies are now a fusion of multiple disciplines of science, applied mathematics, visual and conceptual art and not to forget, popular culture. Noted philosopher and published author, Timothy Morton’s coinage of the term, Hyperobjects, couldn’t be timed better. All the same, the impact of these technologies are disrupting economies and civilizations in unprecedented ways. The measured impact alone touches up to 50% of current world GDP in a decade as a best-case estimate and 25% of current world GDP as a conservative estimate. Investors don’t have an option but to get in on the action.
What should John do?
With the kind of impact we are talking about, ignorance is certainly not the bliss investors need. They need a few other things. First and foremost, they need access. Access not only to the research arms of large monolith corporates with diversified agenda and a risk of extinction but to the small nimble early-stage businesses that have a single-point agenda to tap into the revolution that is upon us. It is easier said than done: investors can’t waltz through the doors of any startup waving a checkbook asking for a piece of the action. Not only will the founders reject such offers for their presumptuousness, they will turn around and tell the investor that they are looking for someone who wants to understand what they are trying to create and add value to their business. Let’s not forget that these founders themselves have left opportunities to become millionaires in cushy jobs to pursue their passion.
Second, investors need to assess the chances of success. After all, a lot of startups don’t take off. When they do, they do it in style returning 3000% of capital invested or even more. Yet those that fail, can wipe out the original capital invested. So investors need to hear from seasoned investing and domain experts on which risks are worthy of their portfolio and in what measure. More often than not, this requires a series of conversations with founders, industry veterans and investment specialists. A lot of dimensions need to be explored before taking a position of buy or pass on a target opportunity. These include but are not limited to valuation, product-market fit, timing, founders’ grit, go-to-market plan, obsolescence / substitution threats and of course, unit economics.
Third, pulling the trigger requires a legally kosher framework to ensure interests are protected, objectives are aligned and there are no understanding gaps. Finally, as the company matures over the next 3 to 5 years, investors need to start planning their exit while ensuring that their capital is being utilized well.