Sramana Mitra: The basic discipline that growth is important and so is profitability went away in the early part of this decade. It’s starting to correct itself again. What happens in the minds of venture capitalists so that what seems like basic arithmetic suddenly disappears?
David Blumberg: Over the last few years, we like to oversimplify by saying that venture capitalists have only two kinds of glands. We have a greed gland and a fear gland, and we oscillate between the two. We get into these cycles where greed overtakes. That was 1999 to 2000, and then coming into 2007, and then probably in 2013 to part of 2015. Sometime in 2015, it started switching to fear. We had stock market nervousness. We had geopolitical threats around the world.
It was a very strange macroeconomic environment. Investments were down. There was a lot of strange behavior in the big market which had a percolating effect down into our market. One difference that I’d like to say is that the sport of an investment banker or someone who follows the public market is like surfing. They worry about waves and weathers.
Early stage VCs and entrepreneurs should be more like a scuba diver who’s worried about long-term currents and not hitting the reef. These are big, slower, and longer-moving trends. I try not to worry about the latest trend in Wall Street. I worry more about the new big platform trend.
What’s happening in the networks of the future? How do algorithms affect traditional industries that maybe disrupted? Those are the kinds of things that I think people should be looking for. There, the news is good for entrepreneurs. Just because you have a big, established brand with thousands of branch offices doesn’t mean you’re going to control that industry for the future decade.
Sramana Mitra: Let’s talk about those key trends where you see good news for the entrepreneurs.
David Blumberg: There are a few big areas that are dramatically helpful for young entrepreneurs. Things like the Internet of Things, which offers enormous opportunities because we take huge sloths of traditional industries that have been not touched very much by the internet economy or the mobile economy.
We move both of those things together connecting lots and lots of devices for increased efficiency that will need new algorithms, managerial dashboards, new supply chain, new cyber security improvement. There are lots of opportunities here because things that were once unconnected become connected. That’s one area. We don’t invest a lot yet in this area but synthetic biology is highly interesting. It’s very exciting.
Our focus is mostly information technology. A few things that specifically help young new entrepreneurs like agile development; the fact that we can do product cycles much faster, do short sprints in software development means that we can test with the market very quickly. That was not possible 15 years ago. 15 years ago, the model was sell big software to the CIO. We called them Doctor No. They were always saying no. They didn’t want to take a risk on a startup. Now it’s flipped.
Today, they cannot not take a risk on a startup. They have to engage with startups. I just came back from Japan two weeks ago. All of them said, “We need innovation. We need to look in the Valley. We need Tel Aviv. We need Bangalore. We need innovation from entrepreneurs in these new fields to bring life and dynamism to our existing brands, factories, and networks.” That is a sign of real progress. It’s not just from Japan. We get delegations from all over the world saying, “We’re a giant company. We need to engage with startups. We’re willing to take more risks.”
Sramana Mitra: Given the backdrop that we’ve discussed, what kinds of things are you excited about and what kind of things are you looking to invest in right now?
David Blumberg: I can cover 300 years of economic history in one minute. I’ll do it fast. In the 19th century, the huge opportunities was moving from animal and human power to machine power mainly through steam engine. Railroads, mining equipments, and agriculture were transformed.
In the 20th century, agriculture became extremely efficient compared to all prior human history by the use of tractor, combines, and fertilizers. In the 20th century, we believe that the huge improvement will come in the area of the services economy and the information economy. You might think those are different, but they are really tied together.
Services and information tend to drive much of the world’s GDP today even in the developing countries. More than half of the GDP in the world today comes from information services business. More than half of the world’s people today live in urban settings. We’re moving more and more in this direction.
The opportunity exists to make these large industries such as financial services, logistics, entertainment, insurance more and more efficient. A lot of human underwriting in financial services, for example, can now be done better through algorithms. We can distribute better through mobile phones in rural villages. A lot of these businesses will dematerialize and become more in the cloud and service-oriented.