Are IP-based ventures as obsolete as steam trains?
Reading the press and leading blogs at the moment, it would be easy to think that modern entrepreneurship is defined by the new generation of lean web-tech and crowdfunded hardware ventures.
My work has always been in IP-based ventures, typically with investment from Angels or VCs. It all sounds a bit dull and 1990’s by comparison. Has this approach become obsolete? Is all the investment and talent moving on to new types of ventures?
While the new kids on the block are getting much of the attention, I’m convinces that this is not a zero sum game. The new activity represents ADDITIONAL entrepreneurial and investment activity and is NOT DISPLACING what went before. In fact, raising public awareness of the central role of entrepreneurship in a healthy economy BENEFITS EVERYONE in the entrepreneurial space.
In terms of markets, most of the IP-based companies I work with serve B2B markets with big-ticket products. ATEEDA sells testing technology to silicon chip vendors. Contemplate sells software fault finding tools to Investment Banks. ISS will sell process monitoring tools to chemical plants. The new generation ventures tend to serve B2C markets or B2B markets with SAAS propositions where the total sale may be substantial but the entry price is low – a few users for a few tens or hundreds of dollars a month. IP-based and new generation ventures are not competing in the same markets.
The entrepreneurial activity in apps, software and hardware is built on the innovations of IP-based ventures. Smart watches are possible because of the work of IP-based ventures in touch-screen displays, processors, batteries, motion sensors, communications chips and antennas. New generation ventures stand on the shoulders of IP-based ventures.
This highlights another fundamental difference. Looking at new generation ventures there is a relatively short and low-cost path from idea to product (and from product to revenue). Online offerings can be prototyped rapidly and even market tested with a “concierge minimum viable product” where a human does the work behind a web interface. Hardware products are created by combining existing components and technology into clever designs delivering new functionality. IP-based businesses typically can’t get to market as fast or cheaply. Designing a new silicon chip technology takes a number of skilled designers many months and requires hundreds of thousands of pounds to access tools and prototyping. In biotech or green energy the costs can be higher still. Even lean IP-based ventures require hundreds of thousands in investment to get to market so bootstrapping and crowdfunding will not replace angels and VCs.
The people building these ventures are not the same either. To generalise grossly, IP-based ventures originate with scientists, are brought to fruition by engineers and sold by the big-ticket sales guys. Lean web-tech companies are founded by comp-sci grads or people with domain expertise and sold online. Crowdfunded hardware companies are founded by designers and product experts and sold online. IP-based and new generation ventures are created by different people although of course there is some overlap.
Something similar applies to funding. Angel syndicates such as Archangels, Highland Venture Capital, TriCap and Discover continue to invest in IP-based businesses, and the level of investment continues to grow. Some are additionally embracing new-generation ventures, but most of the investment in web-tech is coming from a new generation of angels who made their money in the online technology sector. Crowdfunding is drawing in a huge audience including customers first-time investors. Of course it includes some existing angels, but many of these are making crowdfunding investments in addition to their traditional syndicate activity (as the growth in that market shows). New generation ventures are being funded with new money.
Conclusion
The IP-based companies I work with are not competing with new generation ventures for markets, talent or investment. The overall upsurge in entrepreneurial activity and increasing recognition of its importance is only benefiting the sector as a whole. Furthermore the new investors and customers created by new generation ventures are driving increased consumption of the products from IP-based ventures!
The companies I work with may no longer be the cool kids, but the opportunities are greater than ever. Am I obsolete? Absolutely not!
[…] I think perhaps that our Angel investors in Scotland are a little more patient with their companies than Paul’s experience suggests US ones are. I wonder if that is a good thing or a bad thing? Perhaps the difference (in part?) that many of the companies and investors I am thinking about are in high-tech rather than web-tech technologies. […]