The ears of our many tech-minded clients here at BX3 – as well as a few VCs and a Dell alumnus for good measure – have perked up upon my peppering our conversations with the lingo I picked up during my part-time business school course dedicated to studying the hows and whys of fostering innovation and creativity in startups and corporations. Take, for example: design funnel, complementary goods, and first-mover advantage. In terms of investment and societal progression, however, what is the union set of these concepts?
Q1 2021 hedge fund letters, conferences and more
Making Better-Informed Decisions
One of the reasons I took said class was the hopes of learning to make better-informed decisions at the funding table – and asking inquisitive questions worthy of my journalism background – to help prod and back the right products and platforms. Yet for every product that shows potential to drive innovation forward, there seems to be five products that get funding and plenty of headlines in the usual slate of tech and VC publications that turn out to be epic flops.
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Alluvial Fund performance update for the month ended May 2021. Q1 2021 hedge fund letters, conferences and more Dear Partners and Colleagues, Alluvial Fund, LP returned 5.4% in May, compared to 0.2% for the Russell 2000 and 1.0% for the MSCI World Small+MicroCap . . . SORRY! This content is exclusively for paying members. SIGN UP Read More
One product that comes to mind is the Juicero, the $700, then $400, then $200 kitchen appliance that purported to bring life and health-changing juice into homes across the country. Venture capitalists went on the record in the New York Times and Wall Street Journal extolling the intricacies of the investment deal and the product. “It’s the most complicated business that I’ve ever funded,” said David Krane, a partner at GV, formerly Google Ventures, told the Times in 2016. “It’s software. It’s consumer electronics. It’s produce and packaging.” The Juicero hit a peak valuation of some $270 million. The company raised about $120 million in venture capital funding, including from white-shoe VC firm Kleiner Perkins.
Juicero’s founder Jeff Dunn is exactly the type of entrepreneur who tends to get his foot in the door on Sand Hill Road: a crunchy, well-connected type who runs in the same circles as VCs; namely because, as the founder of defunct juice chain Organic Avenue, he offered a service feted by that crowd. Perhaps at first blush the Juicero may have appeared to be an example of incremental innovation in juice delivery, however viewed through Silicon Valley’s citrus-tinted glasses. At the end of the line, however, as a team of enterprising Bloomberg reporters discovered, the custom-made Juicero fruit packets could be squeezed by hand. In other words, the Juicero, touted as a product innovation, turned out to be the antithesis of process innovation.
As it turned out in this instance, getting one’s hands dirty -that is, with juice squeezing-turned out to be Juicero’s downfall. But what if the venture capital firms behind the overpriced squeezer had done their due diligence and gotten back to basics in another way? Studying the patterns and types of innovation as outlined in our readings could have provided a ready rubric by which to evaluate the Juicero. What innovations would this product have brought to the table? Looking further down the entrepreneurship journey, what future trends would Juicero have answered?
The Ideals Of Disruption And Innovation
This whole scenario illustrates a major shortcoming with the status quo of the US venture capital market. As longtime financial journalist Elizabeth MacBride wrote last year for MIT Technology Review, VC firms often fail to fund the things that people actually need. Rather, the team that funded Juicero got caught up in the ideals of disruption and innovation in their corporate buzzword sense: they were co-opted into marketing speak that diluted their meaning over time.
If $120 million hadn’t gone toward a foolhardy kitchen appliance, some other startup on track to develop a product or service that could have actually effected positive change on the trajectory of the world may have received that Series A round.
While the Juicero could have been an architectural innovation in terms of providing healthy products to families, a Wi-Fi enabled packet squeezer does not seem to answer the call for the demographic trends of, say, 2050. What will be the needs of the next generation or two? What will be the technological trends of the next 30 years? Will AI be the generation’s pivotal innovation? What about sensors or deep machines?
If venture capital firms were to stick to the original, literal textbook definitions of innovation and disruption when making judgement calls, it could be a step toward funding the products and platforms that the rest of the US and the world actually need. A cellphone-based fintech payments platform that benefits the roughly 30 percent of US families that are underbanked could help bring prosperity and calm, along with upward mobility. A product or platform that could give people in far-flung areas of Appalachia a reliable and cost-effective way of getting to work every day could help lower unemployment rates, bring investment into overlooked regions of the country – hence overlooked segments of the population — and eventually, may gain the attention and business of their more affluent urban counterparts. An extra-GPS geolocation system that gives instantaneous and to-the-centimeter precision on inventory and travel might not just be the next innovation beyond GPS; it could be a tool that could answer those all-pervasive privacy concerns.
Fresh squeeze: Things for startup investors to consider
Does an item or service offer a first-mover advantage?
Is it the first of its kind to market and thus can build a loyal customer base before other entrants get into the market? Juicero nailed down the QR-code juice squeezing market. But is that a broad enough market to tap?
How will real people integrate the product or service into their daily lives?
Let’s go back to the notion of complementary goods, products or services that tend to be used in tandem. Would a product or service that’s a candidate for funding work seamlessly with what they already own or platforms that they already use? If it’s a product or service that will enhance living for most people – rather than hinder productivity by having to learn more software or having to buy expensive accoutrements – then it stands to have a greater chance of making an impact. For many people, $30 juice packets are not already a facet of daily life.
In addition to being the name of a popular podcast, it’s a question worth asking as part of the due diligence process. Brainstorming is a key part of the creative ideation process. But how do those ideas pass muster after the idea gets honed by the pitching team? Or was that idea battle-tested at all?
If true innovation – not in the recent Silicon Valley sense – is to happen, we need to take a more reasoned approach in terms of going back to the research and writing that has heretofore shaped progress and design thinking. We need to place products and startups within the greater context of disruptive innovation and how likely a product will be embraced by the public at large. Only then we will know where to put our money where our mouth is – although that’s not likely to be on Juicero-squeezed juice.