A Reuters story, by way of Yahoo! News, has highlighted recent investment trends by venture capital (VC) firms once again eying green companies for funding. The story focuses on how VCs are largely shy about investing in capital-intensive startups, which is no secret to the technology industry and its entrepreneurs. As an example, the semiconductor industry is one that is suffering from VC funding for new innovative startups, as EE Times highlighted in a recent article. While this strategy is understandable from a business perspective, it’s unfortunate from an innovation perspective.
One might argue that large companies will take the innovation helm in the place of startups but, will they? We often see large companies acquire small startups precisely for the innovation the startup created. So, in the absence of startups to acquire it’s debatable if large companies will innovate the same way. A large public technology company has a different “mission” than does a startup. Sure, both are about making a profit but, a startup is first about investing heavily in R&D and product development to bring something to market that is unique in order to create that profit. A large public company is first about creating or maintaining profitability, which typically leaves less for R&D. At public companies, sometimes profitability is created by cutting back on R&D and product development.
The technology industry mantra has always been “innovate or die” but, if large companies don’t have challengers, the innovation is not as needed. We are stuck in an era of less innovation than we saw during the 70s, 80s or 90s – sure, sure, it’s all debatable but, the debate works both ways. Capital-intensive companies are capital-intensive for a reason – they lead to more overall innovation. While there are some innovative ideas in Facebook and Twitter, etc. and these companies require less capital to turn a profit, it does not seem arguable that these companies have provided as much technology advancement as say, Cisco, or Intel (founded ’68), etc. These capital-intensive companies truly changed the face of the world that setup the possibility for Facebook or Twitter to even be a possibility.
I suppose the move away from capital-intensive investments is a sign of the times. Everyone wants the quickest path to a profit. Again, it’s understandable. If it were my money and I had a choice between investing a dollar in a company that would return two dollars in one year or five years I’d put it into the one that takes a year. But someone somewhere has to step in to aid capital-intensive startups. Perhaps it’s DARPA or some form of DARPA that also focuses on capital-intensive startups for multiple industries beyond defense. Whatever and whoever it is, let’s hope it starts happening again soon.