Beyond 2001: Investing in Internet and Early Stage Technology Companies

Chris Rollyson

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Synthesizing the Lenses

Each of the approaches, or lenses, described above has a unique value for evaluating the investment potential for ESTCs and Internet companies. However, it is not to be implied that each lens should be used for each investment; in fact, some of them will be quite impractical in some situations. If you are a venture capitalist, angel, prospective co-founder or employee, you will potentially be able to use most of them because you will have direct access to the company’s executives, and you can ask them questions directly. Their responses will be indicative of how well the executives have thought through their venture.

Depending on the company’s maturity as well as the development of the market space, it will be impossible to use some of the lenses fully because there will be too many unknowns. That said, you should be able to do a cursory analysis and draw conclusions, carefully stating your assumptions and hypotheses. By being aware of each and trying to use all lenses, you should gain a multifaceted perspective on the investment as well as a robust body of knowledge to use when discussing the prospective investment with others. Likewise, you can use the lenses after you have made the investment to evaluate its progress.

Regarding the Company View, typically two or three lenses must be extremely compelling. If they are not, either the leaders are not articulating them well, or there’s not much there. It is unusual for an ESTC to have standout showings in all six. Of course, by no means do they have equal value: their weight is a function of where the company is in the adoption curve (for example, operations gains importance as the number of customers grows).

Conclusions

The honeymoon is over, and now investors can set about building a marriage ;-). Creating sustainable wealth through investments in early stage technology and Internet companies will require a much higher level of analysis than most investors were accustomed to until the present, and the framework presented here can serve as a preliminary model with which to begin.

Most ESTCs and Internet companies will be selling their solutions to B2B companies for the foreseeable future, and many of their customers will be BAMs. Therefore, investors will be well served by having an in-depth understanding of both e-business from the BAM perspective and the dynamics that govern the ESTCs. Collectively, the transformation of the BAM world is the ultimate context for creating value with all kinds of technology.

As globalization and technology continue to shrink product/service life cycles, an increasing proportion of a product/service’s value will be information about how to use it to create value from the customer’s standpoint. Because technology, with its low transaction costs and high service levels, greatly facilitates information exchange, BAM executives will benefit significantly by actively investing in early stage technology by applying it to their businesses. This activity has intrinsic value: their knowledge of how to integrate discontinuous change into their organizations will be useful in itself because it will push the envelope and encourage thought about how to create information-led value in their offerings. They will also acquire new capabilities earlier at more favorable terms.

In addition, BAM executives will profit from working closely with ESTCs from a business strategy perspective because the ESTC life cycle is a pure representation of commercializing technology and ideas, and most BAMs are notorious for their inability to commercialize technology because revolutionary thinking and discontinuous change are not part of most corporate cultures. By studying and participating in ESTC life cycles, they will gain a model and process that will hold lessons in their own context.

Likewise, ESTC executives can profit significantly from partnering with BAMs, which hold the lion’s share of market power and understand market dynamics. BAM-ESTC relationships have enormous strategic value if each party knows how to exploit it.