Whether you’re an entrepreneur or a growth investor looking for the next big thing in technology, right now is a wildly exciting time to be in Silicon Valley, with innovation and the acceleration of progress creating a range of opportunities like never before.
Michael Moe has seen it all before in Silicon Valley, establishing growth focused investment bank ThinkEquity Partners out of his team at Merrill Lynch, before starting Global Silicon Valley (GSV), a merchant bank set up to find and grow the star companies of tomorrow.
He’s a leading authority on the research and investment techniques involved, writing the best-selling ‘Finding the Next Starbucks’ and in an interview with Real Vision TV, Moe outlined the new technologies that have him excited today, while giving some insight into the investment philosophy that has made him so successful.
“It’s a wildly exciting time just to be living, to be an entrepreneur, to be an investor,” Moe told Real Vision. “You see this kind of explosion of incubators and accelerators, which GSV Labs is one of. It’s because people are tapping into this thirst to create things and this opportunity to build their own future, and that’s really exciting. That’s really exciting times.”
Picking the Winners and Taking the Risk
There are some 170 start ups in Moe’s GSV Labs incubator at the moment, with so many interesting ideas, but with valuations so high, even for an early stage investor, the perception of the technology sector is that you’ll need to accept that while some will work out, others will go to zero.
That’s not the way Moe views the landscape, although it’s a given that the earlier you invest, the more volatility you can expect in your investment returns.
“That’s just a reality that you have to be comfortable with,” he said. “But I also believe that through research and domain expertise and network, you can not eliminate, but reduce a lot of the risk that you’re taking on when you’re investing in a young business. And I think in terms of valuation, of course, it’s in the eye of the beholder, he said, adding that every investment they make is underwritten with an expectation of a 30% to 50% minimum IRR.”
Digital Tracks Pave Way for Unicorn Valuations
Being one of the relatively early investors in Facebook, when it was still a private company, is one investment that worked out well for GSV, producing far more than their minimum IRR expectations.
As Moe said, sometimes the best ideas are the most intuitive, without complicating things too much, as you had to be basically not paying attention to what was going on in the world to not see the prospects in social media.
“I think people look today, and they see all these businesses with $1 billion-plus valuations, the unicorns. They say, oh, this must be crazy,” Moe said,
“Well, what’s changed is over the last 20 years, you’ve had these digital tracks that have been laid, with 3.1 billion people on the internet, 2.6 billion smartphones and an app economy. So an entrepreneur can go from idea to reaching millions and tens of millions of people at breathtaking speed, which creates all this valuation. So we’re an investor in Snapchat, for example.”
These days, in order to ‘pay attention to what is going on in the world’, Moe enlists the help of his daughters, who are in their 20s, which is working out better than trusting his own instincts, as they turned him on to Snapchat and Spotify.
“You realise you’ve gone through a change when it’s not intuitive for you, but you’re watching society. And, again, I’m lucky to have two daughters and was watching them on Snapchat several years ago and said, OK. I might not get this, but something here is going on,” Moe said.
“Spotify I happen to love. But my daughters turned me on to Spotify before I appreciated it…They’d rather have the electricity turned off in their apartment than their Spotify account. So you know something is going on. So I think some of that is just being an observer,” he said, citing one of the the core philosophies of Peter Lynch, which was invest in things that you understand and you get. “And I think a lot of times, people think some of the most obvious things can’t be a great opportunity because it’s so simple. Well, you know, investing in things you don’t understand but seem very sophisticated isn’t a very good recipe for success.”
Feeling the Buzz – Innovation in Digital Currency and Education
Looking down the technology pipe, at what’s creating the buzz in Silicon Valley it’s the blockchain and digital currency applications that everyone’s talking about, while Moe is also focused on opportunities in education.
“I look at that like gravity, which is inevitable,” Moe said. “So you look at traditional paper currency and why it was created and when it was created. Then you look at the world that we’re in, which is increasingly globalized, which is increasingly online, and it takes a new way of thinking in terms of what’s the right way to address that from a commerce and currency standpoint.
“If you look at things like education, we’re a big believer in transforming education. Why? Because we’re in a global marketplace and a knowledge economy where education increasingly makes a difference not only how an individual does, but how a company does, and for that matter, how well a country does.
“Now we have views with the investments, and we think they will be successful. But what we know for sure is that’s going to change dramatically in terms of what’s going on in the education world. And we know there are going to be significant companies created just like we know in the blockchain world, there is going to be significant companies created.”
A New Virtual Reality — Radical Advances
The other big new technologies on Moe’s radar is augmented reality and virtual reality, which had been rumoured for decades but are now finally here.
“Pokemon Go, I think, has kind of woken up the world that this is now finally going to be here and now. But there are some very exciting technologies that are being developed, both in Silicon Valley and outside of the Valley. I think virtual reality is going to be something that gets a lot of attention and creates a lot of opportunity over the next few years.”
Powerful software analytics — otherwise known as Big Data — is also expected to generate some significant applications, particularly in the health care arena, with its ability to crunch huge amounts of numbers and test massive data sets. “You’re already seeing Watson, IBM’s Watson, the reigning Jeopardy champion, has been shown to be twice as accurate at predicting somebody who has lung cancer than actual doctors. And, you know, the applications go on and on,” Moe said.
He went to highlight genomic company, 23andMe, which is effectively a big data company, that allows you to get your own personal genome for $200 and alert you to potential diseases and how you could address those, before it becomes a real issue. “That’s a huge, game-changing deal. Now 10 years ago, it would cost you $100 million to have your own personal genome done. Now you can get it done for $200, so pretty radical stuff.”
A Long Term Mindset that’s Gone Viral
For Moe, much of the excitement comes down to the mindset of Silicon Valley and the long term view, held by successful investors and entrepreneurs there, but he’s also focused on other innovation hot spots around the world.
“I think Silicon Valley, one of the key ingredients to the magic is that people are long term thinkers. They’re big thinkers. Not looking for incremental ideas, but truly game-changing ideas, that can come with a lot of risk,” he said.
“And our name just, GSV, stands for Global Silicon Valley because what we believe is that mindset of innovation and entrepreneurism that’s made Silicon Valley such an amazing place has gone global. And it’s gone viral.
“And so what we’re interested in is connecting to these innovation markets around the world. London, is a hotbed for activity. New York is a hotbed for innovation and entrepreneurship. So whether you’re looking at Shanghai or Mumbai or Dubai, there’s just incredible excitement going around the world.”
To watch the full interview with Michael Moe, visit Real Vision TV. You can access this and many more interviews with a free trial.