What will drive long-term value in the tech sector?

Will the tech sector continue to defy the gravitational rules of business with overheated valuations for unprofitable companies? Should we be collectively holding our breath that “the next big thing” will be the Internet of Things (IoT)? Or is it simply a case of too much angel, VC and acquisition money chasing too few really good new business model ideas?

Stratospheric Valuations.

Simple. Personal. Real Time Messaging. Gold.

The Wall Street Journal reported on the stratospheric valuations in the tech sector a few weeks back. They cited the $ 19 billion Facebook acquisition of WhatsApp back in February in a play to dominate messaging on phones and the web. Then there is the valuation of Uber at $ 18.2 billion in a recent round of funding. That makes Uber worth more than Whole Foods, United Airlines, and ALCOA. According to The Guardian's James Ball this valuation represents "...a nadir in tech insanity." 

Moving People. Stratospheric Valuation.

Doing the simple math, that's a whole lot of taxi-dispatched rides. Bell went on to say "So long as there are greater fools down the line - prepared to buying the hype and load up on tech stocks - the train will carry on...founders cashing in on the venture capitalist, who in turn get rich off the pension funds and 401ks who load up on these stock after buying into the west coast hype."  

Some scary thoughts around some really big numbers.

What's the next big thing?

A bad idea - that died quickly.

The WSJ Technology Columnist Christopher Mims went on to report on more start-ups a few weeks later in an article titled "Is Silicon Valley Pouring its Money Into the Wrong Stuff?

 They cited possibly the dumbest app ever "Yo" that allows users to send only one message is reported worth $ 10 million, and Washboard -  the start-up that launched a while back promised to  deliver a roll of quarters (worth $ 20) for only $ 27. Perfect for people who are lazy and hate standing on line at the bank. Thankfully, it just closed down.

The "Smart Things" value proposition. But is it good business?

Mims is not even convinced that "smart homes" powered by IoT are the next big thing. I tend to agree with this perspective. I don't wake up in the morning using my smart phone as the remote control device for the rest of my life. I actually get up, go running with my dog in Central Park and eat breakfast, all without any tech intervention.

Mims argues that the complexity added by automation outweighs the convenience. The WSJ visited "the smartest home in America" - inhabited by Smart Things CEO Alex Hawkinson. He says all these dumb objectives that are now connected promise to make life better...at least in theory. Watch the video and you can judge for yourself. The only thing that really made sense to me was the home security use case.

Is too much money chasing too few really good ideas?

Lots of start-up time and energy is being channeled into optimizing advertising platforms vs. creating life transforming businesses in energy, food production or medicine. Simple research shows that the entire market for US advertising is about $ 100 billion against the backdrop of the US GDP of $ 16 trillion. All these ad-optimizing sites are chasing 0.6% of the US economy. I didn't go to Harvard for business school, but I get the folly in this misdirected effort. Still this fixation on monetizing business models based their ability to generate ad revenue continues.

Where does the US need help?

The list of worthy sectors for investment and tech-driven improvements is not hared to find. Crumbling infrastructure, the "digital divide" of those with easy access to the Internet vs. not, affordable medical care, wellness education for a nation suffering an obesity epidemic and widespread substance-abuses. The list goes on and on. 

A smarter way forward.

I admire VC firms like Artiman with its one line description of "Partnering for the long haul" and its investments in companies that meet basic human challenges with "white-space investments."

They openly claim they love hard science and technology. They say that some of the most exciting disruptions come from technologies in the "ampersand" in R&D - proven research that hasn't been commercialized yet. 

Just look at their amazing portfolio of investments that cover a broad range from 
CellMax Life and OncoStem Diagnostics focusing on cancer diagnostics to that using leading edge technology to zSpace, a firm that enables natural interaction with virtual holographic 3D images for manufacturing, architecture and medical research. 

A venture investor taking this "doing well by doing good" approach to business is NGEN. They invest in companies that positively improve the environment and human wellness, that offer rapid growth and sustained profitability. What a novel idea.

These types of investment are not so glamorous, and I don't see may pitches for these kinds of firms at all the NYC tech meet-ups I attend. So I just might encourage my HS senior age son to take AP Chemistry and Physics this fall and major in a hard science in college. This education track may lead him to a career in medicine or being an engineer - and end up paying handsome dividends, not only for him but for many people in the long-run as well.