The mirage of deep tech. Bob Dylan. Atomico on Europe. Building IRL bridges. Selling short.
Today: My column in “Sifted” about the limits of deep tech. Essays from the past week. Newsletters from The Family.
The Agenda 👇
European tech people: please avoid the siren’s call of deep tech
Bob Dylan got paid—does it matter?
Atomico has the big picture on European tech
Can infrastructure be a silver bullet for communities and economies?
I dream of shorting companies as the Entrepreneurial Age progresses
More insights for entrepreneurs from The Family
My latest column in Sifted highlights a big problem in European founders’, investors’ and governments’ obsession with ‘deep tech’. The attraction is understandable. It’s easier for governments to funnel more public money into basic research than it is to stand up to entrenched business interests, and it’s easier for entrepreneurs to dream of making a groundbreaking discovery than to face the harsh realities of the market. But focusing on the technology itself won’t help the European startup ecosystem catch up, because of a simple observation that veteran tech investors like Bill Janeway and Jerry Neumann know well: there’s always more technology available than practical applications taking advantage of it.
👉 You can read my full reasoning here: Do we really need ‘deep tech’?
🎸 Five Trends Revealed By the Music Industry
My regular readers know my background with the music industry well, as it was the starting point for my perspective on how technology drives the paradigm shift in various industries. Its status as a lightly-regulated industry dealing largely with intangible assets meant that the impact of the current paradigm shift was seen there much more quickly and obviously than in other sectors.
As a result, the music industry today is quite advanced in its transition, as most recently symbolized by Bob Dylan’s selling of his entire back catalog to Universal Music Group. The headlines concentrated on the amount that was paid out, but if you dig deeper, there are numerous trends that the deal makes plainly clear.
For example, consider the question of recurring vs. non-recurring revenue. An entrepreneur today can access an enormous amount of data that allows for a very granular view of what generates recurring revenue (which then has its own particular value in terms of financialization) and what is subject to the uncertainty of non-recurring revenue. Today’s music industry is able to make deals based on this kind of reasoning which even just twenty years ago would have been unthinkable. And that means it can hold valuable lessons in sectors that are making their own way through the current transition.
👉 I dug into what’s behind Dylan’s big payday in Five Trends Revealed By the Music Industry.
🇪🇺 On Atomico’s 2020 State of European Tech Report
The European tech world is still developing its traditions (I’m not sure we’ve yet found our Burning Man, for example 😉), but Atomico’s annual State of European Tech Report has quickly become a can’t-miss. Tom Wehmeier and the rest of the Atomico team provide both the big picture and critical focal points to understand how European tech is changing in the short, medium and long terms.
While much of the news is quite positive, particularly considering the more general state of the world this year, there are residual issues that Europe would do well to address. One example is the relative lack of successful Series B fundraisings, which are that critical level where a startup with product-market fit can really start scaling up to become a formidable value-creating business. Another is the generally low level at which European governments act as their growing startups’ users, given that government demand has long been a resource that helped boost budding companies’ fortunes.
Finally, one very intriguing trend is the feeling among founders that they no longer need to relocate to the US in order to build something great. It's another sign of the Great Fragmentation that is currently underway, and at the very least should be encouraging for a host of potential entrepreneurs willing to take the leap and serve their local market with an exceptional product.
👉 Read on in On Atomico’s 2020 State of European Tech Report.
🏗 Infrastructure and Growth
Many observers today believe that one way to combat current economic difficulties is through large-scale infrastructure projects. It’s easy to understand why: many areas, particularly in the US and Europe, are facing a dangerous situation where infrastructures are degrading (remember the bridge collapse in Genoa?) and local populations are in need of work. And after all, major projects like the Hoover Dam served as long-term value drivers in the wake of the Great Depression, right?
Yet I’m quite skeptical about the ability for such infrastructure projects to carry out a similar miracle in today’s climate. There are unfortunately many more examples today of infrastructure that clearly doesn’t turn into economic growth, and indeed that even prove to be a giant waste of taxpayer money.
Still, I do think there’s still significant growth that could come about thanks to the digital world of bits, even before getting back to the physical world of atoms. That will require that the state establishes a welcoming institutional environment for such building to take place; but that could prove more likely than completing ambitious and value-creating infrastructure projects in the world of atoms.
👉 I talk about the continued importance of bits in Infrastructure and Growth.
😵 Shorting Companies in the Transition
The current record-breaking levels at which stock markets around the globe are sitting suggest everybody’s just betting on things to keep going up, up, up. Given the past few years, that’s an eminently understandable position to take. But we also know that the current paradigm shift will send more and more companies the way of Eastman Kodak. Isn’t it also a good idea to short-sell those companies that you think are headed towards bankruptcy?
Not all of those companies are necessarily leftovers from the 20th century, either. One new investment fund has publicly revealed their strategy of placing a portion of their bets in short positions against companies in the tech sector. WeWork’s story (among others) is still fresh in everyone’s minds, after all.
But the allure of short-selling quickly runs up against its realities. For one, the potential losses on a short position are theoretically infinite, whereas a long position can only see you losing as much money as you put in. This alone dramatically shifts the risk profile, and brings up the question of whether short positions are only possible for large brokerage firms.
👉 I keep wondering if shorting could be a good idea in Shorting Companies in the Transition.
Sounds interesting? Subscribe to European Straits and let me know what you think!
🎄 The Family’s advent calendar is heading to the finish! Throughout December my fellow The Family directors and I have been sharing a daily startup lesson as we prepare for the start of our newest batch of startups in January. Lately it’s been:
My cofounder Alice talking about her reality as an entrepreneur in I'm not a role model.
Balthazar explaining why you can’t wait to make money in Cash is king.
Mathias showing a better way to understand and explain your potential market in Trillions, schmillions.
And me on a topic that my faithful readers will have already understood in Content is king. (Yes, there are multiple kings! And being an entrepreneur is all about balancing them out 😉)
From The Hard Truth About Deep Tech (June 2019):
It’s no wonder why Silicon Valley is so passionate about the global deep tech effort. They have their sights set on specific problems in certain industries, and they know that they need breakthrough technologies so that software can more easily digest those. But they arguably prefer that other countries take the risks of carrying out R&D while large US tech companies reap the rewards once the new technology works. Only China is drifting away and insulating itself from that clustering effect.
All recent editions:
Shorting Companies in the Transition—for subscribers only.
Infrastructure and Growth—for subscribers only.
On Atomico’s 2020 State of European Tech Report—for subscribers only.
Five Trends Revealed By the Music Industry—for subscribers only.
Reinventing the State w/ Mariana Mazzucato. The gig economy. Brexit. Silver Lake. Tony Hsieh and Las Vegas.—for everyone.
On Jerry Neumann’s Productive Uncertainty (Round 2)—for subscribers only.
First Manufacturing, Then Financial Services, Then Brexit, Then What?—for subscribers only.
Tony Hsieh’s Other Legacy—for subscribers only.
No, Gig Workers Are Not Your Servants—for subscribers only.
Remote Work. Stories. Opportunities in Asia. Productive Uncertainty. Low Interest Rates.—for everyone.
European Straits is a 5-email-a-week product, and all essays are subscriber-only (with rare exceptions). Join us!
From Munich, Germany 🇩🇪
Nicolas
