Chase Innovation, not Efficiency

You’d think that with all the frothiness of the previous year, there would have been investments in a large number of interesting new ideas. In fact, it’s quite the opposite: most recently funded companies are building businesses around increasing efficiency, rather than true innovation. Take care about confusing the two:

Innovation companies are the ones operating at the margins, anticipating a new market or creating a new one altogether.

Efficiency companies exist to wring out the excess intermediaries of current resource allocation systems — that is, until there’s nothing left to squeeze. What then?

Today’s top performing startup companies understand that dichotomy well and move early to transition from efficiency to innovation: that’s why Uber is diving headlong into self-driving cars, while Lyft is spinning its wheels playing catchup as Didi Kuache’s US arm. Last generation’s startups-turned-giants understand this concept well, evidenced by seemingly moonshot projects such as Google X, Facebook’s Project Loon, and Amazon’s Kindle, Echo, and Dash button. All of these projects are ultimately designed to tear down existing barriers to growth, be it attention spans or basic internet access, and increase the company’s growth horizon.

With often no existing market to capitalize, innovation companies foster by necessity a proactive strategic mindset to nurture, even force, growth. As the above companies have ably demonstrated, that resulting culture enables innovation companies to endure through downturns and burst bubbles — which, by the way, have a curious ability to evaporate inefficiencies much faster than any upstart disrupter has ever been able to do.

This bubble is a period of too. many. damned. efficiency companies. Murmurs of the looming end have been getting louder: from my perch at NewGen Venture Partners, I’ve seen a definite recent slowdown of early stage dealflow over the past several weeks. And honestly, I can’t be more excited — the party’s dying, the noise will quiet down. It’s almost morning in Silicon Valley; time to wake up and get back to real venture capital work.