Two of Silicon Valley’s most important investors, Intel Capital and Silicon Valley Bank, discussed the next great technology investment opportunities and what could go wrong.
SANTA CLARA, Calif - “Plastics” became a famous catchphrase in Dustin Hoffman’s first major movie, The Graduate. The whispered word was the simple piece of career advice given to the new college graduate played by Hoffman. Perhaps if a remake were made now the whispered catchphrase might be “Internet of things” or “Drones”.
Those two, along with Wearables, were among the most highly-touted technologies discussed by Arvind Sodhani, President of Intel Capital, the chip giant's investment arm, and Greg Becker President and CEO of Silicon Valley Bank, at an event here sponsored by the Churchill Club
It’s a good time to be a venture capitalist, particularly in Silicon Valley. A MoneyTree report for 2104 states that there were 22 venture capital investments in Silicon Valley of $120 million or more—that’s almost half of all the so-called mega deals, or tech investments that topped $100 million in the entire country last year.
Sodhani and Becker focused on technology sectors that will not only be big sellers, but will also disrupt established players and have an impact beyond its primary market. Take the so-called Internet of Things (IoT) that refers to all manner of devices and sensors that are being connected to the Internet.
“If you look at the last four or five years at, for example, drones, you’re seeing everything has a chip in it that allows you to connect, “ said Becker. “We’re in a period of innovation and disruption, and a great example is IoT, which we’ll see in the home, cars and in almost every device in the next three, four or five years, which is incredible.”
Sodhani was particularly excited by the potential of IoT for businesses and large enterprises, and less so for consumers.
“What’s very interesting is that there is a positive ROI in the IoT applications we’re seeing and that’s when enterprises and industries adopt things,” he said. “The industrial sector and enterprises will go for it. In the home people are getting a little tired of paying $29.95 a month for everything. “
Sodhani said IoT will help companies reduce maintenance costs and overtime charges. For example companies won't have to send someone out in the middle of the night to change a light in a parking lot or service a pump or jet engine because connectivity will alert them ahead of time when repairs or a replacement are needed.
“The cost of wireless connectivity is coming down so dramatically that everything will have a chip that both computes and connects,” he said. IoT devices will run on embedded batteries that can last for years, which will further reduce maintenance costs and downtime.
Is this the dotcom boom and bust cycle all over again?
With two leading VCs on stage it was inevitable the discussion got around to comparisons with today's IT economy and the turn of the century dotcom boom and bust that brought down so many high-flying Internet startups.
Becker took an informal poll of the audience asking how many felt we’re heading closer to a bust in terms of too many companies being overvalued versus a continued boom. The audience of several hundred investors, entrepreneurs and others in tech-related fields split about 60 to 40 in favor of the idea we’re heading closer to a bust.
Becker himself thinks Silicon Valley is headed toward an eventual bust thanks to continued unfettered investment, observing that far too many pre-revenue firms have received investments of more than $50 million. However, he says he’s stunned that so many high-flying startups have business plans that aim to disrupt industries.
“Before, if you take an Uber or an Airbnb, they would be selling to hotels and car companies to help make them more efficient. Now it’s more like ‘We can destroy these industries and take them over’,” he said.
Sodhani said there are several differences from the era of dotcom hype. The main difference is the available of inexpensive cloud computing services, that greatly reduce the upfront network and data center costs the earlier generation of dotcom startups had to incur.
“Distribution costs are a lot cheaper. Now we think of the world as a potential market. It’s cheaper to sell to 1.4 billion consumers in China and that’s a huge positive,” he said.
But analyst Rob Enderle who attended the event isn’t so sure cheaper costs means companies won’t fail as readily as they did back in 2000.
“I thought the argument that we’re in a bubble was well founded because a lot of companies are massively overvalued,” Enderle told eWEEK
. “The fact you can create things more cheaply isn’t really a counter point. That doesn’t address why companies aren’t overheated.”/p>
But Enderle does see one significant change. He notes there is a lot more private equity investment this time around than public. “If there is a crash or correction it’s going to do have more to do with private companies getting screwed; they’ll be less of an IPO crash. It will hurt VCs, banks and the companies that put money into them.”