Predictions are hard, especially about the future

Jan 20, 2015
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The previous RudeVC column on predictions from smart European VCs generated a lot of feedback. Many readers apparently liked the diverse, pan-European nature of the perspectives. Some zoomed in on the granularity of them, agreeing with some and questioning others.

One reader questioned the relevance of limiting the predictions to a one-year period. It’s a good point. The venture capital business by construction is not short-term. Institutional investors allocate a sliver of a typically immense fund pool to the high-risk, high- potential reward opportunity afforded by the venture asset class. Institutional investors are sophisticated investors, which means they are willing to forfeit liquidity over a long time horizon (venture funds are usually fixed to a period of 10 years) in exchange for strong performance and a high internal rate of return on investment. The 10-year fund life creates a dynamic in which the VCs that manage the fund typically deploy most of the money during the initial 3 years, attempt to add value over the subsequent years, and finally aspire to divest in a way that generates capital gains over the second half of a given fund’s life.

As a result, good VCs tend to be more proactive than reactive. They try to look several years into the future and subsequently structure their investment strategy around specific themes or theses that incarnate long-term trends. Even when most of their predictions turn out to be wrong, with smart portfolio management practices (kind of along the lines of ‘keep funding the winners and stop throwing money at the losers’), shrewd VCs find a way to generate outsize returns. As Yogi Berra famously observed, “It’s tough to make predictions, especially about the future.” Incidentally, I would argue that the VCs that do this well benefit from a combination of i) intellectual horsepower with a talent for assimilating a large quantity of disparate information, ii) the luxury of high-frequency interactions with visionaries and thought leaders, and ii) the pattern-matching ability derived from years of experience seeing thousands of startups projects.

So asking a venture capitalist to make a prediction about the coming 12 months is not really taking full advantage of his or her catbird seat. But it’s a fun game because you only have to wait until the end of the year to calculate the score.

I deliberately refrained from sharing my own predictions in the last column in deference to my more prescient peers. Some readers suggested this was a copout. Fair enough. To counter this allegation, I’ll be happy to go out on a limb too. Here’s what I predict:

A human being’s audio and visual senses are reaching their saturation points from technology. From the device we have in our constant possession, voice mail alert beeps, social media updates, messaging chirps, the irresistible distraction to consult our apps, conduct mobile transactions, and surf the wehaptic-feedbackb, not to mention incoming calls, our audio and visual senses are on overload. On this backdrop, hardware continues to follow Moore’s Law, the ability to create new devices has never been more democratized, and the trend of connected objects has spurred innovation around all kinds of sensors. So the stage is set for entrepreneurs to innovate on a new human sensory channel.

After sight and hearing, three senses are left: speech, smell, and touch. Although speech integration into smartphones had made some progress, I predict that the third sense to really catch on in the smartphone UX is touch. We’re already typing, swiping, and pinching. Yet there seems to be a whole universe of potential applications for feedback via touch on our devices. Basic haptic feedback on our phones already tells us when we turn on the device and confirms a keypress. But imagine a unique vibration for each caller, or better yet, tailored to the tone of an incoming text message. For fans of WeChat or LINE, I could imagine the next generation of their visually-pleasing sticker lexicon to be a library of vibrations. Vibrickers ? Vibr-emoji ? Vibroji ?