In Technology We Trust? (Guest Commentary)

Not so long ago, there was a virtually unanimous feeling that technology was the main economic driver in the United States, particularly because of its positive impact on productivity. With the stock market events of last year, however, the image of “tech” became rather tarnished—and for those who equate tech with e-commerce and dot-coms, its image is downright corrupted.

But even as the disenchantment with tech was growing, a new pantheon of buzzwords was evolving. These new buzzwords are still generally unfamiliar terms: terms such as genomics, proteomics, bioinformatics, nanotechnology and quantum computing. Few seem to know what they mean or what to do with them. The critical question is more likely to become one of “Who will make the decisions for developing and commercially exploiting new technologies—and how?

Big-time investors, particularly the VC’s, have been holding back, but surely not because there are no new technology investment opportunities. A Luddite worldview will not cut it today even though a few critics of technology may proclaim that “everything worthwhile has already been invented” anyway. In fact, while we might not be standing on the shoulders of recognizable present-day giants, we are benefiting from the greatest base of accessible knowledge ever. The emergence of new technologies, even foundational technologies, is occurring at an unprecedented rate. Opportunities abound.

When it comes to making an investment decision, the “wink and a nod” approach to analyzing the claims made for a new technology or a new technology application must be replaced. One positive approach would be to give equal weight for conventional business due diligence and technology due diligence. Will that happen? Until new measures of accountability come to the fore, probably not.

I really do not want to alienate with this commentary the folks who control investment decisions. They play a far too central a role in the development of new technology-centered enterprise development for that. But think about the situation this way: If your football coach had a consistent record of one win, 4 ties, and 5 losses per season, how long would you want to keep that coach in charge of your team?

Venture capital fund managers generally accept a 10 percent rate of success as they “manage” the funds under their control. Investors in venture capital funds have been remarkably tolerant of the old patterns of risk acceptance, of not missing the “first mover” advantage, and of the herd mentality of many fund managers. Of course, for many a VC fund manager, there is some comfort in the lack of performance accountability (“Everyone has this rate of failure. It’s a high-risk game.”) and the lack of any personal liabilities being involved. After all, one real success out of 10 still provides the whole fund an acceptable ROI. It is interesting to note that VC fund managers’ compensation is rarely tied to fund performance.

A serious hidden economic development cost is in the onerous investment terms imposed on the companies accepting venture capital investments. If the average success rate for venture investments were better, the terms for individual investments could be much more favorable to the prospective enterprise developer and a good ROI for the fund would still be achieved.

So how can the VC fund manager or other investment decision-maker improve the probability of success? Answer: Better, much better due diligence before making an investment. (This would represent a proactive approach and would contrast markedly with the VC fund salvage operations prevalent today.) Comprehensive due diligence in a technology-driven economy must extend to include an assessment of the core technology. Claims made for the technology must be independently validated with the same care and attention as that given to general business practices, the quality of the management team, the market analysis or the possible exit strategies.

Whether image-tarnished or image-corrupted, tech is here to stay. Big-time investment decision makers must become less arrogant or at least less complacent in assuming that they already know everything important. They must become more willing to do the work necessary to gain a real understanding of the technological foundation of any new enterprise in which they contemplate investing—even if they have to pay for professional technology analyses or assessments. They may even have to learn to accept the advice and counsel of independent scientists and engineers, just as they do now from their MBA-toting business associates.

R.R. Goforth, Ph.D., is general manager of Beta-Rubicon Inc. in Fayetteville, which may be reached on the Web at www.beta-rubicon.com.