Many of those in venture capital jobs today are not investing in the right kind of companies. So says legendary venture capitalist Peter Thiel, in a recent Business Insider interview. Thiel is one of the principals of Founders Fund, together ex-PayPal colleague Ken Howery.
Thiel and Howery say more VC firms should back companies that are trying to solve major scientific or engineering problems, rather than “me-too” variations of popular tech trends. That’s because these are the type of companies that are best suited to creating the new multibillion dollar markets of tomorrow, and generating 10 times the return on investment for partners.
This is more like the classic venture capital firms of the 1960s. When daring general partners at VC firms backed exciting, but unproven tech startups such as Apple, Microsoft and Genentech.
Thiel and Howery personally look for opportunities that have the potential to be extremely large, and have a positive impact on the world. For example, not just “green tech” companies attempting to capitalize on solar technology, but a company attempting to find a lower cost alternative to gasoline. Or a company looking to make space exploration more economical. Companies that are tackling big technological challenges.
“If it were 1850, we’re not looking for the world’s best whale blubber lantern. We’re looking for the light bulb,” said Thiel. Companies that have a massive positive effect on the world also end up being the most profitable, too, said Thiel.
Both the tech bust and the 2008 financial crisis have put a damper on fundraising for venture capital. Yet so has the more cautious approach of the venture capital industry, which has lagged in performance over the past decade.
“If venture does what it used to do, which is consistently back revolutionary technologies that can have wide scale beneficial effects, then I think the industry will perform well and will attract assets to it,” says Thiel.
You can read the full interview at Business Insider. In the meantime, do you think venture capitalists today are shying away from pursuing big, risky, technological challenges in favor of short-term gains from variations on popular technologies? Add your comments below.
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