Friday, May 09, 2014

Successful Startup Investments

Here’s the Secret to Successful Startup Investments by Market Authority

Yesterday, we touched on the enormous growth in the “Internet of Things”: connected devices that can store data and respond to changing environments and smart technologies that increase productivity and convenience. Some of these discoveries will be readily adapted, while others will fail miserably. How then do we decide which technologies will succeed in the Internet of Things?

A few years ago, a successful tech investor taught me a simple principle that distinguishes technologies that succeed from technologies that fail. It’s the same rule that angel and venture capital investors follow when making seed investments:

Every worthwhile technology must “take the pain away.”

“Taking the pain away” describes a solution to a problem. “Pain” is the stress or anxiety we encounter in our daily activities (The Italian side of my family refers to it as “agita.”) A new technology’s success depends both on the magnitude of the problem and the viability of the solution.

In the 1993 film Falling Down, Michael Douglas plays William Foster, a recently divorced and laid-off white collar worker that goes on a violent rampage through the streets of LA in an attempt to arrive on time for his daughter’s birthday party. It wasn’t the divorce or the job loss that really set Foster off. It was the traffic.

Traffic causes an enormous amount of agita for two reasons: the onset is unexpected and the duration is undetermined. How many times have you felt helpless sitting in traffic with no idea how long the jam will last? We can all agree that a technology able to quantify how long you’ll be idling on the New Jersey Turnpike, allowing you to postpone breakfast with the boss, would be very valuable. Perhaps that same solution can detect where the rubbernecking is occurring and offer another route.

Waze, a mobile app that provides user-submitted traffic info and route details to drivers, solves this problem. Winners of the Best Overall Mobile App award at the 2013 Mobile World Congress, Waze was acquired by Google in June 2013 for $1 billion. At the time of the acquisition, Waze had already been downloaded 50 million times.

The app is simple to use and eliminates an enormous amount of traffic pain. Enter your destination and Waze sources data from other users on potential routes to determine the optimal route. The app then provides turn-by-turn navigation to arrive at the intended destination in the shortest amount of time possible. While Waze can now only be accessed via mobile, the connected car will be a standard for automakers in the near future.

The Waze app has rapidly achieved success because traffic is a nightmare. There’s another area in the venture capital space, however, where money is flooding into solutions and these are solutions looking for a problem: mobile payments.

For the last few years, one startup after another has tried to “take the pain” away from the laborious task of taking your credit card out of your wallet and swiping it. (I hope you can detect my sarcasm). Countless VC dollars have been thrown at a dozen apps intended to replace your wallet. None of these has been widely accepted by consumers.

The failure of mobile payments is clear: consumers don’t experience agita from pulling out a credit card when making a payment. At least not enough pain to facilitate the process of finding an app that makes paying easier. Traffic causes humans to devolve into steering-wheel-banging, horn-blowing creatures; reaching for your credit card does not.

Some of these apps rely on scanning NFC chips which are already found in most credit cards. Other payment platforms involve the cumbersome task of pointing a mobile phone at the register and snapping a photo. Both actions still require the fumbling around in one’s pocket, purse or backpack to obtain the payment device.

Unlike Waze, mobile payments remains a solution looking for a problem. If Starbucks customers start going on violent rampages while waiting in line, then perhaps we’ll find a viable solution to take their pain away.

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