BackBefore we can invest in a company, we must always ask “Who is going to pay for it?”. It seems an easy enough question but in my experience, inerpreting it is anything but. Both for founders and for investors, there are complex interpretations involved. The challenge, however, is that companies that find it easy to answer this question may not be the most disruptive companies to back.
Two Interpretations of “Who is Going to Pay for It?”
Firstly, there is a narrower view that focuses on who in the current market or ecosystem has the money to pay for the product. This approach can be shortsighted, as it often underestimates the disruptive potential of new technologies and innovations. By focusing solely on immediate revenue streams, investors may miss out on backing transformative companies that could redefine entire industries.
Secondly, the positive interpretation aims to dig deeper into understanding the economic imperatives that the new technology will create. It seeks to uncover how the innovation will compel people to use the product, thereby driving demand. This perspective is forward-thinking and considers the broader potential of the technology to disrupt existing markets and create new ones. The challenge is that this is harder. Convincing people that ‘if we build it, they will come’ is harder because it requires a shared belief that at some future point, different, unconnected parties will all behave in a certain way for this technology to be adopted across the industry.
The Broader Perspective: Backing Disruptive Innovations
As a deep tech investor, I firmly believe that the broader perspective is more important. Focusing on near-term revenues alone can lead to missed opportunities for major new and disruptive innovations. Founders should be aware that trying to satisfy the narrow view of investors may lead them away from their original vision.
“Instead, both VCs and founders need the conviction, fortitude, and courage to build something transformative, as long as they are convinced that the economic imperative will ultimately change behaviors and drive success.”
Example: NVIDIA’s Disruptive Journey
Consider the example of NVIDIA, which started by replacing the need for expensive Silicon Graphics 3D hardware for the computer gaming market—a market that was virtually non-existent at the time. NVIDIA’s founders had the vision and conviction to pursue this disruptive path, despite the narrow view that might have questioned the immediate market size or revenue potential. It required the founders and investors to belive in a very unlikely and yet to be born future of 3D computer gaming (Electronic Arts, the maker of earliest 3D games was a nascent company at the time). Today, NVIDIA is a leader in graphics processing and has expanded its reach into AI and data centers, significantly impacting multiple industries. Don Valentine could have asked Jensen Huang, “who will pay?” and chose to in the ultimate economic imparetive that computer graphics will improve over time and peopel will spend more money on graphics cards. And rest is history.
Lessons for Founders
Founders should take the following lessons to heart:
- Think Long-Term: Focus on the long-term potential of your innovation to disrupt markets and create new demand.
- Stay True to Your Vision: Avoid being swayed by investors who only see the immediate revenue potential. Stick to your original vision if you believe in its transformative power.
- Educate Investors: Help investors understand the broader economic imperatives and how your technology will drive future demand.
- Be Courageous: Building something disruptive requires conviction and courage. Trust in your innovation and its potential to change behaviors and markets.
“Who is going to pay for it?” can be annoying but should be seen as an opportunity to explore the broader economic imperatives and potential for disruptive innovation. By maintaining a broader perspective, both VCs and founders can identify and support transformative technologies that have the power to redefine industries and create new markets.
Remember, the greatest innovations often come from those who dare to look beyond the immediate market and envision a future shaped by their technology. Stay bold, stay visionary, and together, we can build the next generation of disruptive companies.
