The Quantum Graph

Tag: google

The Real Risk Takers… Bureaucrats?

Doing business with the Illuminati; logo of the now-defunct Information Awareness Office (IAO)

Doing business with the Illuminati — IAO logo

According to wikipedia, modern venture capital goes back to the post-World War 2 era when weary American soldiers needed support to help their business ideas take flight. This was a key factor in the 1950s US boom and economic dominance which lasted until recently.

Of course, venture capital goes way back in time. Columbus famously lobbied the Spanish crown for years before they gave in and funded his vision to establish a trade route with India by sailing West, at the risk of falling off the face of the Earth. His voyage provided hard evidence for our planet’s roundness, and also happened to introduce Europeans, Africans and eventually Asians to the Americas on a large scale. For better or worse, venture capital is generally a full half of the equation in any successful discovery or invention.

Every venture has associated risk. The more developed an endeavor is, the less risky. I.e., a company which is making money is better proven than a company which hasn’t yet seen a penny of revenue. Of course, higher risk may imply higher reward. If you invested $10,000 in Google when it was founded in late 1998, you would see a greater return on investment than if you invested the same amount in Google yesterday.

Venture capital geared for unproven businesses is called early stage or seed stage capital. Investors at this stage mitigate their risk by looking for things such as impressive teams and working prototypes. What if a team doesn’t have a working prototype just yet? Institutional venture capital is then a highly unlikely source of funding. Angel (individual) investors are one option, the other is government. If your idea is truly awesome but unproven, there are a number of big-spending governments which will give you money to realize your vision.

Organizations which invest at this stage include Defence Research & Development Canada (DRDC), the United States’ Intelligence Advanced Research Projects Activity (IARPA), and Britain’s Defence Science and Technology. All these agencies are concerned with having a leg up on their “adversaries”, and all are interested in spending large sums on high-risk, high-reward research projects. According to IARPA,

Failure is completely acceptable as long as…

  • It is not due to failure to maintain technical and programmatic integrity.
  • Results are fully documented.”

The British Ministry of Defence accepts funding proposals for systems which are at a Technology Readiness Level (TRL) of 3-5. This means the tech is at worst still being proven feasible, and at best is just mature enough to be demonstrated. Despite some initial reservations one might have about working directly with the military industrial complex, the solicitation/RFP process is open. Further, 21st century Western governments don’t have the gall/cojones/chutzpah to ask for exclusive rights to a piece of tech. In other words, they will fund open source projects if it means they can avoid being surprised by the unexpected arrival of novel, disruptive technology.

If you are in the midst of building something “not just evolutionary, but revolutionary”, and are being turned downed by risk-averse investors, then look for government defense contract money. They’re blowing so much cash on BS these days, they might as well spend some of that on a good cause like your idea.


Executive Bot

If you wanted to get rich, how would you do it? I think your best bet would be to start or join a startup. That’s been a reliable way to get rich for hundreds of years. The word “startup” dates from the 1960s, but what happens in one is very similar to the venture-backed trading voyages of the Middle Ages.

Paul Graham, Hackers & Painters

Web software companies are interesting from an economics perspective because they maximize leverage. If a piece of software becomes popular, the company behind it often becomes enormously successful.

Like any business, web companies have expenses. The two cold goals of any corporation are to turn a profit and simultaneously reduce overhead. In the recent past, a web-based company would have to buy and operate pricey server hardware. New web companies don’t bother maintaining hardware, they pay other companies such as Amazon do that. A cluster of 4 GPUs (6144 total cores) running at 100% utilization, with 1tb of storage, 1tb of data transfer in and 1tb of data transfer out comes to well under $2000 for the month. A great example of a company that uses ‘the cloud’ to host its services is soundcloud.

Besides compute/bandwidth costs, a web company must also maintain a payroll. At last check, Google was paying 53,546 individuals. With an average starting salary of $82k, that’s roughly $366m in pay per month. Also, bigger companies tend to get involved in expensive lawsuits.

So, with hardware being cheap and easy to deploy, how can a web company reduce its employee and lawsuit overhead? Open source, of course! Open source companies generally avoid lawsuits because they are never accused of patent infringement. They also don’t need as many employees for two reasons: 1) the use of open code written by others and, 2) free development from the wider community. By using cloud hosting services and open source, a startup may keep its core team small, outsource hardware, and in theory remain nimble / efficient well into maturity.

With miniscule expenses and some sort of scaling model (catch 22?), the coins flow freely. Business can avoid the inevitable clinging and bloat that comes with success.

The next question is, “will the role of corporate Officer soon be non-human?”