From Beijing to Troy: Why One VC Is Betting on America
Bruce Gibney, a partner at Founders Fund, the San Francisco-based venture capital firm that's made investments in companies such as Facebook and SpaceX, just returned from what he called an Odyssey-like trip around the world, visiting, among many places, Tokyo, Seoul, Singapore, Hong Kong, and Beijing. Back in America, he traveled to New York (Troy, Albany, and New York City), North Carolina, (Raleigh and Durham), and Boston. "I feel like I will never see Penelope again," he says.
The trip began in Lunai, Hawaii, where Founders Fund held the F50 conference--an all-expenses paid unstructured-conference trip for brilliant entrepreneurial engineers. There, Gibney met the founders of Ecovative Designs, a company in Troy, New York, which is experimenting with agricultural byproducts to create the a futuristic plastic. While some venture firms are looking at Chinese start-ups for the next great idea, Gibney is looking at Troy. Why? For one, it's a matter of macro-economics. He believes that developing countries, like China, are better suited to import innovation, rather than create it. He also believes the next great technical revolution will not necessarily come out of Silicon Valley. Here's his pitch, as told to Eric Markowitz:
As a venture firm, we're particularly focused on large technological breakthroughs. That's not to say that all of our companies are like SpaceX, which recently docked with the International Space Station--not every company is quite that exciting. But as a general matter, we look for massive technology and innovation. The reason for that is that they provide tremendous barriers to entry as well as social good.
It's very difficult for U.S. venture capitalists to operate in China unless they have a local team and are willing to back more clonal models. The Chinese entrepreneurs are straightforward about this—quite a bit of businesses there are modeled on U.S. innovations with localized features.
It makes sense. As a general matter for younger companies, it's just macro-economically sensible to transfer technology in to a developing country, and somewhat less sensible than developing that technology in-house. I'm aware there's something a bit awkward about saying anything about this at all. Maybe it's the West Coaster in me, but it sort of comes off as extremely anti-China. I'm not. Full-disclosure: I'm actually half-Chinese.
For smaller entrepreneurs in China, there's not a great reason to innovate when they can simply transfer in. For the developed world, however, we actually have no choice. We have to innovate. It's the only sort of real driver of economic growth. I think the lesson of the last 10 to 12 years is that we've reached the limit of financial engineering and we need to return to real engineering.
Aside from gaming, there haven't been a huge number of innovations that have been exported to the West. The transfer has been pretty much one-way. I'd rush to point out there's nothing abnormal about this.
In fact, the U.S. did this in the 18th century when we sent industrial spies to Arkwright's Mill to support the New England textile industry. We transfer technology.
A lot of these colleges founded in the 19th century, like Rensselaer Polytechnic Institute [based in Troy], have utility as part of their mission. That's quite useful. There does seem to be more activity in Troy.
One of the companies I met through F50 aims to be the plastics of the 21st century. It's based in Troy. The idea that you can simply sit down one day that you are going to displace the entire plastics industry is really exciting. Plastics may sound banal, but banal things are actually quite important.
I'm not anxious to do the Beijing to Troy trip again. But there are pockets where certain industries tend to congregate. It's important that if you're in those industries to be in those pockets. There are gigantic network effects. It's quite important to be in a geography where the relevant engineering talent is dense.
But there's a whole series of companies that are operating out of the Internet space, outside of San Francisco. I never would have found a new-age plastics company in Troy, New York, if we hadn't done the F50. There's a lot of innovation that might be operating below the radar, especially the unfashionable type.
There is still something a little bit odd about how dependent the United States is on simply one tiny region. If we had a magnitude nine earthquake on the peninsula, in San Francisco, it would be actually extraordinary damaging for the U.S.'s competitive position. One has to wonder why there haven't been more vibrant [start-up] communities outside of Silicon Valley.