Innovation and investment – time to think wider than VC

Language is important. When it comes to talking about innovation and investment in the same sentence the focus invariably turns to venture capital.

Long term asset owners have had a mixed experience with venture capital to the point that CALPERS, the Californian public sector fund, has decided to no longer allocate to VC.

But innovation is not just about venture capital. The Oxford Dictionary defines the word innovate as to ‘make changes in something.’ The key word here is change.

Change is fundamental to investment. It is a beast that is hard to control, and much of the investment processes we use are designed to strip out different elements of change in an attempt to tame them.

The one thing that is certain is that the world does not sit still. In fact the pace of change is such that I struggle how to answer my kids’ questions. The olden days – that mystical time that used to refer to knights and castles, now goes all the way back to the era before the ipad was invented – yes, all the way back to before 2010. Our kids are growing up in a world where they think rapid change is normal. The last question I had was ‘Dad, did you have electricity when you were a kid?’

One of the anxieties that Australians have is that we are somehow not an innovative society. We worry endlessly about whether we can create a venture capital industry to rival Silicon Valley.

I think it is time we got rid of this innovation anxiety. Venture capital is at the end of the day just a structure. There is a very good question as to whether it is the best structure for long term investors. VC returns are volatile, which doesn’t suit a system that is measured on short term performance. VC funds are also illiquid and have high due diligence costs. The model of exiting an investment just as it starts to get started is also questionable for long term investors.

If we do want a VC industry in Australia then we need to look at different structures. We can’t ignore the ASX, which provides the governance and daily pricing that superannuation funds need. What we need to see is a series of listed innovation companies that build a portfolio of growing businesses.

Rather than selling a successful business once it reaches the first stage of maturity we need to be keeping these businesses and taking them to the second stage of development. It will only be in this way that we will develop the next generation of large cap Australian companies operating globally.

Investing in innovation through capital markets aligns to a superannuation system that has restrictions on liquidity, but which is rapidly outgrowing the investable opportunities within the ASX. The pathway forward is for start-up companies to collaborate to establish larger innovation companies. The sharing of governance, human resources and debt makes a lot of sense and is likely to be attractive to superannuation funds that have strong taxation and currency incentives to invest in Australia.

The good news is that there is no need for innovation anxiety – except when it comes to explaining the olden days to your kids.

What is the story with Merck’s Gardasil Vaccine?

On February 5 2015, the Toronto Star, one of Canada’s largest daily newspapers, published an investigative story on the drug Gardasil, produced by Merck.

Gardasil is a vaccine that protects against a series of HPV cancers. The Toronto Star investigation heard from parents and teenagers who believed that their illnesses were due to taking the drug.

Shortly after the story was produced the Toronto Star issue a retraction, starting:

The investigation , published on the Star’s front page with a large banner headline — “A wonder drug’s dark side” — told you that “Hundreds of thousands of teen girls have safely taken Gardasil … But a Star investigation has found that since 2008 at least 60 Canadians experienced debilitating illness after inoculation. Patients and parents say the incidents point to the full disclosure of risks.”

That alarmist information is not the full story.

What you need to know and understand fully is the fact that there is no scientific medical evidence of any “dark side” of this vaccine. The Gardasil vaccine has been tested by highly credible national and global public health agencies and the scientific evidence overwhelmingly concludes that it is safe and effective.

The Toronto Star’s retraction of their original story does not end the community’s interest in the potential impacts of the drug.

Kim Robinson’s story of their daughter Kate’s health since taking the drug has been shared on Facebook 278,000 times. The Robinson’s state:

We deeply regret consenting to the Gardasil vaccine. We had no idea of the severe side effects some experience post vaccine. Every day, we wish we had been more informed. Parents beware of blindly following your doctor’s recommended vaccine schedule. Do not rely or expect your doctor to know everything. You must do your own research and ask plenty of questions. Our family found out the hard way that it is possible for a vaccine to have lasting and devastating effects.

In the world we live in it is not possible to stop a story from spreading. It may be that the large media will stay away from reporting controversial stories, but this will only drive the stories to smaller publications and Facebook.

A key test of a company is how it handles criticism under fire. The challenge for companies to understand is that the rise of social media has unlocked a new world. Being transparent and open is the only way to build confidence.

In this new world, the future of vaccines like Gardasil rely on addressing the stories of people like Katie Robinson, not trying to hide them from view.


Katie Robinson’s story:

The Star’s edited story:

The media reaction:

Is the sharing economy dead before it started?

There has been much ado about the sharing economy. There is no doubt that companies like Uber, AirBnB and Zipcar have the capacity to re-shape industries. But are we actually sharing, or just transacting?

This is a question that Giana M. Eckhardt and Fleura Bardi focus on in a recent article in the Harvard Business Review.

According to Eckhardt and Bardi:

“Sharing is a form of social exchange that takes place among people known to each other, without any profit. Sharing is an established practice, and dominates particular aspects of our life, such as within the family. By sharing and collectively consuming the household space of the home, family members establish a communal identity.”

When “sharing” is market-mediated — when a company is an intermediary between consumers who don’t know each other — it is no longer sharing at all. Rather, consumers are paying to access someone else’s goods or services for a particular period of time. It is an economic exchange, and consumers are after utilitarian, rather than social, value.”

One thing that the sharing economy has been good at is coming up with different words to describe the same thing – something that the investment industry knows a lot about. P2P market places, collaborative consumption, the Mesh Economy have all been used to describe the sharing economy.

It may be that, as the HBR authors suggest, we should simply re-brand the sharing economy as the access economy, but where exactly does this leave the concept of community in economic activity?

The social economy has a long history going back to the development of cooperatives in the 1770’s. Today social entrepreneurs represent the latest chapter in a story that goes back to Robert Owen.

Whilst social entrepreneurs may offer the ability to produce the next digital disruption, another area that has long been over-looked is community infrastructure.

In every city and town across the globe there are assets that have been built to service communities. Examples are Scout Halls, Senior Citizen Clubs and Life Saving Clubs that continue to serve their original functions.

In Australia we saw a boom in such community infrastructure in the 1950’s and 1960’s. As our cities have developed with increased congestion and scarcity of resources, a significant question is whether there are ways, consistent with their original purposes, that we can share community assets.

An example is Life Saving Clubs where most usage occurs on weekends but where in many case the weekday will see clubs closed. Could such facilities be used for multiple purposes during the week, whilst still delivering their core activities? And if so, how could we achieve that?

I will focus on how we can develop our community infrastructure in future blogs.


The Sharing Economy Isn’t About Sharing at All