The Internet of Boring Things (How the Current VC Mindset Makes No Sense to Me)

Recently, I had a conversation with a friend at a biotech startup who told me that you don’t actually want to make a modest, consistent profit because that means your company is ‘mature’ and you then won’t be able to cash in when (or if) it goes public. This is a truly bizarre mindset. If you think about most businesses, they would love to have a modest, steady profit margin (my grandfather’s relatives, business owners, would have been flabbergasted if they had been told steady profits were a bad thing).

I also remember, not that long ago, when opening restaurants was considered risky because of a supposed fifty percent failure rate. Most venture capital groups (‘VCs’) would love to have only a fifty percent failure rate. I don’t see how any kind of long-term growth is possible if everyone is swinging for the fences. Well, almost everyone (boldface mine):

GrubHub’s initial public offering might not excite Silicon Valley in the same way Twitter’s or Facebook’s IPO did, but investors on Wall Street have greeted the company with open arms as its share price rose 45 percent in early trading.

The company priced its shares at $26 — higher than the company forecasted in its initial price range — and was trading at nearly $41 early this morning. (It is trading at $37.70 at time of writing.) The excitement comes on the back of a surge in orders placed on mobile devices in the last few years and a 67 percent increase in revenues between 2012 and 2013.

GrubHub isn’t exactly the flashiest tech company around. It’s an established player in what might be seen as a trivial market: ordering food and making sure it gets delivered to your door. While that is certainly useful, especially if you live in a closet apartment that isn’t conducive to actual cooking, on a scale from “the wheel” to “virtual reality” GrubHub lands somewhere around the “phonebook.”

Nevertheless, GrubHub is part of an important trend of companies like Uber that add a layer of technology to non-tech interactions. And investors worried about whether or not a business has millions of customers who rely on it for something they do about three times a day are proving to be very excited indeed, at least this morning. People are going to get sick of “Candy Crush”– they probably aren’t going to get sick of ordering food.

These companies are boring, but they make a consistent, modest profit. Like most successful companies have. I think this strategy, along with Silicon Valley realizing that government agencies are potential markets is where the next ‘tech’ boom happens.

Consider it the Internet of Boring Things.

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5 Responses to The Internet of Boring Things (How the Current VC Mindset Makes No Sense to Me)

  1. dr2chase says:

    I’ve talked with a real live Famous Venture Capitalist once, and it’s possible to both swing for the fences and invest in useful stuff. For example, those guys trying to do direct (algae or microbial) generation of fuel oil? VCs invest in that. Some of the further-out supercapacitor technology? VCs invest in that. There’s some boring bits of electrical power conversion that turn out to really matter — if you could get from 90% efficient to 95% efficient, you just cut your losses in half, you just cut your waste heat in half. VCs invest in that, too.

    But on the other hand, when I was working for a startup, I did once decide to look at what various firms were investing in, and it was pretty funny. It was like Pokemon trainers — each firm had a “fire” startup (Charmander), a “plant” startup (Bulbasaur), a “water” startup (Squirtle), an electric startup (Pikachu), etc.

  2. becca says:

    Boring? Are you kidding? I have been trying to figure out why no one is using all this data mining to sell me a service that SENDS ME HEALTHY FOOD RIGHT BEFORE I REALIZE I AM HUNGRY. Because when I am hungry, I have to wait or cook or finish an experiment, and by the time I get to eating I am SUPER HUNGRY and CRANKY and I eat junk. I do this so consistently you could set a clock to it, and if the creepy stalking powers on the internet were of any use at all, they would have already gotten on that DRONE SALAD DELIVERY SYSTEM. I would say it’s because they can make more money by me impulse buying food, but I pay a lot for salads and very little for fast food junk. Heck, I’m shocked Blue Cross Blue Shield isn’t funding this, since I cannot possibly be alone in this, and obesity/metabolic syndrome/ect. are EXPENSIVE.

  3. kaleberg says:

    If your company can consistently make profits, odds are it can fund expansion out of cash flow or with a bank loan, and it can do so without diluting ownership. Venture capital works best if you need a fairly large chunk of start up money, more than the founders can easily raise from more conventional sources, and have no profits or earnings record.

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