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 When I was in high school a rather influential book was published by Thomas Kuhn called The Structure of Scientific Revolutions. Kuhn popularized the concept of the "paradigm shift" in science, which can also be applied to technology, markets, history, etc. Almost all historical transformations follow a classic S-curve, with early disruption, a period of rapid change/adoption, then maturity/consolidation with secondary effects until the next paradigm starts to emerge. The period of these transformations can be over decades or, in the case of nations, centuries.
Good venture capitalists try to understand such paradigm shifts and their inflection points when technology and market disruptions create opportunity, and invest accordingly. For example, there was a significant paradigm shift in information technology with an inflection point from around 1981 to around 2001. This twenty-year transformation was driven by advances in integrated circuit and networking and user-interface technology, and included the rise of smart clients (personal computers and cellular phones), and the Internet (accompanied by the visual browser), with increasingly ubiquitous broadband connectivity tying it all together. This paradigm shift fundamentally changed both business and society. It was driven mostly by venture-backed startups that were launched shortly before and during the shift (Intel, ‘68; Microsoft, ’75; Apple, ’76; Oracle, ’77; 3Com, ’79; Compaq, ’82; Sun, ’82; Adobe, ’82; Cisco, ’84; Netscape, ’93; Amazon, ’94; Yahoo!, ’94; eBay, ’95; Real Networks, '95; Google, ’98; and many others).
We are now in the mature phase of that huge tectonic shift, dealing with secondary effects that were created/enabled by powerful client devices tied to powerful servers through ubiquitous wired and wireless broadband networks (on-line commerce and advertising models, the enablement of social networking, SAAS and Cloud-based application delivery platforms, a host of related security concerns). There is still money to be made in this more mature IT environment, but they will tend to be smaller, more capital-efficient companies that focus on a niche, vs. billion-dollar transformational companies that change society. Are we seeing the stirrings of the next large paradigm shift in information technology? I believe we are, but will save that for a future time.
In the meantime, there are other technologies and markets that are “out of phase” with information technology, providing investment opportunities for savvy investors. At OVP we believe that Digital Biology is right in the middle of an inflection point that is leading to an era of genomic/proteomic-based personalized medicine. This paradigm shift started around the time the first genome was decoded (~2003) and it became increasingly clear that biology is fundamentally an information science. If we assume another roughly 20-year transformation, we’ll have a nice run through around 2023. Similarly, I believe that renewable energy is at the early stages of a Digital Energy paradigm shift that will play out over the next 20 years, driven by carbon-free/neutral energy production, energy storage technologies and the smart grid (and greased by substantial changes in public policy and funding). As with IT, the early and mid stages of these paradigm shifts are when the large, transformational companies are created, followed later by secondary-effect companies. To wrap up, one of the strengths of OVP is that we recognized that these large paradigm shifts occur out of phase — in fact the IT revolution of 1981-2001 is in large part enabling the digital biology and digital energy revolutions we're now in. There is money to be made at all phases of a paradigm shift, but it helps to understand where you are, what kinds of companies make sense, and when the next paradigm shift is starting to emerge.
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