Technology Opacity: How to avoid finding out that your tech investment dissolved when you weren’t looking

When a man of my advanced years was younger, successful businesses, with few exceptions, could have been said to exhibit “Slow Success”. Incremental, often completely organic, growth – where companies had navigated, educated, adapted to and gradually succeeded in the markets they’d originally targeted, typically in the way in which they had imagined they would. In today’s argot, that would be called “boot-strapping”.

It was fairly easy to measure the success of these companies, especially if publically quoted. The metrics were both visible and well-understood.

In recent years – since the turn of the millennium, say – we’ve seen some completely different successes, typically fuelled by the rapid adoption of software-based propositions, sometimes (but rarely) enabled by a new hardware component. 

What steps could a responsible chief investment officer in an ambitious family office take to ensure that they’re not exposed to this sort of situation? 

Uber exponentially changed the way we move people in vehicles, but those two elements were already in play within a ‘dumb’ taxi solution. The growth, famously, wasn’t through the rapid growth in the share of the existing market (although that was quick) – it was in massively multiplying the size of the market by making the idea of moving people and stuff about so much easier. You might categorise that as a Fast Success, despite the number of ‘negative revenue’ years the business enjoyed.

Interestingly, that company didn’t embrace a couple of the neologisms so beloved of this world – the Pivot or the Fast Fail. Some hugely successful businesses have pivoted successfully (Instagram, now itself part of Meta, née Facebook), was initially competing with another app called Hipstomatic, both targeting a small but real demand for smartphone owners to use cutesy filters on the photos they took). 

We’re also familiar—too familiar in some cases—with the Fast Failures. WeWork was a pretty fast failure when seen through a more traditional lens. Like Uber, it was trying to transform an existing world (in this case, “people in office buildings”). At an initial viewing, the fundamental model looked challenging, but the idea seemed attractive and proved addictive to some investors hungry for the Next Big Thing. First impressions are often correct. 

Some similar concerns have attracted eye-watering amounts of investment from established venture players. How about Quibi (north of $1,25B), Theranos ($500 million), or even UK-based Karhoo (~$200 million), which was trying to be the Uber of Ubers? The Russians say, “If you’re going to drown, drown in deep water,” but not all investors have the capacity for such huge losses.

So if companies like that can convince, and sometimes continue to convince (deceive?) very experienced, well staffed investment outfits what hope is there for the savvy but underweight family office that wants a piece of the action? What steps could a responsible chief investment officer in an ambitious family office take to ensure that they’re not exposed to this sort of situation? 

It might be that the principal investors see much more comprehensive information, especially if they benefit from a board appointment – but what of the other guys? What can they do when, especially in tech businesses, the whole thing seems impenetrable?

It feels like an obvious truism when I say that many investors are placing bets on businesses well outside of their own area of expertise. That’s not unexpected (or indeed, unreasonable) these days, with genuine opportunities in the worlds of biotech, AI or quantum computing. Complicated stuff, with massive runways before take-off.

I’d suggest that people double-down on the skills they do have. Push for simple information about unit economics. Jam tomorrow? How much jam and what’s the margin? Look at risk in areas you can understand. 

Huge established operations aren’t immune to failure (Google Glass, Apple Newton, Amazon Fire Phone, anyone?) but the difference there, of course, is that investment is made in the stable parent, not the optimistic new idea, and de-risked as a result. How about the de-risking of the often massive capital investment needed in the early years of some start-ups? 

Whatever else one thinks of him, Musk has played this game expertly, de-risking capital-intensive businesses like StarLink and SpaceX by winning state or other public funding (in these cases, by cementing military or NASA contracts). That’s an old game, but still a good one. And those public sector commitments are necessarily visible to all, including investment teams in family offices. This is another way of smaller players ensuring there is likely sufficient investment to bring the proposition to maturity.

But what of the Slow Fails? 

You might get an investor report each month, but years into a tech investment, it sometimes feels like one of those marriages where, after you’ve been together for too long, people just stop saying what they really mean. 

So, how can you tell what’s really going on? I’d suggest two approaches: The first is to see if the founders, early adopters, and original partners are still talking about it and what the frequency of discussion and level of enthusiasm are. Good, well-behaved businesses have great client retention and form long-term partnerships by staying engaged with their customers. 

They create a forum for discussion or an expert user group, and these are often visible – or at least the membership list is visible. If all the users are bellyaching about the same issues – delays, functionality, whatever – that’s not a great sign, especially if they complain of little or no interaction from the company. 

I’d suggest that people double-down on the skills they do have. Push for simple information about unit economics. Jam tomorrow? How much jam and what’s the margin? Look at risk in areas you can understand

If their discussion is around desired enhancements to functionality, or more prosaic problems, and these are getting attention, that’s probably fine. If they’ve bragged about early clients or other partners, reach out to them as a fellow interested party. You’d be surprised what you can learn.

When normal trading or investment information is unavailable—late, missing, invisible, obfuscated, or just not accessible—there’s another obvious indicator of a slow failure. I always say that no one likes to see a fat personal trainer. Is the company leadership really invested in what they’re doing and selling? Can you see senior executives a bit too active on LinkedIn, or worse, leaving? 

Are they making progress against their stated goals, or have they got their foot hard down on the procrastinator, worried more about funding than development or sales? It is all too easy, these days, for companies to lean on second- or third-tier investors for more funds, or to subject them to a down round, when those investors just don’t have the tools or the vocabulary set to assess the business. Of course that’s the time – when they’re asking for money – that one can push harder for more information. And it is also the time when they are compelled to be completely honest.

Of course, all the vital signs could be good. The company may have honourable, tenacious leaders and a smart, diligent, dedicated team, but it might still be overtaken by a smarter, leaner, or faster competitor or disrupted by yet newer technology. So, how can you watch out for that sort of thing? In my experience, mainstream business publications are less good at providing actionable information—at least until it is too late. 

The combination of having to “be nice to” start-up owners and the symmetrical relationship with their PR/IR teams makes it hard enough to do a good job, but the lack of deep expertise and the generalist nature of their coverage mean you probably never get the whole story. 

My advice would be to use the canonical (yet very old-school) news curation site Techmeme. Techmeme.com is a very straightforward, proudly tired-looking site which aggregates and prioritises tech news. It is the first place I look every morning and I know that to be the case for many leaders of billion-dollar tech companies. It doesn’t provide opinion or advice (though it does publish a newsletter, if that’s your bag), but the ranking of the stories, and the pace at which they move up and down the site, is a terrific indicator of importance.

Each story contains links to coverage in different media, so you can choose to consume the information in a way that works best. If you are hungry for a bit of editorial try TheRegister.com. Techcrunch it isn’t. There’s opinion but also a lot of hard news from within companies themselves, sometimes from whistle-blowers. You can search or filter on these sites (The Register is particularly strong on security), and Techmeme maintains a list of the leading tech journalists covering different fields.

In summary, stay active. Don’t wait for the pretty-picture, adjective-rich epistles from the companies themselves, or on traditional news channels. Trust your instincts. Get hard numbers or engagement figures and seek drier, more accurate industry information from expert sources.

Steve Moore has spent 40 years looking after the technology needs of high-net-worth clients in London and around the world. He founded the UK’s leading Systems Integrator smc-uk.com 30 years ago, working for industrialists, rock stars and everyone in between. He has also consulted for a range of major brands, including Amazon, Apple, BestBuy, BT, Carphone Warehouse, Ford, Grosvenor, HP, Hutchinson Whampoa, Knight Frank, Orange and SSE. He is currently an advisor or NED for a small number of UK Tech start-ups, principally in the Proptech, InsurTech and SmartHome sectors.