Seeing Through The Fog

I was talking to my friend Simon yesterday and he observed that the essential skill of entrepreneurs and early stage VCs is to “be able to see through the fog of an emerging market and pick out the winning idea.”

And of course, I agree with that. It is something that we have done pretty well at USV over the years.

But how do you do that? Is seeing through the fog a skill that can be learned?

I think seeing through the fog can be learned but it takes time and practice.

Some people are innately good at it and they seem to be able to do it naturally.

But I was not that person. It took me years to be able to do it well and I think there are a few things that helped me a lot.

  1. Focusing on a sector and dedicating yourself to it helps a lot. I have been investing almost exclusively in Internet-based businesses since 1993 and that has helped me understand the dynamics, economics, and unique characteristics of doing business on the Internet. That framework helps me see through the fog.
  2. Doing the upfront work to have a thesis before investing in a sector is important. My partner Brad taught me this trick back when we started USV in 2003. He insisted that we have a thesis before we raised our first fund and started investing. That thesis has evolved a lot over the years but we have always had one. When we wanted to start to invest in verticals, like financial services, healthcare, and education, almost ten years ago now, we took deep dives on those sectors and developed a thesis about how they would emerge, where the value was going to be, and  where we wanted to focus before making a single investment in these verticals. That has served us incredibly well as we have built/are building fantastic portfolios in all three verticals.
  3. Avoiding the noise is particularly important. This is hard to do unless you have a thesis. But even if you have a thesis, there is often a ton of noise around other things that you have to ignore. Otherwise, it will pull you in all sorts of directions, waste a ton of your time, and possibly lead to bad investments. I like to think of having blinders on when we are starting to invest in a new area. It is critically important to not let the hype and bluster and bullshit misdirect you.
  4. Using the technology of the emerging sector really helps. That is often not easy. I remember when I first started playing around with Bitcoin in 2011, it wasn’t simple to get a wallet, mine some Bitcoin, use an exchange. But I did it because I wanted to use the technology and understand how it worked. Getting your hands dirty by using the technology as early as you can will you help to see through the fog. I strongly recommend it.
  5. Reading everything that is written on an emerging sector is critical. I am not talking about books, they usually come too late. I am talking about academic/research/white papers and blog posts written (often poorly) by the leading technologists in the sector. There are sometimes early observers/pundits in these nascent sectors and some of them can be quite good. Find them and follow them.
  6. Meeting with as many people working in the emerging sector as you can will help a lot. I don’t just mean entrepreneurs but you should meet as many of them as you can. I mean everyone and anyone who is working in the sector, investing in the sector, writing about the sector, and engaging in the sector. It’s a lot of work (and travel if you don’t live in a place people come to a lot), but it is invaluable.

When something new comes along, like the Internet in 1993, Web 2/Social in 2003, Mobile in 2007, or Blockchain in 2011, initially it is opaque, like mist, as Simon said to me. But amazing business opportunities will emerge from that mist and those entrepreneurs and early stage investors who jump onto the right ones will be rewarded greatly. It takes a prepared mind to do that and you have to do the work before the opportunities start emerging from the mist. That is how you get the clarity to see the best ideas through the fog.

#VC & Technology

Comments (Archived):

  1. LIAD

    I love how the internet itself is self-perpetuating. A beautiful virtuous cycle.The internet begets the democratisation of innovation which begets the democratisation of publishing which begets the free and instant sharing of information which begets more innovation. Rinse and repeat. Ad Infinitum.

    1. fredwilson

      so far that has been true in spades

  2. Pete Griffiths

    Nice piece.I would add that the lessons / patterns of the past are oft repeated. For example, a good deal of what happened in the Unix/Open systems wars was extensible to other situations.

    1. fredwilson

      Yes. What first piqued my interest in Bitcoin was how similar the ideas were to the design principals of the Internet itself

  3. awaldstein

    Nice one Fred.Marketers and salespeople live in that fog. That is the natural state of the market.

    1. Joe Cardillo

      So, so true. I don’t comment on it much but this is something I’ve noticed a lot of.Innovation lies in the hands of deeply creative people, artists, designers, inventors, and so on, and one of the first warning signals for me is when someone who is a translator of the fog doesn’t know or acknowledge there is a difference. I’ve lived and worked in both worlds, so I have to watch myself on that.

      1. awaldstein

        I’ve been that translator and storyteller for my entire career.Always need to be self conscious and mindful. Actually much more dynamic now of course where we it is more about the narrative and less about the story in a wrapper, more episodic tv than a movie.

  4. Mostafa Nageeb

    This is valuable. I wonder how you pick up these emerging markets in the first place. I mean where do you find them before they become popular? and how do you filter not the noise within the emerging tech itself, but rather the noise of new emerging markets?

    1. Simon Edhouse

      Its either obvious or it isn’t, based on your own domain knowledge, in a sector.

    2. fredwilson

      It’s about discipline and practice. You have to always be looking for something new and different

  5. Simon Edhouse

    Seeing through the fog and picking out the winning idea is not the largest part of the challenge for Entrepreneurs though.. It is being able to articulate that vision, and demonstrate it in such a way that you can convince the people that matter. ~ Its a necessary corollary isn’t it, that what is generally difficult to see through the fog might be hard for others to grasp.

    1. fredwilson

      Very much so. That is why I think narrative storytelling is such an important skill for entrepreneurs. You need to wrap your vision in a story and tell it well

      1. Simon Edhouse

        Fred, Paul O’Brien from MediaTech Ventures, (in this piece:… stresses the importance of articulating the ‘opportunity’ over the problem solved, do you have any affinity with that?

        1. fredwilson

          Yes. I like to say “walk me up the mountain and show me the promised land on the other side”

          1. Simon Edhouse

            Brilliant.. 🙂

  6. Thierry Ascarez

    Very interesting, thank you. Do you write the thesis formaly down somwhere and it is shared with your colleagues or is “just” more like a concept that you have discussed and keep in mind? If the earlier it would be wonderful to see one? Maybe a previous one which is less relevant today. Have a good day

      1. Thierry Ascarez

        Great, thank you!

  7. William Mougayar

    To use a cliché statement, it’s about connecting the dots. But to do it well, you need lots of dots, and these dots come from experience & insights in doing the points you mentioned above. Each one sees the world based on their own set of optics.

    1. Joe Cardillo

      Good investors and good entrepreneurs both know that they are building their own internal OS… helps with the problems that come with growth, because you can make a lot of money and go pretty far down the road and still fall hard.

  8. Pranay Srinivasan

    I also posit this about industries when crossed with technology / software.Most pundits pooh-pooh internet business ventures as “over valued” simply because they dont own assets.But. any fragmented, distributed, large market (esp where buy side and sell side components are either fragmented or long tail), an internet platform can be a powerful unifying force.The difference here is the industry curve to adopting software as the method to operate its business.Thats the real Fog.Pranay

  9. Rob Underwood

    Great post.Re “using the technology”… I continue to be amazed at how many executives in technology – including (especially) those in large non-tech enterprises responsible for tech deployments, those who work for large technology companies, and (to a bit less degree but still happens) those in the VC/startup world refuse to use the technology itself.Instead these execs insist on “management by PowerPoint” approach where even screen shots are a lot to handle and it’s preferable to talk in the abstract (“Let’s keep it to strategy”). Sometimes this is born out of a lack of confidence (they know almost nothing of technology and are desperately hiding that), sometimes it’s born of arrogance (only the little people actually touch the product), sometimes both.Show me a busted $200M ERP project (a specific one I saw in the Valley comes to mind) and I’ll show you a number of executives, including on the software vendor and consulting side, who never looked at, let alone used, the product they were building.What’s clear is that lasting success though comes to those who get intimate with the products and technology itself. You have to know the product.

  10. ShanaC

    Really:4You’re starting to look at healthcare (which is good). But it also means that not all of the technology is going to be suitable for you to use personally (or even try).How do you deal with that? Proxies?Also, how do you filter out crappy writing on the subject from dubious sources?

    1. fredwilson

      we aren’t investing in any part of healthcare that is biology or chemistry. just data science and software.

  11. Mac

    Then, once you get that clarity to see through the fog, is the next filter the founders/team? Or, do they go hand in hand through the whole of the thesis process?

    1. fredwilson

      yes, that is how we got to Coinbase. Brian, and then Fred too, were the best entrepreneurs I saw over 18 months of looking.

  12. pointsnfigures

    Exactly why a big company that decides to have a venture arm, or innovation hub fail at it a lot.

    1. fredwilson

      don’t get me started.

      1. LE

        We need a day dedicated to things that make you think ‘don’t get me started’.There used to be a cartoon called ‘There oughta be a law’ which a few people might remember.

      2. Matt A. Myers

        And tomorrow’s post will be about.. (:

        1. Mroberhozer

          As a person currently in BigCo trying to build an innovation hub, I certainly hope tomorrow’s post will be about it 🙂

    2. jason wright

      arm rather than brain. fail.

      1. Rob Underwood

        See my comment about “management by PowerPoint” – look at how many execs who run those innovation hubs ever look at and use products (they don’t). Mostly and usually they are an elaborate “millennial retention program” of HR to hep retain younger workers with some of the cool stuff – younger workers who might otherwise leave the PowerPoint for one of Fred’s funded startups.

        1. PhilipSugar

          That is a don’t get me started.I have had VC’s and Execs say when showing them the technology, great, great I assume it works just give me the Powerpoint on the business plan.I fully understand most entrepreneurs are desperate for funding and would gladly drink dirty bathwater when they are in the desert.But if you can’t get a VC or Exec that is excited in the technology when you hit a stumble look out.Understand I am like Fred. Tech background, no tech chops other than to understand things now.

        2. jason wright

          +1 the bureaucracy tries to form around the innovation. it doesn’t form the innovation.

  13. Tom Labus

    In the public markets, you can also be greeted by a super tanker coming out of that fog. Ouch!!!

  14. Matt Zagaja

    When I was starting my career out of law school I was a bit adrift and found this blog. I’m not an investor in the literal sense, but in deciding how to invest my time and career I realized that developing a thesis could help there too. Developing the thesis helped me figure out what I should be doing, focus my skill development, and got me through some hard periods of unemployment as I said “no” to some job opportunities that came up when I was unemployed. All this to say it made a difference and helped me make right choices.

    1. Twain Twain

      Really happy that amidst all the “Dem vs Cons,” “Bitcoin vs Ether,” “coffee vs tea” bar brawls that happen occasionally, each of us finds a piece of wisdom or two to help us see differently and to make choices that are right for our situations.It’s hard to say, “No” but, often, it turns out to be the right thing to do.Continued progress and success to you in your career!

    2. Susan Rubinsky

      I wrote my first life plan in 2001-2. It has helped guide me in a similar way. I revisit it and update it every year. I’m currently in the process of creating a new one. Totally invaluable.

      1. JLM

        .I doubt 1% of the US population has a personal plan. BRAVO!I had a written and a “visual” plan in which I used to put pictures of stuff I wanted: house, terrific high rise office buildings, kids, lakehouse, ski place, convertible, airplane, fabulous historic renovations — shallow material stuff to be sure.Every Monday morning, I went through it. Every. Monday.I got all of it.We are drawn to what we can visualize and internalize.The first challenge of managing anything is to manage ourselves. We are quite manageable.JLMwww.themusingsofthebigredca…

        1. Susan Rubinsky

          You are the CEO of your life.

          1. JLM

            .And 100% of the equity is yours.JLMwww.themusingsofthebigredca…

    3. fredwilson


    4. Rob Underwood

      As someone who has struggled a bit with under-employment in mid-life Matt, I will tell you are making 110% the right call.In my early career I let the winds blow me where they would for a while and that worked out fine for a while, especially compensation wise. But about 35 or so – just as I needed to start making real money, with 2 kids and another on the way, and my peak earning years on my horizon – that started to catch up with me, especially the lack of focus and narrative. I think I’m on the way to fixing it (though I still struggle with telling my personal elevator pitch) – it’s a hard slog and you’re absolutely better off to develop a thesis and stick with it and then, if needed, intentionally redeveloping a thesis rather than just see how things play out.

      1. BillMcNeely

        Rob I couldn’t agree with you more. I’m 41 next week and on my 3rd career (Military officer, defense contractor now on demand) im going through a period on under employment as well. But folks aren’t confused what I do. Sometimes a thesis takes time to payoff.

    5. JLM

      .Save your money and buy rent houses.Rent houses will bridge the difficult times in your life.JLMwww.themusingsofthebigredca…

    6. cavepainting

      Life often times gets to points where it gets all foggy or even opaque.From questions that are profound and personal to the professional and financial.What is really my passion and what do I want to be?What am I seeking in a life partner?Where is the real opportunity in an emerging area of technology?Where do I invest my money?What is the purpose of my life?It is very possible to diligently work through the fogginess, understand the broad parameters of the space in question and come to terms with the probabilities of how it can potentially resolve.Prepared minds understand opportunity faster and earlier with a deeper understanding of context. And that can make all the difference.

      1. JLM

        .I am looking at life from a more distant viewpoint than almost everyone on this blog.Here’s what I have learned:1. Have a plan ….. for everything.2. Be prepared to abandon the plan when something smacks you in the face.3. Those things you wanted to be when you were ten? You can really do them (says the guy who wanted to be a badass paratrooper and build high rise buildings and did both).4. Things are sent in your direction for a reason. Do not debate the reason.5. Everything is preparation for the next thing. Something that sucks is prep for the clarity of vision you will receive when you find that right thing.6. You have about seven things in your life, so don’t focus on a single thing. [Soldier, demo guy (easily the most fun, blowing stuff up), corporate cog, builder, builder of high rises, entrepreneur, company starter, CEO, startup consultant, writer, angel investor, provocateur.]7. You can take every Friday off for your entire life and the same amount of work will get crammed into the rest of the days.8. Opportunity is an early riser and it’s usually wearing work gloves.Nothing beats floating in the Atlantic at 5:00 PM and contemplating a seafood dinner. Nothing tastes as good as a stolen watermelon except a kiss from someone who loves you.JLMwww.themusingsofthebigredca…

        1. cavepainting

          Glad to see you back. I hate your politics, but love your opinions on pretty much everything else. And your presence was greatly missed.

      2. Susan Rubinsky

        “What am I seeking in a life partner?”Love that one! As a long-term dater (not by choice, but by circumstance), I find that most men have no idea what they want. When I ask guys that they often say, “I’ll know it when I see it.” I run away quickly because I have painfully learned through experience that those guys will keep changing their mind if they haven’t actually defined what they want. In my experience only a very few people actually define this.

  15. creative group

    FRED:This post has been certified Platinum inspite of one differing view.Number three avoiding the noise and having blinders.When you are in an investment (invvesting in equities in our case) if your knees are in water (investing requiring either changing course and in your case having the influence to change) there is no way to overlook when a change is required to maintain profitability.We realize your intent on avoiding the noise.Ignoring and using blinders is the last inaction required.

  16. Twain Twain

    Intellect (thesis) and implementation (doing it) are symbiotic for success. As is continuous learning and iteration.Flying 8000km and going to hands-on workshops has exponentially expanded my knowhow of backend databases, streaming real-time analytics and data pipelines.Yesterday, the guy behind Twitter Heron showed how they do Topological Nodes and containers and this is different from how AWS does it with Kinesis and Docker.In AI workshops, as instructors get us to wrangle with the NLP frameworks, it becomes clearer in the fog-hype of AI, where the big bottlenecks are INSIDE THE CODE STRUCTURE ITSELF.

    1. Rob Underwood

      You have to get into the code and understand the technology. Use the products and evaluate the tech.The work of programming is bifurcating. The scaffolding up of apps using 4G dynamically typed interpreted languages is already becoming commoditized and will roll into (and I this is a good thing) functional/business analysis such that the MBA types will express ideas through prototypes in ruby or Python rather than building PowerPoint.Meanwhile the heavy hitter programming – and that’s where the money will be for onshore developers – will be in the type of work and analysis you describe – work that require both deep coding and deep systems knowledge and requires working with statically typed compiled languages.

      1. Twain Twain

        Yup, on LinkedIn the COO of Pat Inc commented about my deep knowledge after I made a call-to-arms for female engineers to get hands-on with AI and data science in workshops. https://uploads.disquscdn.c…*…Often times, I’m in technical workshops where male:female is 20:1 (sometimes even 40:1). Then I go to Women in Tech meetups and they seem to be about trying to recruit women to their startup rather than tooling female engineers to wrangle with data biases (so as to prevent their male colleagues and them from propagating those biases) and Machine Learning practice.@fredwilson:disqus @wmoug:disqus – Of course I’m organizing a “Hands-on workshop to fix the biases in Google Word2Vec, Stanford’s GloVe and make more Alexa Skills that aren’t about male sports” with the Bay Area Women in Data Science and Machine Learning group.And I’m asking my friends at AWS to give us the space and technical instructors as part of their ‘Girls in Tech Fridays’.The fog about why women aren’t succeeding in SV is dense on both sides of male and female efforts.On Saturday, the 8 year-old Indian daughter of the Twitter Heron instructor sidled up to me (I have that effect on kids; they see me as one of them — especially when everyone else in the room is male). She showed me Siri on her dad’s phone.So, naturally, I launched my Alexa development environment and showed her that she too could code Alexa to say whatever she wanted — rather than just relying on whatever someone else had programmed into Siri. She thought it was VERY COOL when I input in different terms and then Alexa immediately updated according to my code.Her eyes lit up and she got all excited.She asked me what a folder is. And what a file is. And why Siri can show her pictures but Alexa can’t. So on paper, I drew how file systems and screens work.Then her dad promised he’d teach her how to code and asked me if I would speak at a future meetup.That little girl was wearing a pretty, floaty pink dress like I did when I was her age. And my dad used to either do electronics or take me to car auctions, pop the bonnet and point out how engines work whilst I was in that pink dress.A bit of sunshine and illumination into the minds of children will bust through all the fogs of Silicon Valley’s sexism. If not this Saturday, then in a decade or two when that little girl becomes one of the best programmers in the world.

        1. Rob Underwood

          As the father of a girl (and two boys too) I’ve love to hear more about your work and ask how I might be able to help. I’ve been doing some work of my own around bots/AI. I’m at rob(at)ttmadvisors if you’d like to discuss more.

  17. obarthelemy

    I’d go one step beyond “using the technology”: use the damn product, and watch others using it. So much is about execution, and about a culture that cares about execution (and through that, users).In Tech, MS was in smartphones and tablets 10 yrs before Apple and Android, with capable enough smartphones (my HTC HD2 could browse, do email, ebooks, movies, music/audiobooks, games, any app really…). Only they were in it to please management, so their products rather sucked on several levels. I still remember having to move windows around so I could click the “close window” little red cross. And being told it couldn’t and wouldn’t synch with Windows/Desktop because MS was moving forward to a different Windows/Phone, and didn’t care about their current customers (mostly early adopters too, MS carefully shot themselves in BOTH feet: current customers and influencers).I think the writing was on the wall then, already.

  18. Frank W. Miller

    This is a really good post. I would emphasize points 4 and 2 in that order. I’ve read about Foundry’s investing themes. They seem like the current incarnation of the #2 in your list. The reason I like them is because they indicate that you’ve done a lot of #4 (with some #5 thrown in) in order to build up a #2. Ultimately, the best way to make a bet is to have knowledge what you’re betting on. That means getting as technically educated as you can.For example, when I first started looking at blockchain, there was a fog for me. I’d heard about what it was being used for, currency substitution. Over the course of time, as I’ve studied them and how they fit with the spectrum of other distributed data structures, the fog has begun to clear. Were I to be looking at blockchains now, I’d be starting the next Blackrock that managed their funds and assets using blockchains rather than employees and traditional fund implementations, no fee investing taken to the extreme. It seems to me now that they are potentially useful (assuming the silly mining thing goes away and you an fold in governance by an orgranization) for automating asset markets more than replacing currency, just MHO.

  19. Twain Twain

    My X-ray telescopic lens that zooms in+out, through the fog-hype of AI (especially Natural Language Understanding), spans 500+ years rather than the last 20+ years of the Internet or 50+ years post-Turing.I apply Da Vinci’s principles, perspectives and practice to everything and this helps me see much more clearly where we built up data and frameworks that prevent the machines from representing the whole of our intelligence and that put us into blackbox matrixes.https://uploads.disquscdn.c…This Da Vincian lens helps me to identify genuine innovation from the “me-too” and “this is just another edge of the black box, not a foundational breakthrough” AI technologies when I go to AI events, read research papers, hear folks talk.Last week, Amazon Alexa team certified my first Skill(*) for inclusion on their Alexa App Store so I have hands-on experience of where state of art Natural Language Processing (NLP) is and its limitations.It’s fine, I can develop black boxes and additional layers of it since that seems to attract investment.Just don’t expect us to know what’s inside those black boxes so we can avoid global financial crisis 2018. A crash happened in 1998/9 and another in 2008.++++++++++++(*) My skill is “Da Vinci Quotes”. There are 12,500+ Alexa Skills already certified and no one else seems to value the thinking and words of the greatest genius the world has ever produced.Mine is the first-ever “Da Vinci Quotes”!!!There are a whole bunch of skills on movies and pop trivia. Maybe that says something about this generation of developers, what they think matters to end-users and why none of them have an idea or implementation to crack the NLU problem and are just building boxes.Whilst I started to build towards a sphere from the start.

  20. Richard

    Do VCs clear the fog or ride the wave? There are two dogs, a technological fog and and a market fog. One is cleared by scientists and engineers, the other by individuals that fill or create demand.

  21. JLM

    .What Fred describes here — one of the best posts I’ve read anywhere on the Internet — is the creation of wisdom.Wisdom — the disciplined application of good judgement over a protracted period of time.Good judgment — the result of experience.Experience — the result of the application of bad judgment.His utterance is good advice for any endeavor, including a person’s own development.Three big points:1. This is the outgrowth of three decades of being in the VC game. One cannot ignore the compound interest effect of experience.Entrepreneurs, particularly first timers, are at a decided disadvantage on this score.2. He writes it down and publishes it, so there is a discipline to his practice.Success correlates well with entrepreneurs who have a written Vision, Mission, Strategy, Tactics, Objectives, Values, Culture, etc.3. It does not come easy and there are dues to be paid. Fred has written about his early days and the cost of the transformation from novitiate to master class. There is pain and there is learning in equal measure.One does not “see” through the fog in the early days of one’s career, one “fights” through the fog. Persistence is the secret ingredient of success.JLMwww.themusingsofthebigredca…

  22. LE

    I wonder to what extent having a thesis (or what I would call focus) is important simply as a way to narrow down the overwhelming amount of choices that a VC is faced with. [1] And to that point if there were not a large amount of potential investments then having a thesis would be potentially be a drawback.[1] It’s a bit like my theory on naming a baby. You go for a letter “we need something that starts with the letter ‘P’ in honor of our grandmother Pamela who died last year”.

  23. Matt A. Myers

    I always wonder how the bias someone has – from vested interest in certain ecosystems – impacts their ability to ‘see through the fog.’

    1. Girish Mehta

      “Never ask a barber if you need a haircut”. – Buffett.

      1. Matt A. Myers

        Brilliantly simple.

  24. Evan Van Ness

    So who are those pundits in crypto?

  25. Jason Yannos

    Fred,There is some overlap in points 1 and 2 in regards to focusing in on a sector, reading&research, and iterating your frameworks overtime. Clearly having a mental model/framework is what helps you and guides you through these periods of fog. Given that the web is a place thats full of noise, what books or resources would you recommend to a rookie who is trying to build a top down/bigger picture model of the internet without revealing any of your secret sauce.Best,Jason

  26. JLM

    .I keep getting a Disqus message which says “You must be logged in to upload an image.”The image is a jpeg.Thoughts?JLMwww.themusingsofthebigredca…

  27. John Currie

    Thanks so much for (another) super-enlightening post. Entrepreneurs are “investors” – just putting more of their eggs into 1 basket. All the tentants apply and all your points help to push -entrepreneurs or investors- to be better. Thanks.

  28. sigmaalgebra

    Apparently those approaches, well applied, work. I’m somewhat surprised that they work because they seem way too weak to me.Really, the goal of another Apple is to create/find the top 0.0001%. But IMHO what Fred described is to look at the top 10% to understand how to find the top 1%; okay, but that’s only the top 1% and not really going for another Apple. But, with Moore’s law and the Internet, apparently the top 1% is good enough for making good money.I will return to the approaches, very, very, different of that long time, unchallenged, unique, world-class success story in creating/finding the top — forget percentages — 1 or 2 approaches there are or even can be — the US DoD.Or, by an analogy, can’t look at the best in bombs and artillery in 1942 and come up with the Manhattan Project. Can’t look at the best in navigation in 1968 or so and come up with the Navy’s version of GPS. Can’t look at the best in telephone switches and copper wires in 1960 or so and come up with optical fibers. Can’t look at the best in airplanes in 1985 or so and come up with the F-117. Can’t look at the best in airplane engines in 1940 and come up with the jet engines of the 1950s. Can’t look at the best in radio vacuum tubes in 1940 and come up with transistors.So, in the Manhattan Project, basically just ignore all the most recent developments and the entire history of bombs and artillery. Instead, start with understanding of atomic physics, not just the outer electron cloud of chemistry but the nucleus, notice the work in fission, think of some of the heavier elements and the chances of a fission chain reaction, notice the energy levels involved in fission of a heavy nucleus, do some relatively simple experiments, do some Monte Carlo calculations to estimate critical mass, quickly spend about $3B in 1942 money, and, presto, bingo, save about 1 million US casualties that would have been caused by the invasion of the home islands of Japan, right, $3,000 per casualty, a grand bargain. The science was rock solid, but no way would Fred’s approaches have found or evaluated the work. Thankfully for US national security, the US DoD was willing to listen to Einstein, Wigner, Szilard, Teller, Fermi, Oppenheimer, etc., none of whom had anything to do with bombs or artillery. And none of their early work would have passed Fred’s or any VC’s filter. Or my joke is, VCs would have said: “Interesting. You build and test the first ones, and we will chip in for the gasoline for the Enola Gay.”.For the Navy’s GPS, f’get about everything previously known about navigation and look at the back of the envelope derivations of mathematical physics of a few guys from the Johns Hopkins University Applied Physics Lab (I later worked in that group and heard the stories).For optical fibers, consider Ga-Al-As hetero-junctions. A few people at Bell Labs understood. Eventually Bell understood. Later the whole Internet backbone understood. But a few people at Bell Labs understood just from the solid state physics of those hetero-junctions — THAT was the time to place an equity bet!For finding the best in new technology, Fred’s techniques, and those of all of information technology venture capital, ignore everything that is just crucial for finding, evaluating, selecting best, new technology.For transistors, look, again, at some solid state physics and quantum mechanics energy levels. Get the details just right, and presto, bingo, get a tiny, solid state amplifier. Bell Labs was nice enough to give it to the world, but, again, THAT was the time to make an equity bet! Let’s see: A license fee of a penny per transistor and by now own the world!So, that’s a look at how to evaluate new technology. So, sure, for the business connection: (1) Find a problem where the first good or a much better solution would be a “must have” for enough users/customers to make big bucks. (2) Use new, advanced, proprietary, protected, powerful, valuable technology — optical fibers instead of copper wires — to get the needed solution. (3) Market the solution.For (2), don’t look at experts, the fog, blogs, talks, buzz, trends, paradigms, views of the next new thing, opinions of generalists, “deep domain knowledge” about what is currently in the market, etc. To heck with all that junk. That’s like looking at the status of the best in artillery to find the A-bomb. Instead, look directly at the specific technology — a neutron hits an atom of a certain isotope of uranium or plutonium. The history of artillery — deep domain knowledge of artillery, the buzz about artillery, experts in artillery, seeing through the fog on artillery, articles and talks about artillery, the next big thing in artillery — has nothing to do with it.How to do the reviews, evaluations, etc.? That’s very well known and done everyday quite accurately by Ph.D. committees, grant reviews, peer reviewed journals, etc. Thing is, information technology VCs don’t do that. NSF can do that. Lots of research universities can. All the best journals can.Fine with me! I just did some arithmetic and found that the little computer right in front of my should be good for revenue of ballpark $60,000 a week. Right, ballpark, it extrapolates to about $1 T.Ah, I just did a backup last night: 57,394,999,296 bytes 417,153 filesin 1 1/2 hours! That has all my 25,000 programming language statements in 100,000 lines of typing ready for first production. Also the crucial core, advanced, proprietary, protected stuff is there, too.And, about my project, no one is saying it is the next big thing; there’s no buzz; no experts anywhere are talking about anything like my work; “deep domain knowledge” of anything currently well known won’t provide even a clue; the work is not part of any trend; there are no articles, blogs, or talks about my work or direction or even the problem I’m solving.Why? Not many people even bother to notice the problem, and none of the people who do even dream that there could be a good solution. Actually, there was a CMU grad student who noticed some of the problem and gave a talk saying that it couldn’t be solved; he listed four mathematical problems; I’d already noticed and solved all four; he was right about the overall practical problem and the four math problems but wrong about the solutions to the math problems!Those other people are like the long time experts in navigation before the JHU/APL and US Navy did their version of GPS — no experts in Loran would dream of being able to navigate within 1 foot. Well, the Navy did that. The USAF version? About 1 inch. And, starting with the math on the back of that envelope at the JHU/APL, there wasn’t much doubt; given that math, it was a low risk project.

  29. jadeydi

    I made a book list, most mentioned books of Stack Overflow Reddit And Hacker News.

  30. Tom Aageson

    Entrepreneurs differ from VCs. Entrepreneurs work in thick cloud not knowing the opportunity is there until they see it. They see a need. They gather the resources and build. Studying competition. Taking the risks, investing their own funds. Then to see if there is traction. Sales build, and build and then enters the V C.

  31. Judd Morgenstern

    In Design school we referred to this as “cutting cubes out of fog”. The basic process was Research > Analysis > Synthesis, which ultimately (hopefully) yielded the Thesis. In addition to the things above, there are a number of methods + frameworks helpful for “seeing through the fog” (e.g. 101 Design Methods more VCs don’t employ Design Thinking (and Designers for that matter) given how important it is to develop unique perspectives.