Starting Down the Startup Path (Part 11 of a series): Thread the Needle

“If you are looking for a needle in a haystack, and somebody has already cataloged all the straw in the haystack, when you get to that needle you will recognize it's different than what was supposed to be there based on all that computerized haystack information that had been predetermined for you.” -- Francis Collins

TIP: Iterate, and then reiterate

I have a client who wants to identify companies that have created a technology that is novel, has been commercialized, and has not yet been discovered. Well, as we say in Texas, that dog don’t hunt.

By definition, a commercialized product has been discovered by somebody. However, just because a technology has been discovered does not mean it is a winner.

In a horse race, the goal is to bet on the winning horse. Common sense tells us that if we knew for a certainty which horse would win the race, racing them would be pointless. The same logic applies to new technologies, and the companies that create them.

That’s why it can be useful to look at companies that have been examined by investment funds like the Columbia Seligman Communications and Information Fund.

Paul Wick, Head of the Seligman Technology Group, Columbia Seligman Communications and Information Fund, explains this concept in the following Q&A.

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Q&A-30 years of investing in technology
Our Blog
Jan 28, 2020
Paul Wick, Head of the Seligman Technology Group
For three decades, Paul Wick had a front row seat in the evolution of the tech industry. He shares what he’s learned and what the future might hold in the sector.
When Paul Wick took over managing Columbia Seligman Communications and Information Fund in 1990, Motorola had just introduced its flip phone and Apple had recently rolled out its beige box Mac Classic personal computer. Thirty years later, he’s witnessed revolutionary changes in the tech industry and used his encyclopedic knowledge of the sector to capitalize on long-term trends and sidestep gimmicks.
We asked Paul to take a moment to reflect on his achievements over the past three decades and discuss his thoughts on the direction of the tech industry in the coming years.
Q. What were some of the game changers you’ve seen over your tenure running the fund?
A: The introduction of the personal computer in the late 80s/early 90s was akin to what we’ve seen more recently in smartphones. This was followed by the trend of networking PCs together. Data networking became a new category, and that gave rise to client server computing — software loaded into a central server and accessed via networks. Netscape’s IPO in 1995 helped broaden the public’s access to web browsers, which propelled widespread access to the internet. In more recent years, we’ve experienced the smartphone/mobility revolution, along with cloud-based computing. Every advancement required faster, more powerful, less power-hungry and smaller integrated circuits.
Q: What are some of the most important lessons you’ve learned over your tenure as an investor in the technology sector?
A: Being successful in tech is not just about being first to the next big thing.
It’s more important to find long-term trends with legs. The PC trend, the networking trend and the smartphone trend are all long-term drivers that unfold over many years. Everyone remembers an IPO like Google’s and the stories of stocks that go straight up, but the much more common pattern is for companies to flame out after their IPO. It can take a year or more to understand if a trend is going to accelerate and dominate — and to understand the players in that space.
It’s important to recognize when accepted wisdom is no longer relevant.
As industries mature, the dynamics change. There used to be a rule that any time the semiconductor industry saw year-over-year revenue growth above 40%, or saw unit growth in excess of 25%, the industry would go into recession within six months. These numbers made sense when the PC market was driving 65% of semiconductor demand, and every chip company had its own fabrication plant and added capacity or hit the brakes at the same time. Now, with dedicated foundries dominating production, capacity adds are more granular and cyclicality has diminished. It’s unlikely that we’ll see the types of unit growth or revenue numbers that we had in the early days. Understanding these new dynamics is much more important than trying to apply the old rule. There are similar absolutes in other industries that have become less reliable as the world changed.
Business models matter.
We have always been suspicious of high-risk business models, such as one-product companies. We focus on finding companies with strong intellectual property, a sticky customer base and pricing power. We want to see recurring revenue and free cash flow generation.
Assemble a team that balances investing skill with technical know-how.
The members of the fund’s management team have all been investing in the sector for 15 years or more, but many of them also have roots in the tech industry, working in computer software or as semiconductor engineers. They know electronics. They understand the architecture of smartphones and the process development aspects of fabricating semis. Their background allows them to understand which companies will benefit from a new development in semi manufacturing, for example. We believe it’s a significant advantage.
Q: What are some of the trends you’re keeping an eye on in the technology sector?
A: The key trend is the intersection of the cloud with software applications, mobile devices and the Internet of Things. There’s a virtuous circle at work here — faster data networks and cellular speeds enable the cloud to deliver faster search queries and streaming video speeds. Software integration advances enable new cloud services like ride-hailing services and food delivery. Cloud-based software improves security and ensures that applications are always up-to-date. And more powerful sensors and processors increase the intelligence of the cloud and edge devices like industrial machinery, home security cameras and automobiles.
Of course, there are other trends that are also exciting, such as advances in autonomous driving and the trend toward electric cars. We’re also keeping a close eye on fuel cell technology and its potential to reduce pollution and carbon emissions.
I come at this as an investor rather than a technologist. I took one computer science class as a college freshman and didn’t enjoy it very much. In contrast, managing the fund all these years has been both an exciting challenge and great fun. It’s hard to believe all of the change that has happened in the past 30 years.
Free full text source: https://www.columbiathreadneedleus.com/blog/qa-30-years-of-investing-in-technology
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TIP #1: After finding a fund that looks interesting, look at the list of companies in their portfolio.

TIP #2: Pick out the companies that fit your research interests.

TIP #3: Google® each company for more information. Preferred sources include the Wall Street Journal, Financial Times, Barron’s, and the like.

To illustrate, here are a few of the companies in the Columbia Seligman Communications and Information Fund portfolio, with excerpts from articles describing each one.

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ARISTA NETWORKS INC
                Arista Networks is the leader in building scalable high-performance and ultra-low-latency networks for today's data center and cloud computing environments.
Arista Networks Stock Slides Even After Earnings That Beat Expectations
By Eric J. Savitz
Barron's, Feb. 13, 2020 4:51 pm ET
source: https://www.barrons.com/articles/arista-networks-stock-slides-earnings-beat-expectations-clud-networking-51581630584

DROPBOX INC-CLASS A
                Dropbox is a file hosting service operated by the American company Dropbox, Inc., headquartered in San Francisco, California, that offers cloud storage, file synchronization, personal cloud, and client software. Wikipedia
Wired, Mar 14, 2016
The Epic Story of Dropbox's Exodus From the Amazon Cloud Empire
Christie Hemm Klok/WIRED
If you're one of 500 million people who use Dropbox, it's just a folder on your computer desktop that lets you easily store files on the Internet, send them to others, and synchronize them across your laptop, phone, and tablet. You use this folder, then you forget it. And that's by design. Peer behind that folder, however, and you'll discover an epic feat of engineering. Dropbox runs atop a sweeping network of machines whose evolution epitomizes the forces that have transformed the heart of the Internet over the past decade. And today, this system entered a remarkable new stage of existence.
   In fleeing the cloud, Dropbox is showing why the cloud is so powerful. It too is building infrastructure so that others don't have to.
For the first eight years of its life, you see, Dropbox stored billions and billions of files on behalf of those 500 million computer users. But, well, the San Francisco startup didn't really store them on its own. Like so many other tech startups in recent years, Dropbox ran its online operation atop what is commonly called "the Amazon cloud," a hugely popular service run by, yes, that Amazon—the world's largest online retailer. Amazon's cloud computing service lets anyone build and operate software without setting up their own hardware. In other words, those billions of files were stored on Amazon's machines, rather than machines owned and operated by Dropbox.
But not anymore. Over the last two-and-a-half years, Dropbox built its own vast computer network and shifted its service onto a new breed of machines designed by its own engineers, all orchestrated by a software system built by its own programmers with a brand new programming language. Drawing on the experience of Silicon Valley veterans who erected similar technology inside Internet giants like Google and Facebook and Twitter, it has successfully moved about 90 percent of those files onto this new online empire.
Free full text source: https://www.wired.com/2016/03/epic-story-dropboxs-exodus-amazon-cloud-empire/

TEAMVIEWER AG
                Launched in 2005, TeamViewer delivers cloud-based innovations that enable businesses and individuals to connect devices across platforms, around the ...
TeamViewer Review
By Edward Mendelson, September 7, 2017
TeamViewer is a full-featured, enterprise-capable remote access and shared-meeting app that runs under all desktop and mobile platforms, including Windows, macOS, Android, iOS, and even Chrome OS and BlackBerry OS. It also offers a simpler free account for non-commercial use, and its interface is the most stylish and up to date of all the remote access software we've tested. Granted, this isn't the app you want to install on machines used by friends and family members who beg you for support. Rather, it's best suited for corporate use. TeamViewer is exceptionally well designed, with security-conscious professional users in mind, and it shares our Editors' Choice with the more family-friendly GoToMyPC.
Free full text source: https://www.pcmag.com/reviews/teamviewer
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Starting Down the Startup Path: TOC – Table of Contents
If you enjoyed this post, you might like some of the others in this series. Here is a convenient way to find them.
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Starting Down the Startup Path (Part 1 of a series)
How do you find emerging technology? One way is to focus on startups.
OK, fine, but how do you discover the startups that offer a technology of interest to you? One way is to focus on venture capital firms that focus on the areas of interest to you.
Read full post at:
https://desulf.blogspot.com/2019/12/starting-down-startup-path-part-1-of.html

Starting Down the Startup Path (Part 2 of a series)
Anyone involved in venture capital or its variants is interested in identifying potential candidates for investment opportunity. Finding these candidates is not easy. But a place to start on startups is to see what companies other venture capital firms have identified.
Read full post at:
https://desulf.blogspot.com/2019/12/starting-down-startup-path-part-2-of.html

Starting Down the Startup Path (Part 3 of a series)
Panning for Google® gold: startups with promising new technologies
The previous post in this series featured the List of Top Oil and Gas Private Equity Firms discovered as the result of a Google® search. The list focuses on companies pursuing acquisition and development of existing resources. While the list will be useful to many, this series of posts focuses on techniques you can use to identify startups with promising new technologies.
So, on to the next step in the quest to find new technology on the cusp of successful deployment.
Read full post at:
https://desulf.blogspot.com/2020/01/starting-down-startup-path-part-3-of.html

Starting Down the Startup Path (Part 4 of a series)
Nothing Ventured, Nothing Gained: Follow the Lead of the Oil Majors
How do you identify startups that fit your corporate goals? One way is to set up and advertise a venture capital unit, which enables young companies to pitch their technology to your corporation.
And that is just what several oil majors have done.
Studying their portfolios can provide a wealth of helpful information, whether you are a venture capitalist, a startup, or simply interested in identifying emerging technology.
Read full post at:
https://desulf.blogspot.com/2020/01/starting-down-startup-path-part-4-of.html

Starting Down the Startup Path (Part 5 of a series): Searching Patents
Patents: Emerging Tech
Patents are a rich source of cutting-edge research. And much of the research reported in patents never appears in peer reviewed journals. So, to identify emerging technology in your field, consider searching the patent literature on a regular basis.
TIP: Read Tips for reading patents: a concise introduction for scientists for an excellent overview on this topic.
Read full post at:
https://desulf.blogspot.com/2020/02/start-up-startdown-path-parti-5-of.html

Starting Down the Startup Path (Part 6 of a series): Reviewing Patents
Searching for patents is iterative. You type in some keywords. Results reveal more keywords. You type in those keywords. And repeat.
This can be really tedious, irksome even. Sometimes it is hard to figure out whether a given patent is even relevant to your needs.
Fortunately, a number of experts have offered tips to make it easier to read a patent quickly.
TIP: Google® how to read a patent for more tips on efficient ways to review a patent
Read full post at:
https://desulf.blogspot.com/2020/03/starting-down-startup-path-part-6-of.html

Starting Down the Startup Path (Part 7 of a series): Patents and Run On Sentences
Per USPO rules, the Claims in a patent must be stated in a single sentence. In many cases, the “single sentence” can be, thanks to colons, commas, semicolons, et al., several hundred words long.
But remember that, as difficult as it may be to wrap your head around any given claim, it still is faster than reading the whole patent.
Read full post at:
https://desulf.blogspot.com/2020/03/starting-down-startup-path-part-7-of.html

Starting Down the Startup Path (Part 8 of a series): Mining Patents for Keywords
Mining patents for useful information can be tedious. One thing you can do is to look for keywords to use in Google® searches. For example, in a previous post I listed a Breakthrough Technologies LLC patent with the following claim …
Read full post at:
https://desulf.blogspot.com/2020/03/starting-down-startup-path-part-8-of.html

Starting Down the Startup Path (Part 9 of a series): PTQ Catalysis 2020
PTQ Catalysis 2020 is ready to view at www.eptq.com. As always, it is rich in useful information. In the context of our Startdown the Startup Path series of posts, one article in particular caught my eye …
Pilot plant studies of hydrotreating catalysts
Read full post at:
https://desulf.blogspot.com/2020/03/starting-down-startup-path-part-9-of.html

Starting Down the Startup Path (Part 10 of a series): The Bigness of Machine Learning
Big data is a big deal. We humans generate so much data that our puny brains are unable to process it. So we have created machines to do that for us.
There is a whole discipline called machine learning designed to train these machines to process massive amounts of data in useful ways.
“Machine learning,” as Serdar Yegulalp notes in an InfoWorld article, “is a complex discipline. But implementing machine learning models is far less daunting and difficult than it used to be, thanks to machine learning frameworks—such as Google’s TensorFlow—that ease the process of acquiring data, training models, serving predictions, and refining future results.”
Read full post at:
https://desulf.blogspot.com/2020/03/starting-down-startup-path-part-10-of.html

Starting Down the Startup Path (Part 11 of a series): Thread the Needle
In a horse race, the goal is to bet on the winning horse. Common sense tells us that if we knew for a certainty which horse would win the race, racing them would be pointless. The same logic applies to new technologies, and the companies that create them.
That’s why it can be useful to look at companies that have been examined by investment funds like the Columbia Seligman Communications and Information Fund.
Read full post at:
https://desulf.blogspot.com/2020/04/starting-down-startup-path-part-11-of.html

Starting Down the Startup Path (Part 12 of a series): Patent Prior Art Search
Prior Art Search: Everything you need to know
If you’re looking to understand everything about prior art search, you’ve landed on the right page. By the time you finish reading this guide, you’ll likely have built a solid understanding of what can be included in the prior art, how you can use this knowledge to conduct a patent search all by yourself and avoid spending valuable resources on the non-patentable subject matter.
Read full post at:
https://desulf.blogspot.com/2020/04/starting-down-startup-path-part-12-of.html

Starting Down the Startup Path (Part 13 of a series) Dibenzothiophene Patents 2020
What’s the quickest way to determine if a patent is of interest to you? Depends on your purpose. This tip sheet may help you decide which section of a patent to focus on.
Read full post at:
https://desulf.blogspot.com/2020/05/starting-down-startup-path-part-13-of.html

Starting Down the Startup Path (Part 14 of a series)-Google Patents Find Prior Art Link
Patent research is important in any area of research you are engaged in ... especially if you are a startup, or are considering investing in a startup.
Prior art is an important concept in patent research.
In this regard, Google® Patents Prior Art Link is useful. When you find a patent of interest, in the upper right of the screen you will find a link labeled Prior Art.
Read full post at:
http://desulf.blogspot.com/2020/05/starting-down-startup-path-part-14-of.html

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Google® Better!
Jean Steinhardt served as Librarian, Aramco Services, Engineering Division, for 13 years. He now heads Jean Steinhardt Consulting LLC, producing the same high quality research that he performed for Aramco.

Follow Jean’s blog at: http://desulf.blogspot.com/  for continuing tips on effective online research
Email Jean at research@jeansteinhardtconsulting.com  with questions on research, training, or anything else
Visit Jean’s Web site at http://www.jeansteinhardtconsulting.com/  to see examples of the services we can provide