Investor Stories 7: What’s Next? (Wheeler, Blank, Wilson)

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On this special segment of the Full Ratchet, “What’s Next” is addressed by:

  • Morris Wheeler

  • Steve Blank

  • Joanne Wilson

Each investor discusses industry trends, sectors, drivers or markets that are positioned for outsized-growth and/or will have significant impact on society.




*Please excuse any errors in the below transcript

Nick: On today’s special segment, we have Morris Wheeler of Drummond Road Capital. Morris, are there any big sector changes, drivers, or thermals that you feel may materialize in the next few years and could significantly change the way that we do things? If so, could you select on and talk about what you see coming and the impact is may have?

Morris: Boy…there’s several. I think one that we’re in the middle of is what I would generally refer to as connected devices. I think others may refer to it as the Internet of Things, but to me it’s the connected device piece that really describes it more. Whether it be a super precision grill that will cook your cook for you that you can check from your office to see that your food is cooking or a sensor in a factory where I can gather data about how my factory is running and whether my factory is running well, connected devices are gonna change the world as we know it over the coming years as it has already started to do. And that’s an area that I’m extremely interested in and heavily invested in.
Similarly and related is what I would call the quantifiable self, which is different ways of using connected devices, wearable sometimes, to quantify health and fitness and wellbeing. And that’s another area I have a very strong interest in. I think both of those are really important.
And last but not least, and I think it’s an out of favor investment area but I think it’s going to be coming back, and that is how all of those things that we’re talking about are going to change how we look at energy usage and resource usage. I think we’ve become a world that uses far more inputs, material inputs, than we need to, and the dematerialization of our needs is gonna be a very big investment paradigm going forward.

Nick: Any startups that you’ve made an investment in in of those sectors that you’d like to give a shout out to as something we should keep our eyes out on and look for great things from?

Morris: Well…a particularly interesting one, I think, is a company that’s called Pallet Home. They make a precision cooking device that takes advantage of the fact that cooking food is not related to time as most people believe, but rather is related to temperature. And they’ve created essentially a Foreman grill that will perfectly cook to medium rare at home at 7:15 at night, and show up at 8:15 late and still have it be perfectly cooked exactly the way you like it.

Nick: Better get a good spokesperson for that one, Morris.

Morris: We’ve got a lot of people we’ve been working with. Believe me the food blogger community loves that one.

Nick: Awesome. 

Nick: For today’s investor’s stories segment, we have Steve Blank. This special question is called “What’s next?” Are there any big changes that you feel may materialize in the next few years and could significantly change the way that we do things? And if so, can you select one and talk about what you see coming in the future?

Steve: I see this all over the world now. You know, entrepreneurship is everywhere, but risk capital isn’t everywhere. At least not on the scale that’s here. And I think that’s what makes this the leading center of entrepreneurship. You know, it’s still easy to kill Silicon Valley and what will kill Silicon Valley is not the lack of entrepreneurship—or maybe even the lack of money—but will kill Silicon Valley is the fact rent seekers and regulation, when disruptive innovation now impacts incumbents who are able to in fact capture regulators and politicians, it turns out regulation and corruption is the antithesis of innovation. And for the last part of the twentieth century, the US was the only home of this. But if we kill it here, it is possible that it will go elsewhere. And so when I watch regulators talk about “Well we need to protect X and Y” it typically means regulatory capture has happened and the people the regulators are supposed to regulate actually have captured the regulatory authority. That’s what’ll eventually kill venture scale investment in the United States, is when disruption is impossible because regulation just protects the incumbents.

Nick: Not the calmest waters for the pirates.

Steve: Well, if you really think about it, most of the twentieth century, Silicon Valley wasn’t disrupting existing industries. Right, semiconductor business and the PC business didn’t really affect incumbents. But now if you look at telecom or the taxi business or the hotel business or the space business or the automotive business, where in fact we’re doing major disruption, those incumbents own the regulators and own the politicians. And it’s quite possible that they will kill the innovations, not because the innovations are 4technically incorrect or not because they aren’t cheaper of better for consumers or businesses, but because the incumbents basically have lost the skill to innovate.
I’ll give you a classic example is Hollywood. Hollywood is run by finance and MBAs on their boards. There are no creative people running studios anymore, which is why the biggest impediment to innovation in content distribution is the MPAA. Not that I think they’re evil people, but they’re run by lawyers who in fact opposed every innovation that made Hollywood richer. They opposed videotape distribution. “Oh! It’s gonna—” the end of the world! They opposed DVDS—the end of the world! They opposed streaming! It’s the end of the world! Well, it turns out that each end of the world added another layer of revenue to an industry that fought it tooth and nail!
Those industries themselves no longer have that ability to innovate, and you can always tell an industry that’s lost the ability when in fact their biggest expenditure is on litigation. Now, I mean look at how much Hollywood spends on MPAA or how much the auto industry spends on litigation or how much, you know, the space industry hates SpaceX. Or how much the dealer associations hate cash flow. It’s not because Tesla’s being innovative, it’s because the existing organizations are living off of in fact regulation—which, by the way, all regulation typically starts to protect the consumer and then eventually in fact mutates to protect the incumbents.
So those—you can to yeah think about what will kill Silicon Valley and kill investors, it’s in fact that the big ideas are no longer possible because the incumbents have captured the regulatory authorities. That’s the part that investors ought to be worried about. Now what was your question?

Nick: [both laugh] Well, I tell you what, some sort of regulation limits the potential for Uber or Airbnb or some of these other innovative companies. There’s gonna be a tragic ripple effect through the entire system.

Steve: Right



Nick: On our special segment series today, we have Joanne Wilson. Joanne, are there any big sector changes and or thermals that you feel may materialize in the next few years, and if so can you select one and talk about what you see coming in the future?

Joanne: You know, I mean, I’m not astute in anything in the Bitcoin world or the banking world, but I actually do think that when you look at stuff like Venmo or Bitcoin, I don’t think there’ll be any reason to have a treasury in the next ten years except to be on top of evaluations of our currency. I don’t know why we’d be printing cash. It makes no sense to be why we need cash. And I believe in Nigeria?, there’s no cash. It’s all change hands through technology.

Nick: Wow!

Joanne: Yeah. It’s—I think it’s Nigeria… Anyways, I do think that that’s where we’re going, in that business. I think the other major changes that we’re gonna see it we’re gonna see a lot more changes in the food industry. We’re gonna see more localized engagement, we’re gonna see a brand new crop of McDonald’s that aren’t McDonald’s. We’re going to see more people invested in what they’re eating and it’s gonna become, through technology, cheaper to feed the world than using antibiotics in our food. So I think we’re moving that way, and we’ve yet to see that. And in general, there’s not a business that won’t be changed by technology, where wearables, fabrics, you name it. I mean it’s all changing. Transportation.

Nick: Yeah, you’ve written about transportation and I’ve sent that quite a few times.

Joanne: Yeah, I mean—gas. Are we really gonna need to be…you know, finally, Tesla and the electric car. Fricken’ genius, they could’ve done it fifteen, twenty years ago—thirty years—forty years ago, and the lobbyists of course made sure we didn’t have railways or intercity transportation or having electric cars—took Elon Musk to basically say “I’m gonna do this.” And now every manufacturer of cars’s on the bandwagon and you can actually fuel your car up with electricity in a variety of different locations in urban areas, and that is gonna be transformational because we’re not gonna have to rely on the Middle East!

Nick: Yeah, I’ve heard on your daily commute, you are the driver and your husband is the passenger. How did you end up with that raw deal?

Joanne: Uh, because he’s a terrible driver. [both laughing] That’s basically it. But I do think that—you know, I know that they’re working on batteries now that are going to be able to take solar power, put on top of your homes or your apartment buildings and being able to suck in all that energy. I do think that—and I’ve always been a big believer in this country—it is the private sector that is going to change the way that we run out lives and it will not be the government, and that when things go back it is the people of this country because we are capitalist society that will say “Damn, we do not like the fact the environment is going to s***. We’re gonna fix that thing.” And it will get fixed because that’s what American’s do.

Nick: I’m thankful every day that I get to participate in this industry, even if it’s just a tiny sliver of the next generation of technology. It’s a pleasure.

Joanne: Yeah, me too.


Morris Wheeler Thesis Strategy
Steve Blank Investment Readiness Level