Technology Tourists and Imposter Investors

This is something that is both new and old.  It used to be the case that technology companies were lead by technologists that knew some good investors.  When the investors trusted the technologists, the engineers got on with the making and the investors treated their investment placement as if they had put their money with a reputable hedge fund manager or stock broker.  The investor didn’t try to interfere too much in how the makers got on with the making.  It wasn’t their field of expertise.

If the technology venture did well, the entrepreneurial product maker walked away with enough money to invest in other start ups.  Because they were technical people and could make things, they were good investors for technology start-ups.  They could see when things were going wrong and knew how to correct the situation, before it got too expensive.  More importantly, they could tell when a venture was going well, doing the right things and moving at the right technological pace.  They were intelligent technology investors.  They added value beyond their money.

Then things started to go wrong.  The sorts of deals that were struck with makers, in an investment climate where other forms of investment paid better returns (property, stocks, bonds), were pretty disadvantageous to the technologists concerned.  This meant that even if their venture succeeded spectacularly and a liquidity event ensued, they walked away from the table bruised, worn and not all that greatly enriched.  This meant that the next round of makers couldn’t really rely on the previous round of successful makers for investments in their crazy new ventures.  They had to go to money people and play by the money peoples’ rules.

This inevitably lead to more and more technology start ups being funded by investors that had no clue whatsoever about what it takes to make a successful product or technology.  However, they wanted to be hands on.  Now, it was all about their money and not about the intellectual property or product development stream at all.  Could they engineer things to get in, pump and dump their investment, before anybody else cottoned on?  Many tried.  This lay waste to many talented technologists and their product innovations.  Suddenly, nobody cared about the customer, the product or the intellectual property that was the subject of their research and development.  It became all about the money and some outrageous games were played in pursuit of a quick, easy buck.

Meanwhile, makers became even less wealthy and even less inclined to invest in technology ventures.  Pretty soon, you had money people calling the managerial, tactical and strategic shots in technology companies, but without the vaguest understanding of what the company actually did or how it was done.  They didn’t care to know about the technology, the real risk profile of their investment or whether or not they were getting reasonable outcomes for the money and work expended.  All they knew was that, for each unit of investment they placed, they wanted more.  More growth.  More returns.  More profits.

That resulted in a contraction of genuine innovation and a resort to silly projects, with trivial purposes, which could be inflated in the press and sold on as quickly as possible.  Nobody much cared that these companies became intolerable places for makers to work in.  Nobody seemed to care that all those man hours, all that sweat and all the sacrifice was in the service of making valueless, gimmicky, transient, ephemeral toys, not lasting engineering.  We were into the era of bin-ware, with all the wastefulness that goes along with that.

Pretty soon the non-makers running these technology companies lost their way.  They had no yardstick.  They couldn’t tell if the engineers were being slackers or highly productive.  It wasn’t their field.  They couldn’t tell what they were looking at and were so risk averse that they stifled any real risk taking by the makers.  The money guys always assumed their engineers were holding back or messing up and so development sweat shops appeared, eventually replaced entirely by offshore development sweatshops, where the engineers worked for peanuts.  The products got buggier, did less and were less innovative.

The threat continually made against the technology entrepreneurs and their engineers was that faster, bigger, better returns could always be made by taking the investment out of research and development and placing it in some other more lucrative, easy money scheme, such as derivatives, credit default swaps, junk bonds, bundled mortgages – you know the stuff.  It was the stuff that was so value-free that it almost brought down the banking system, until the people bailed them out.  The sword of Damocles that hung over every technology entrepreneur’s head was that if they didn’t do what the money people said, they would turn the supply of money off.  Money people called the shots.

Since the banking collapse, we have entered a different era.  Easy money investments are harder to come by.  Non-technologists have lots of cash burning a hole in their pockets, but nowhere reliable to invest it.  They can’t find simple ways to make a return on their money, so they have had to resort to investing in technology start ups.  Now we have the phenomenon of the technology tourist.  They have money to invest, but no idea about what they are investing in.  Sure, they want to maintain control (interference) and punish mistakes severely, but they have no appetite for the ordinary risks that are always involved in research and development.  They don’t understand that the baseline risk in R&D is not “a sure thing”.  There are variables.  Things can take longer.  Sometimes, brilliant ideas prove to be impossible to bring to market in a working form.  The technology tourists don’t get any of that.  They want the same sure bets they were getting with futures and derivatives.  Dream on, guys.

It’s dangerous to take the money from one of these tourists, because they have no way of knowing if you are doing a good job with their money or not.  They always assume not.  You can be doing the greatest job, as an engineer, for one of these tourists and they will still whip and excoriate you.  They never see the value of technology and intellectual property developed along the way and get hysterical about controlling budgets and burn rates to the last penny, on schedule.  Research and development doesn’t work that way and never did, but this class of investor is not aware of any of that.  It’s not their field, after all.  They’re only in technology because no other investment is worth doing, any more.  They make bad decisions.  They treat people badly.  They will abandon viable projects on a whim.  Like tourists, they walk around in loud shirts, speaking condescendingly and insultingly to the natives, complaining about everything, thinking their money makes them sovereign and wise and yet they have absolutely no intention of staying, once the weather in their more usual investments improves.

Added to this is the imposter investor, who pretends to have money to invest and keeps you endlessly rewriting and reworking business plans and projections, instead of spending time and money on making prototypes and products.  When pushed up against the wall and asked to put some of their money up, you discover that their cupboards are bare.  They don’t have the money they said they had, or access to investors that would back their venture on the strength of their lead investment alone.  Those guys are toxic because of the time they can waste.  You can still be creating presentations and PowerPoints, while a competitor beats you to market with your own brilliant idea.

So beware the technology tourist and the imposter investor.  There are a lot of them about, with the drying up of easier investments.  This is why we don’t have sustainable energy, in large part.  Such projects don’t fit the technology tourist risk profile.

Today, as always, the best investor trusts the technologists to do what they do best.  They have some reasonable working idea of what it takes to make things and what’s really going on in their companies, but they know that the right people to make the technology decisions are the people that actually do the making.  They are comfortable with a normal risk profile for discovery and invention and they know that innovation is one of the best investments you can make, in terms of return on investment.  The very best investors are rich former technology entrepreneurs and engineers.  Unfortunately, there are very few of those left.