The venture capital industry, which once offered attractive investment opportunities, has experienced diminishing returns in recent years. With the third industrial revolution nearing its end, investors are seeking new ways to achieve substantial returns on investment (ROI).
This article will explore how investing in research and development (R&D) in emerging technologies can lead to a potential 100x ROI.
In the past, investing $10 million in 10 startups could yield billions in returns. However, as competition increases, the ROI in the venture capital industry has declined, making alternatives like the S&P 500 comparatively more attractive.
The rise of emerging technologies such as quantum computing, AI, nanotechnology, gene editing, and robotics presents new investment opportunities. These technologies have the potential to enhance human lives and disrupt markets, but they require a different approach from traditional venture capital investments.
Once a “blue lagoon” is now getting “red” due to the rising competition.
More about modern VCs(funds) and their profitability here: https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
Where are those 100X?
Leading companies like Tesla, SpaceX, Alphabet, and Amazon have achieved immense success by heavily investing in R&D.
Tesla, for example, invested approximately $300 million in R&D from 2009 to 2012, which allowed them to introduce the Tesla Model S and grow their valuation from $500 million to $40 billion by 2014.
Similarly, SpaceX spent $2.5 billion on R&D in its initial phase to create cutting-edge rockets, resulting in more than 60% of global space launches being conducted by the company at significantly lower costs than competitors.
As Peter Thiel said, “The clearest way to make 10x improvements is to invent something new.”
Science is the answer.
The key to achieving a 100x ROI lies in investing in science, innovation, and R&D. Companies that invest heavily in these areas, like Tesla and SpaceX, have been able to outpace their competition and achieve extraordinary ROIs.
Let’s look at some companies that have drawn attention in the last few years.
Tesla started its heavy R&D with Elon in 2009. The company was evaluated at approx $500 million at that time.
From 2009 to 2012, Tesla spent $300 million(approx.) on R&D to introduce Tesla Model S, and in 2014 they were valued at $40 billion.
Tesla continued its investments in R&D manufacturing and distribution. That’s why they have the best self-driving system almost ready for launch, including a 500'000+ fleet on the roads.
A closer look into their story
Tesla was founded in 2003, announced the first product that was made in collaboration with Lotus, — the Roadster, in 2006, and sold 2500 units from 2006 to 2012.
So how Tesla became a $100 billion company?
Since 2009 they have started their serious internal R&D efforts, which let them create Model S and gain strength with solid IP. From now on, they just needed to lower the costs for a successful mass-market product.
Some people think it’s because of Elon Musk’s personal brand, which it’s partly true, but customers love their Teslas, and they do it because Tesla makes the best EVs.
Tesla started R&D for the EVs much earlier than others, and they’re still 5 years ahead in EV tech and Self Driving. So yes, the lack of serious competition in the electric vehicle (EV) market can be attributed to Tesla’s early start in R&D and their continued focus on advancing EV and self-driving technology.
SpaceX is another great example. They spent $2.5 billion on R&D to create the best rockets in the world in the initial phase. Today more than 60% of the space launches in the world are done by SpaceX, while the costs of each space launch are already 5 times lower than the competitors’.
So what does every leading company today has in common?
— They invested heavily in R&D
Tesla spent $350 million on R&D in Q4 2018 and almost zero on advertising.
In Q1 2019 Alphabet spent $6.03 billion on research and development.
At the same time, Amazon spent $8.9 billion on technology and content.
As we can see, not everything is about the money, but…
Billions are spent on R&D within those companies, and their ROIs are really impressive.
Investing in emerging technologies and R&D presents a potential pathway to achieving a 100x ROI. And capitalizing on the opportunities presented by these rapidly evolving sectors and scientific advances is an opportunity of a lifetime.
PS: There is an interesting case from recent history
Tesla’s acquisition of Maxwell Technologies for $250 million in 2019.
Maxwell Technologies produces new-generation patented batteries with 20% increased capacity at the same price and weight. To understand the value Tesla gains from this acquisition, consider the impact of a 20% increase in battery capacity on one million cars produced over the next two years:
1 million cars * 20% * $15,000 (cost of batteries in Tesla Model 3) = $3 billion in cost reductions, in addition to a significant competitive advantage.
This approximate calculation shows that Tesla acquired Maxwell Technologies at a fraction of the value they will generate in just over two years, making it an amazing deal.
