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Where do ideas and investment intersect?
Michael Moe is founder of GSV, a modern merchant bank that invests, advises, and partners with the fastest growing, most dynamic companies in the world… what they call “the Stars of Tomorrow.”
As you’ll hear, GSV – which stands for Global Silicon Valley – runs various investment vehicles, including the publicly traded GSV Capital. You may know of some of the companies in the GSV vehicles have invested in: Facebook, Spotify, Twitter, Lyft, Dropbox, Coursera, among others. I thought did.
But GSV is far from your traditional investment play. They also incubates ideas – GSV Labs is just one example – next generation insights and technologies that, they expect, will help drive next generation business solutions.
How does it work? As Moe explains, GSV has created an active web of companies, advisors, ideas, and investments across several key emerging growth industries, including Education, Big Data, Sustainability, Social/Mobile, and more.
The result was a terrific conversation that covered the principles of emerging growth investing, thoughts on the pros – and cons – of the role tech plays in our daily lives, and what, exactly, defines innovation today.
Chris Riback: Michael, thanks for joining me. I appreciate your time.
Michael Moe: My pleasure, Chris.
Chris Riback: So, you’re an investor, but you hold many, many titles. Let’s focus on that one, but I feel like we with you need to start with philosophy, because GSV seems to operate very different from most investors, and it seems to be many things, but driven by a very strong point of view about the world and about how it should operate, so what is GSV and how would you characterize your philosophy?
Michael Moe: Yes, thank you. GSV stands for Global Silicon Valley, so a component of our thesis is while we are based in Silicon Valley, the mindset of innovation and entrepreneurship that’s made Silicon Valley such a remarkable place is really spreading around the world. It’s going global. It’s going viral, so a big part of GSV is connecting Silicon Valley and the world to Silicon Valley around innovation entrepreneurship, but we’re a modern merchant bank.
What does that mean? A merchant bank obviously invest and advises companies. Why we’re a modern merchant bank is one, we’re focused on emerging growth industries, and secondly, we’ve created other businesses in addition to our invest and advising activities. They’re really designed to provide us with advantages with their primary mission of identifying, aligning, partnering with the fastest growing, most dynamic companies in the world; what I call the stars of tomorrow, so that’s the modern merchant bank.
We have investment funds, we have an innovation center, we have research business, we have a conference and meeting business, but all those center around the common denominator is about partnering with these stars of tomorrow.
Chris Riback: What is innovation today? Is the definition changing? It’s got to be different than how it was defined or how you defined it 20 years ago, 10 years ago, maybe even 12 months ago. What does it mean to you today?
Michael Moe: I think frankly innovation has probably become a bit of a cliché, and everybody talks about innovation. It’s certainly I think has the risk of being overused, but the essence of why innovation is fundamental to what we care about, which is growth companies and growth sectors is it’s about doing things better. Better could mean higher quality. It could mean lower cost. It could mean in creating greater access, drive better results. Innovation is really the process of improving upon status quo, and we’re looking, and what’s exciting to me is while the word innovation is arguably become way overused, the fundamentals of change and disruptive technology and entrepreneurship and ideas that can really transform society is flourishing, and that’s I think very, very exciting and we hope GSV to be in the middle of that ecosystem.
Chris Riback: I want to ask you about the sectors that you’re really focused on and really what it means to be investing in emerging growth companies and what you look for, but just to clarify and get all the facts straight, couldn’t agree more regarding innovation and it’s overuse, but empirically, you were the first to use the word. We could just go ahead and say that. We don’t need to worry about anybody actually proving that right.
Michael Moe: Well, I don’t know if that’s factual or not, but I won’t argue against it.
Chris Riback: We won’t let facts get in the way. Let’s not argue over that. Emerging growth companies and the sectors that you’re focused on, education, big data, sustainability, social, mobile, you tell me if I’ve left any out, but what does it mean, emerging growth company? Tell me the company that says, “We’re not interested in emerging growth,” so how do you define it and then maybe let’s go through the sectors and particularly if I left any of them out?
Michael Moe: I think you’ve got to distinguish between emerging growth sectors and themes and emerging growth companies, because there can be emerging growth companies that are not growth sectors, and so my definition of emerging growth is that the company or sector theme is experiencing rapid growth, growth well in excess of normal even or traditional growth, so in other words to be emerging growth company that means to me that you’re growing your revenues and ultimately your earnings at at least a 30% rate, which is more than three times the normal company. Emerging growth industry is really a sector that is growing significantly greater than the overall economy.
Obviously in an economy that grows two or three percent, an industry that’s growing at 10 or 15 or 20% is growing much faster and that would qualify as emerging growth industry, but what we’re looking for is where there’s tremendous change taking place and often where there’s problems, because problems create opportunities, but we’re also looking at technologies that are being embedded in the world that have an opportunity to really transform things. One obvious example is that ten years ago when the Smart Phone appeared on the scene, which really changed everything. It allowed a number of business models to be created. It effectively allowed people to have a computer in their pocket, and so that’s an example of the type of shifts or change that we’re looking for, and we can talk about some of the industries and some of the themes that we think are ripe for innovation and ripe for emerging growth opportunities.
Chris Riback: Let’s do that. What are the industries that are top of mind for you today and why, maybe?
Michael Moe: Well, you mentioned education, and in our view education talent is really going to be a gigantic area for growth and opportunity. Primarily, we’re in a knowledge economy and a global marketplace where what you know or your knowledge and education makes a difference not only for an individual but also for a company, and for that matter a country, and so classic big problem, big opportunity, so now what you’re seeing is technology being inserted in this already massive industry that is providing people the access to the knowledge they need, the education they need to participate in the future; these rapidly growing businesses, what I call weapons of mass instruction, companies like Coursera that has 32 million learners on it’s platform. Coursera is another good example of a company that is scaling very, very rapidly in the space.
That’s an example. Another theme that we’ve been focused on for some time, and it really goes back to this point about what the mobile phone has done in terms of catalyzing new opportunities, what we call social mobile, so we were an investor in Facebook and Twitter and Snap and Spotify; all companies that have been a benefit from that theme and we continue to see the world being organized as much around tribes and interest as it was historically around geography or other areas that people used to be organized around, so that’s another theme.
Artificial intelligence, and really it’s machine learning and big data, but what’s incredible in terms of what’s taking place, people have talked about artificial intelligence for some time, but now you have software that’s so powerful that it can literally on the fly analyze what you know, where you have gaps, where you have interest, and the information and data that’s being provided really is transformational, so those are some areas that we think are pretty compelling.
Chris Riback: You’ve been inspired by education and the knowledge space almost from your beginning, haven’t you? I know as far back as 1996 you published a white paper on the knowledge sector and the opportunities there. Why has that for you personally been such an area of intrigue? I can’t imagine that you foresaw everything that has come since then, so how has that sector played out in ways that you didn’t expect maybe?
Michael Moe: I guess it really came from my … I was a research person. I was running Growth Research at Lehman Brothers, and then ultimately the white paper is I hit a growth research strategy at Montgomery Securities. It was called the Dawn of the Age of Knowledge, and what we kept on seeing was in talking to these vast growing companies, the CEOs and I’d go, “What’s the number one issue you have with your competition or to achieve your objectives?” It kept coming back the lack of accessing people with the skill set, the education and the knowledge they need, so I kept on hearing this over and over again. I started connecting different pieces and dots and really understanding what’s going on here.
You fast forward; what does that mean in a society where increasingly it was going to be about your knowledge? It wasn’t a physical capital … businesses’ industrial economy was being left in the dust, and we really entered the knowledge economy 25 years ago, and that became the beginning of really understanding what the definition is, and with education it’s very, very complex. There’s a number of reason that things need to change and be addressed if in fact you want to give everybody an opportunity to participate in the future.
Chris Riback: Have MOOCS played out as you thought they would? I actually spoke with the two heads, and I forget their names; I think one of them is still there, of Coursera. This must have been five, six years ago at this point.
Michael Moe: Yes, Daphne Koller and Andrew Ng are the founders.
Chris Riback: Yes, and at that point it felt like, “Okay, this is exactly the power of what the internet is going to and can and should provide, connecting the best of the world’s knowledge so that regardless of where you’re located you have access to it,” and so on the one hand that potential seems extraordinary. On the other hand, while we’re seeing online learning in certain areas, are MOOCS, Massive Open Online Courses, are they catching on? Talk to me about the business model, and maybe you’ll talk about it in terms of Coursera, because originally the concept was these are just going to be available and people will learn and that’s wonderful, but monetizing it and creating a business model out of it has been the next level. Where is Coursera on that and how do you think about the business model in terms of online learning?
Michael Moe: I think a lot of the entrenched status quo, the MOOC phenomena, which began just over five years ago, so you were early in identifying a shift that was taking place; initially, all the universities rushed to being part of MOOCs because I think they were afraid they we’re going to be left behind, and then as is often the case, things don’t materialize as fast as maybe initially had been either expected or feared, and then the conventional wisdom was that this MOOCs is sort of a roman candle and going away.
Interestingly, what’s happened over the last five years I believe has set the stage for being wildly both disruptive but disruptive in a positive way, where truly this aspiration of making the world’s knowledge available to anybody in any corner of the earth either for free or at very low cost is happening, and so Coursera has clearly established itself as the leader in terms of the number of students; 31 million students the last time they released it, which is more than double the second closest competitor, but the business model itself, you have 31 people doing anything; there’s ways to monetize it other than the way people traditionally think of, when education you pay these high prices for a course or for a degree.
Well, for Coursera, most of the people that take courses on Coursera today are taking it for free from the best universities in the world for no cost, but like Drop Box, which the 5 million people on Drop Box, most of the people use Drop Box for free. The people that use it have allowed Drop Box to create a very big business, and Coursera is scaling very, very rapidly from a revenue standpoint, both from the certificates that you see increasingly on a LinkedIn profile that say you took this Coursera class, or in the corporate marketplace where major corporations are looking to retrain and to help develop their human capital, their employees, and then recently Coursera has introduced degrees in partnership with their university partners at prices that are your same degree from University of Illinois; MBA for example, but at a fraction of the cost of having to go to the campus itself.
I think as people see the numbers, I think they’ll be surprised and impressed, and I think a lot of new technologies, it takes longer but it becomes much bigger than maybe even optimists had thought when it started.
Chris Riback: How do you see the opportunity in that space when you see unemployment at record lows but you see wages not necessarily moving and are corporations going to have to do more retraining and creating education opportunities for employees for them to be able to remain competitive for high wage opportunities? How do you think about the balance between wages, unemployment, and the role that something like Coursera could play for employee learning?
Michael Moe: Yes, I think that’s where the biggest opportunity is, frankly. It’s people that have a college degree but in a world where technology is changing very fast and automation and robots, the degree that you got ten years ago is obsolete, and so no longer are you going to fill up your knowledge tank to age 25 and drive off to your life. You’re going to continually need to replenish what you know with modern and current skills to be relevant, and to do that you’re not going to drop out of life with your mortgage and your kids going to school to go back to college. You’re going to be taking classes on the bus, at breaks, in different ways when you can and when you want, just like you consume a lot of different entertainment, and so that’s just a fundamental shift of how you think about how people are going to obtain the knowledge they need, but that’s I think a big deal.
Chris Riback: How much do you worry about the downsides of technology? When you talk about the social, mobile environment, we know the Facebook headlines; Snap, another place that you invested in, and the silos that we see in society. I look at you and the areas that you’ve focused on over the last 20, 30 years, the ways in which the online education, just bringing people together and connecting knowledge and connecting people from around the world, and on the other hand something like social mobile which has had obviously great benefit, but also we’re now seeing unfortunately really costs surround it in terms of silos and divisions. Do you worry about that? How do you think about that balance?
Michael Moe: I think it’s important to pay attention to things that are going on, and if there’s issues that have been caused by technology or maybe now being diagnosed that always existed, that are not good, not healthy. The anxiousness and some of this is the fact that you’re always on. There’s never a moment where you aren’t connected, and you look at the level of anxiety or at least anxiety being diagnosed with teenagers and people, the millennials. You look at depression; even worse, suicide and so forth. There’s a lot of things that you have to pay attention and say, “Are these all a consequence of technology?”
I think what I believe is probably two things. One, it’s important to be aware of it, but you can fight against it, but in a lot of ways the technology that’s here today and technology that’s going to be here 10 years from now, it’s like gravity. It’s going to happen, and you can’t outlaw it. You can try to do different things about it, so it’s really what can you do to make it so it’s not unhealthy or that they’re getting the benefits but not getting the things that can be harmful, but I also think that every generation of people looks and says, “Okay, this stuff that’s happening, it’s going to be the end of society, the end of the world,” and yet human nature is incredible adapting.
I think that’s whether the future of work, where everybody says, “Robots are going to basically have all the jobs and you’re going to need universal basic income,” and so forth, or whether it’s these mental health issues that you see being connected to technology and smartphones and social media and so forth, but again, I think we find ways to adapt or to solve that so people can be healthier and they can have a richer and more productive and healthy life, and I do believe … I’m an optimist about the future and about how technology can be mainly a social good, and you just have to be conscious of the things that could be harmful.
Chris Riback: To close out, Michael, a couple questions just about GSV and some of the things that you’ve learned. Global Silicon Valley and connecting Silicon Valley to the world and the world to Silicon Valley; any regions, any areas that you’re particularly interested in right now that you’re focusing on or that might intrigue you a little bit differently right now than they have previously?
Michael Moe: Well, I think you’re seeing this phenomena spread throughout the world. You look at the people that want to be entrepreneurs, high school students and college students who want to be entrepreneurs. It’s like through the roof. I couldn’t have spelled the word entrepreneur in college, but you look at many of the college students today, they want to be entrepreneurs, and that’s a global phenomena. I also think specifically in Silicon Valley, and this is something we’re seeing over and over. The cost of living is so excessive here that many entrepreneurs are saying, “I just can’t afford to live here,” and by the way, now that you’re seeing this spread of an ecosystem that you don’t just have to be in Silicon Valley to be a thriving entrepreneur. You’re seeing this. I say it’s from Austin to Boston, from Chicago to Sao Paulo, from Mumbai to Shanghai to Dubai. These are places you’re seeing this phenomenon go.
I wrote a book last year called the Global Silicon Valley Handbook, and it was a little bit tongue and cheek, but it mapped out innovation centers around the world using data such as Angel Activity and where Venture Capital is happening and where you had education levels such, because one of the raw ingredients to entrepreneurship, innovation and some of these opportunities is really human capital and talent, and one of the most fertile places for that obviously is universities, and so that’s something that we’re playing close attention to, both because that’s where the human capital is and that’s where you have this gigantic interest of entrepreneurship.
Chris Riback: And as I hear you talk, on the one hand I hear the speaking and the words of an investor; the emerging growth returns, business models, opportunities, and on the other hand I hear ideas, and the handbook, the role of knowledge that is going to play in terms of individuals and society. Do you see yourself, do you see GSV, are you an investment vehicle or are you an ideas producer?
Michael Moe: Well, I think at the core of investment opportunities is ideas and research, and so I think at the core, the foundation of our investment is our research and our ideas, and then we’re looking for opportunities to fit within our worldview of where the best opportunity’s going to be created. The investment business is a phenomenal business, and we’re absolutely in our core we have funds and we want to be viewed as a preeminent growth investor, but really what gives us that opportunity is having this lens and generate ideas and really think about where things are going and why, and then also create things like the Global Silicon Valley Handbook, GSV Labs, where we have over 200 startups and 25 corporate partners that are working with us, and now we’ve got labs not only in Silicon Valley but Boston and Delhi and Bangalore, India, and we’re looking to have 40 labs around the world in the next five years, and conferences that we put on.
All this is around this entrepreneurial innovation idea ecosystem, but then being able to take those ideas and that connectivity and translate it into great investments, and that’s how it’s all brought together.
Chris Riback: Michael, thank you.
Michael Moe: Chris, my pleasure.