Silicon Valley VCs Are Increasingly Backing Technologies

Hewlett-Packard began in 1939 in a Palo Alto, California, garage and is known as Silicon Valley’s first startup. But the first use of the term “Silicon Valley” would come 32 years later. Writer Don However used it in 1971 to label a series of stories in the weekly newspaper Electronic News. “Silicon” stood for the area’s semiconductor companies: Fairchild Semiconductor, National Semiconductor and a three-year-old startup called Intel, among others. Venture capital in Silicon Valley got going around the same time. Kleiner Perkins Caufeld & Byers began in 1972. It went on to fund AOL, Amazon, Compaq, Genentech, Sun Microsystems, Netscape and Google. Rival firm Sequoia Capital went on to fund Apple, Oracle, Cisco, Electronic Arts, Google, YouTube, LinkedIn and WhatsApp. The technology/venture capital partnership has made Silicon Valley a champion in the global economy. The Valley has suffered busts—notably the 2000–02 dot-com crash—but mostly it’s leaped from boom to boom, thanks to this powerful pairing. So which technologies are Silicon Valley venture capitalists backing today? My Forbes colleague Bruce Upbin and I recently moderated a panel on funding trends with top Valley VCs.

•    Enterprise IT will be radically transformed. Incumbents such as IBM, HP, Cisco and Oracle, are going to face competition from startups that will bring game-like software to accounting, inventory management and logistics.

•    Commercial banks will suffer a relative decline. Peer-to-peer lending models will snatch traditional banking’s customers.

•    Digital home networks that link everything from TVs and telephones to heating and ACs will become common, but will be a hacker’s paradise. Pranksters won’t call your home to ask if your refrigerator is running. They’ll hack into your home network to turn it off. Hackers will probe your network for credit card and banking passwords. So, home digital security will become a big business.

•    The health insurance industry will be disrupted by employers. Most firms with more than 500 employees will self-insure. They’ll use technology networks to eliminate physician networks and payment systems. The future can be seen at Stanford Medicine, which contracts directly with many Silicon Valley companies.

•    Tiny technology and big data will transform health diagnostics and treatment courses. Like in a scene out of the 1966 sci-fi thriller Fantastic Voyage, a patient will swallow or be injected with a tiny chip which will relay huge amounts of microbiomics (the study of the interlocking systems of human cells and microbial life in our bodies) data. This will be analysed by doctors and reviewed by analytics engines for a treatment plan.

•    The “last-second economy” will continue to grow. A successful example of this is Uber, the car-ride service that’s reachable via a mobile app. More products and services will be priced based on the internet’s real-time auction price.

•    Spot pricing for health care procedures will become the norm. Consider MRIs. The cost of an MRI machine is about $2 million, yet it’s used from 9 am to 5 pm. Why not create a market for discount MRIs scheduled during off-hours—for example, 50% off at 11 pm or 80% off at 3 am? This is coming, say the VCs.

•    A woman entrepreneur will start a company with a $50 billion exit plan. That would make it Facebook size. But would this be a first? Cisco was started in 1984 by Sandra Lerner and Leonard Bosack. It reached a market value of $555 billion in early 2000, so in a sense this has already happened.

•    Smartphones will be slimmer, lighter. Credit cards will have apps. The war to dominate your wallet has started. Silicon Valley venture capitalists are investing in these ideas today. That means the VCs expect these ideas to gain traction within five years and make money within 10. Stay tuned.

Rich Karlgaard is the publisher at Forbes