Monday, October 22, 2018

Making of curative society



I was searching something in my bookshelf and serendipitously I found a book – “The Black Swan” by Nassim Nicholas Taleb which I read a few years ago. Now I am re-reading this book. One particular paragraph of this book in prologue has made me ponder over it and it has set in motion chain reaction of thoughts which has resulted into this blog. The lines go like this….

“……Who is more valuable, the politician who avoids a war or the one who starts a new one (and is lucky enough to win)?
It is same logic reversal we saw earlier with the value of what we don’t know; everybody knows that you need more prevention than treatment, but few reward acts of prevention. We glorify those who left their names in history books at the expense of those contributors about whom our books are silent. We humans are not just superficial race (this may be curable to some extent); we are very unfair one.”      Page: XXIV – Prologue, Black Swan


Let’s walk through a simple experiment: Imagine that you ride a two-wheeler but do not wear a helmet.

Situation 1: Mr. X with a lot of persistent efforts eventually convinced you (reminded whenever you were going out) about the importance of wearing a helmet, resultantly you developed a habit of wearing a helmet while riding a two-wheeler. Because of this whenever you met with an accident there was never much of head injury due to which no real pain or trauma faced by you. So, non-occurrence of head injury has almost become un-noticeable.
Situation 2: You were not wearing a helmet & as usual you were riding a two-wheeler. One fine day you met with an accident with severe head injury and Mr.Y seeing you struggling & suffering on the site of the accident, took you to the nearest hospital and admitted you there.

What the above experiment tells you;
Mr. X almost does not exist in your memory as you never went through any tragic accident in your life involving head injury while riding a two-wheeler.
Mr. Y almost made a permanent mark in your memory as he came out as a savior/crisis hero during your tragic accident involving head injury (the pain/agony/struggle during & after this accident made you more remember this incident and hence the person who saved you).
Another analogy can be that we are more thankful to the heart surgeon who made us survive through a heart attack. But we are almost negligent or not enough thankful to the preventive healthcare practitioner who prevented us from having a heart attack in the first place. No wonder why preventive healthcare still grapples with non-acceptance by society at large (but it is changing now) when compared with curative healthcare.
The above experiments and many more surrounding us indicate one thing that as a society we are more curative than preventive. We have been observing through the history that society or broader system showers rewards-recognition-media coverage- glory-awards-accolades on those who have managed or controlled big crisis/damage/attack/natural calamity/ tragedy (Let’s call it ‘tragic event’ collectively)that society was facing. We remember such personalities who did troubleshooting and hence with glory secure permanent name in the history. But we never remember those who prevented or raised enough warning alarms because of which many tragic events never realized and we safely survived.

I hypothesize the alternative theory of making of curative society and share the reasoning behind why we are more curative society than the preventive one!
Ever since the creation of society, we have faced numerous tragic events. The general route society has taken is whenever there was an outbreak of such event people came ahead and provided cure or damage control/crisis mgt. to it. If part of society is smart enough it learns from such incidences/mistakes and starts building a preventive system in order to put down another tragic event before it actually surfaces. Fortunately, some part of society has done that which has established some preventive system. But a larger part of society still goes through curative way only.
But the key question is: why society keeps going back to curative design?
Reasoning: Society has created a feedback loop which keeps on creating the curative design as depicted in the below image;



Once the tragic event occurs it is inevitable for society to face it. Some of the human capital will come out to act as a crisis managers/ damage controller. As the crisis gets over generally significant glory-awards-rewards-media coverage-gratitude is showered on them. Because the society went through the entire incident so vividly and felt the pain/agony/struggle with so much visibility that we want to glorify it and make part of permanent memory for the society. Hence it promotes the mindset for damage controller/crisis manager which leads to the creation of the society which is good at managing crisis but not preventing it. When tragic event is prevented hardly besides few know about it and something which has never happened or felt how much importance or memory space society attach with it, almost zero. This leads to lack of motivation/glory/recognition for those who are working day in & out to prevent another tragic event. So less human capital eventually attracted to this kind of profession. Again that leads back to the status quo for societal mind set for crisis.
By creating the society which worships -troubleshooters/damage controllers/crisis managers, we have made sure that as a society we wait for tragic event to happen & then we see rise of heroes to save the day and If this is what has happened over the history we have successfully & deliberately created such culture and system which never motivates/encourages prevention of any such possible tragic event before it actually takes place because there is near absence (or not as significant as in the case of troubleshooters) of rewards-recognition-media glory-awards-accolades for the preventers. Hence no motivation to shift mindset/culture from curative to preventive.
In Hollywood movie-Reign of fire, Denton van zan says, “Envy the country that has heroes, huh? I say pity the country that needs them” I would re-frame it and say, “Envy the country that has troubleshooters/damage controllers/crisis managers. I say pity the country that needs them”
We are increasingly becoming more competent at curing or managing crisis but dishearteningly incompetent at preventing the crisis!

Friday, October 5, 2018

Conflict of interest: VC’s investment in rival start-ups


Deal 1: Mohr Davidow (VC firm) had investment in Navigenics as well as 23andMe.
Deal 2: Andreesen Horowitz(VC firm) had investment in photo-sharing company Instagram as well as Picplz.
Deal 3: Softbank (VC firm) had investment in Snapdeal as well as Flipkart.
Deal 4: Softbank (VC firm) has investment in Ola (india), Uber(US), Grab(SouthAsia) as well as DidiChuxing (China).

What is common to the above deals? Well, same VC firm has invested in two or more direct rival start-ups. Last few years have witnessed, increasing number of such deals wherein VCs have invested in rival start-ups. This observation has hit me hard as I started thinking how does this deal impact the key stakeholders such as start-up founders, Regulatory bodies, the core market in which start-ups are fighting and of course VCs.
Let us briefly discuss how this may create an impact on various stakeholders;
For VCs: Head I win, Tail you loose! : One of the most important stakeholders in the above-mentioned scenario is VCs. For VCs investing in rival start-ups may be trendy now as bigger VCs are increasing placing these kind of bets. One obvious reason identified after interacting with a couple of VC advisors, is VCs are also looking towards reducing the risk of their bet going in vain. (call it “risk mitigation strategy”) It is like when there are few sizzling start-ups which are look-a-like in the same market & when you have no clue which one is going to be the next blockbuster just invest in all of it or majority of it so whichever is going to go up eventually you are more assured that it will make money for you!

For Start-ups: “Money Trap?” :For most of the start-ups, attracting the VC funding may look like the holy grail. But a brilliant research article by Pahnke, McDonald, Wang and Hallen (2014) published in Academy of Management Journal found that investment of same VCs in rival start-ups may impede the innovation at the start-ups and also there is opportunity and motivation for VC to leak competitive important information to other rivals in which same VC is invested. When VC is invested in rival start-up firms it may so happen that VC may force two rivals to merge or acquire as SoftBank(VC) being investor tried to do in snapdeal with flipkart and Uber with Ola in the Indian market. Irrespective of what start-up founders & core team believed or dreamt about, forced merger/acquisition may happen to the whims and fancies of some VCs. Like Uber sold it’s SouthEast Asian business to Grab.(another rival funded by Softbank) Time is ripe that start-ups do certain check-list before going after VC’s money.
Such as 1. VC background checks if it has a considerable investment in another rival start-up(s), 2. The inclusion of certain clauses in ‘term-sheet and then into a definitive agreement which is legally binding agreement, which restricts VC to some capacity to invest in other rival start-ups or restricting access to competitive and confidential information (trade secrets) if VC is invested/or planning to invest in a rival start-up. For a start-up, mad rush after VC funding without doing proper background checks on VC may create more problems than solutions. Many angels & VCs never indulge in such activities of investing in rival start-ups but it is better for a start-up to act smartly!

For regulatory bodies: “Perplexed & lost”: Imagine you have huge war-chest (money) which you use to invest considerably in two majors competing start-ups. Since both start-ups are losing money big time in order to retain and increase customers by giving away deep discounts or providing unbelievable promo offers at throw away price, eventually you as a key investor decide to merge both entities and create one big giant. Now the merged entity will bleed less (lower burn rate) due to no significant competition. Here, an act of VC to safeguard their own interest by trying to force two competing start-ups to merge is directly impacting the dynamics of the market. Role of regulatory bodies (Like competition commission of India) which are enforcing anti-trust laws becomes crucial for maintaining the fair competition in the market. Unfortunately, many times such bodies do too little and too late. Regulatory bodies have to remain very vigilant and action-oriented when many direct competitors in the same market are backed by the same set of investors.