Hype Cycles and Start-ups

16 Jan 2024 15:00h - 15:45h

Event report

Ecosystems are transformed by hype cycles, from excitement to disillusion until maturity.

How can information about transformative technologies result in more economic growth and responsible investment and less noise?

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Table of contents

Disclaimer: This is not an official record of the WEF session. The DiploAI system automatically generates these resources from the audiovisual recording. Resources are presented in their original format, as provided by the AI (e.g. including any spelling mistakes). The accuracy of these resources cannot be guaranteed. The official record of the session can be found on the WEF YouTube channel.

Full session report

Daniel Metzler

The space industry encompasses various elements, each at a different point on the hype cycle. Different segments within the industry are progressing at different rates, facing unique challenges and opportunities. Perceptions about investing in the space sector have changed over time, with big corporates now making significant investments. Education plays a crucial role in raising awareness about the industry’s potential and securing necessary investments. The hype cycle serves as a filter for distinguishing reliable deep tech companies from less reliable ones. Space businesses are seen as high risk, high return, but their capital intensity should not be seen as a no-go option. European space companies often have lower valuations compared to their US counterparts. Balancing the amount raised in fundraising ensures future growth without negatively impacting potential rounds. Investing in space companies, particularly those in Europe, can offer high returns if done strategically. Commercial space exploration is technically feasible and exciting, but its economic feasibility is uncertain. Entrepreneurs don’t need perfect market timing to build something valuable, but they should prepare for challenges. Luck also plays a role in the success of ventures. Financial prudence and sustainability should be prioritized in company expenses, including salary management.

May Habib

The generative AI industry is currently experiencing multiple hype cycles simultaneously. The capabilities of this technology are evolving rapidly, leading to a constant cycle of heightened expectations and disillusionment. As a result, organizations are finding it challenging to keep up with the fast pace of change. This neutral sentiment reflects the ongoing state of the generative AI industry.

In the enterprise sector, there is a varied understanding and adoption of generative AI. While some companies are on the verge of introducing AI agents into their operations, others still require basic explanations to comprehend the technology. Additionally, a section of the market is currently in a trough of disillusionment, finding generative AI difficult to understand or unimpressive.

To address this, tech companies need to take responsibility and play a role in educating the market about generative AI. There is a need for wider understanding of what generative AI can accomplish, its potential applications, and its benefits. This positive sentiment recognizes the necessity of providing education and information to foster broader knowledge and adoption.

May Habib, the founder of a generative AI company, acknowledges the challenges of competing with established giants such as Microsoft, Google, and OpenAI. However, she believes in creating the best product as a means of surpassing the competition, instead of solely relying on fundraising. This positive sentiment encompasses her approach of prioritising product excellence and differentiation to gain a competitive edge.

Balancing fundraising efforts and retaining company identity is considered essential by May Habib. She recognises the importance of protecting those who have contributed to the company’s success from dilution during fundraising. Furthermore, reassuring enterprise customers about the company’s financial stability and independence is crucial for building trust and maintaining strong business relationships.

The tech media’s focus on funding news rather than markers of tech progress is a point of concern. This negative sentiment highlights the potential imbalance in media coverage, where startups with less revenue but more funding tend to receive more press. This can potentially overshadow or undervalue companies that are making significant tech advancements.

Enterprise buyers of generative AI have discerning minds and tend to prioritise customer stories and reference calls when making purchasing decisions. Their positive sentiment stems from a cautionary approach, as they understand that selecting the wrong technology can halt progress for an entire year. This underscores the importance of providing robust case studies and testimonials to build trust with potential customers.

Excessive media attention can be detrimental as it can divert focus from product and technology development. This negative sentiment suggests that media hype may serve as a distraction and hinder innovation. Startups and companies need to strike a balance between media exposure and staying focused on advancing their products.

The emergence of new technology and the creation of companies are seen as inevitable processes. This neutral sentiment acknowledges that innovation drives progress and leads to the formation of new companies, contributing to industry growth and disruption.

Transparency plays a vital role in establishing strong customer and partner relationships. May Habib believes in being transparent and explaining the company’s work to customers, partners, and the wider audience. This positive sentiment recognises the significance of open communication in gaining trust and fostering long-term collaborations.

Tech journalists should not rely solely on press releases for information but should dig deeper into the functioning of companies. This positive sentiment underlines the importance of investigative journalism. May Habib appreciates when journalists take the time to understand their technology and value proposition, ultimately leading to more informed and accurate reporting.

Decisions and perseverance have been significant factors contributing to the success of Rider, May Habib’s generative AI company. Their positive sentiment originates from May Habib’s experience working in the machine translation industry, her familiarity with AI and machine learning, and the team’s dedication to developing micro features over several years.

While luck may have played a role in Rider’s success, it was not the sole reason. This neutral sentiment contextualises Rider’s success, which coincided with the start of the generative AI hype cycle. Moreover, their prior work on relevant technology positioned them for success, beyond mere chance.

The year 2020 marked a difficult period due to the challenges brought by the COVID-19 pandemic and the start of a new company. This negative sentiment acknowledges the additional hurdles faced by May Habib’s company during its initial stages.

Staying grounded and finding joy and importance in one’s work are essential in managing adversity. This positive sentiment highlights the importance of maintaining a sense of purpose and connection during difficult times. May Habib emphasised the significance of staying connected with team members to maintain balance and focus.

In conclusion, the generative AI industry is navigating multiple hype cycles, and there is a varied understanding and adoption of this technology in the enterprise sector. Tech companies play a crucial role in educating the market about generative AI, balancing fundraising efforts while retaining company identity is essential, and media attention should focus more on tech progress. Enterprise buyers are discerning, and transparency is crucial for building trust with customers and partners. Furthermore, tech journalists should prioritise in-depth investigation, decisions and perseverance contribute to a company’s success, and luck should be considered alongside other factors. The challenges of 2020 and the importance of staying grounded and finding joy in work are also highlighted.

Siyu Huang

This analysis delves into various aspects of the battery industry and the startup ecosystem, drawing insights from discussions with Siyu Huang and others. One key aspect discussed is the bankruptcy of A123, a battery company that had received significant government support. Despite the financial assistance of $250 million, A123 still went bankrupt. This event had a negative impact on the perception of investing in the battery field. It made it challenging for new companies in the industry to attract investments.

Another topic explored is the emergence of solid-state battery startups around 2009-2010. This period highlighted a wave of innovation in the battery industry, as these startups focused on developing solid-state battery technology. This advancement represented a significant step forward in battery technology and showcased the industry’s potential for growth and advancement.

The importance of having multiple customers is discussed, as it helps mitigate risk during difficult times. By strategically balancing their customer base between the mass market and premium market, companies in the battery industry can withstand fluctuations and uncertainties in the market.

Siyu Huang emphasizes the importance of setting the right expectations when raising funds. It is crucial for startups to manage and communicate realistic expectations to investors. This ensures that the startup can deliver on promises made, avoiding potential setbacks and disappointments.

Furthermore, the value of delivering quality products and services to customers and consumers is highlighted. Siyu Huang stresses that the focus should be on providing value to customers rather than solely focusing on valuation. This customer-centric approach ensures that companies stay aligned with market demands and cultivate consumer satisfaction.

The analysis also touches upon the SPAC (special purpose acquisition company) boom in the battery industry. While some battery companies without products were valued in billions during this period, Siyu Huang argues that survival and success ultimately depend on meeting customer expectations and creating valuable products. This highlights the importance of product development and customer satisfaction as key factors for long-term sustainability.

Siyu Huang’s unwavering belief in the potential of the battery industry is another noteworthy insight. Despite rejections and challenges, Siyu Huang’s perseverance demonstrates her strong conviction and determination to contribute to the industry’s growth and innovation.

U.S. manufacturing in the battery industry is discussed, with the analysis acknowledging government support as a key driver. The establishment of many companies in the U.S. can be attributed to this support. However, challenges remain, particularly in the production of lithium-ion batteries. Very few U.S. companies are currently manufacturing these batteries locally, and a large portion of renewable energy funding goes to conventional lithium-ion battery manufacturers in Asia.

The analysis also critiques the subsidy structure, particularly the IRA (Investment Tax Credit) subsidy, for favoring traditional battery makers over next-generation cell makers. Siyu Huang suggests that the subsidy structure should prioritize and provide more support to newer, innovative cell makers to foster further industry growth and development.

Siyu Huang’s background as a startup founder, which began during her time at Cornell and while working at Johnson & Johnson, underscores her experience and expertise in the industry. Her journey serves as an example of blending academic knowledge and real-world industry insights.

In terms of starting a startup, the analysis highlights Siyu Huang’s belief in the importance of readiness rather than market timing. Siyu Huang suggests that aspiring entrepreneurs should jump into the startup world when they feel prepared, focusing on their own readiness rather than trying to time market trends.

The analysis also emphasizes the significance of hard work, dedication, and being prepared for opportunities in the startup ecosystem. Siyu Huang’s determination to persevere through challenging market conditions and seize opportunities aligns with the qualities required for startup success.

The importance of staying close to the team, technology, product, and customers is also highlighted. This close connection ensures that companies remain in touch with market demands, technological advancements, and customer preferences. This insight underscores the need for ongoing collaboration and responsiveness to maintain a competitive edge within the industry.

Lastly, in terms of team management and growth, it is cautioned against hiring too many big executives, as this can disrupt the startup’s dynamics. Instead, the focus should be on hiring experienced doers who can contribute to the company’s growth and success.

In conclusion, this analysis provides a comprehensive exploration of various topics within the battery industry and the startup ecosystem, offering insights from Siyu Huang and others. From the challenges of bankruptcy and investment perception to the importance of delivering value to customers, the analysis sheds light on the dynamic landscape of the battery industry and the key factors for success in the startup world. Siyu Huang’s journey and perspectives further contribute to the understanding of the industry’s nuances and potential for growth and innovation.

Zachary Bogue

Understanding hype cycles is vital for deep tech investors as it enables them to evaluate where an investment stands within the cycle. This knowledge is crucial because the hype cycle is influenced by human cognitive bias, making it challenging to determine the position of an investment. By understanding whether they are investing during the overhyped initial phase or the maturity phase, investors can make informed decisions.

The presence of a good technology in an ecosystem can be identified through the hype cycle, which is particularly relevant for deep tech investors. This allows them to identify technologies with the potential to thrive and create an impact.

In the field of biotech, the hype cycle has been ongoing since the 90s, with advancements in AI playing a significant role in solving complex biotech problems. This highlights the continuous development and growth potential in this sector.

Startups should engage in fundraising as an ongoing process. Zachary Bogue, an industry expert, advises that startups should always be fundraising to ensure they have sufficient resources for their growth and expansion plans.

Maintaining valuation discipline is also important for startups. It is crucial not to get carried away by the hype surrounding the company and to maintain a realistic valuation. This discipline is essential to avoid fundraising difficulties in the future.

While attracting investors is important, Zachary Bogue emphasizes that focusing on delighting customers should be a priority. Customers are more loyal than investors, and their satisfaction and loyalty are crucial for the long-term success of a business.

In the deep tech investment field, effective PR is necessary. Zachary Bogue highlights the significance of not underestimating the power of PR. It is possible for a company with a lesser technology but superior PR to outperform others. Therefore, deep tech investors should prioritize and invest in effective PR strategies to gain visibility and a competitive advantage.

Blockchain and Web3 experienced a hype cycle that affected their adoption. Institutions, which have short attention spans, were initially attracted to these technologies. However, their adoption and subsequent success faced challenges due to the hype cycle, resulting in slower progress.

Investing in climate also faced challenges due to the implosion of cleantech 1.0. For a long time, it was socially unacceptable to talk about investing in climate-related initiatives. However, despite past failures, it is still important to invest in climate actions to address the pressing issue of climate change.

VC board members play a crucial role in supporting CEOs. In good times, they need to keep the CEO grounded, while in challenging times, they need to motivate and build up the CEO. This balance is essential for the success of startups and the overall growth of the company.

Venture capital is not solely about picking the best companies and waiting for returns after several years. Venture capitalists need to actively support and ensure the success of the companies they invest in over a span of usually seven years after the initial investment.

The quality and willingness of the team to be a good partner are strong signals in determining successful investments. Zachary Bogue emphasizes the importance of teamwork and partnership dynamics. A strong and cohesive team, willing to engage in a good partnership, consistently paves the way for the best results.

Relying solely on technological breakthroughs without sufficient focus on team dynamics can lead to issues. Zachary Bogue warns against the potential trouble that can arise when there is a lack of adequate emphasis on team dynamics. Finding a balance between technological breakthroughs and team dynamics is crucial for overall success.

Water tech investing is considered deeply undervalued and underhyped. As climate change brings water-related issues to the forefront, there are interesting material science breakthroughs enabling the development of credible water tech companies. Investing in this sector has significant potential for growth and impact.

Starting a great company does not necessarily require timing the market perfectly. Great companies have been started during both economic downturns and market peaks. The timing of the market should not deter entrepreneurs from pursuing their ideas and ventures.

Starting a company solely based on the trendiness and fundraising potential of AI is considered a mistake. Zachary Bogue cautions against starting an AI company solely because it seems like a lucrative opportunity for fundraising. This approach can lead to failures and should be avoided.

There is a trend of individuals who fail in one tech sector and then try their luck in another. This trend, referred to as FICTA (Failed in Crypto, Trying AI), is not encouraged. Moving from one sector to another without a solid understanding or expertise can be detrimental to success.

In conclusion, understanding hype cycles, maintaining valuation discipline, focusing on customer satisfaction, investing in effective PR, and prioritizing teamwork and partnership dynamics are crucial for successful deep tech investments. Additionally, being mindful of past failures, such as the implosion of cleantech 1.0, and valuing team dynamics alongside technological breakthroughs are also important factors to consider. Water tech investing is seen as an undervalued sector with significant potential. Timing the market is not essential for starting a great company, and starting a company solely based on the trendiness of AI is considered a mistake.

Azeem Azhar

Hype cycles are an integral part of technological development, representing the journey of a technology from its inception to its practical application in the market. These cycles involve the transformation of ecosystems and industries, but they are not linear processes. Rather, they consist of different phases, starting with hype and high expectations, moving to a phase of disillusionment, and eventually leading to the maturity of practical applications.

Misalignment between the enthusiasm of prospective capital and the actual technological capabilities of a technology is at the core of hype cycles. This misalignment can have significant impacts on startups and investors, as their expectations may not align with the reality of a technology’s capabilities in its early stages. Decoding the dynamics between startups and investors is an important aspect of understanding hype cycles, and it helps in navigating the challenges and opportunities that arise during these cycles.

Understanding the different stages of the hype cycle is also crucial for large companies, investors, and policymakers. By considering where a technology might be in its hype cycle, these stakeholders can make informed decisions and take appropriate actions. This understanding helps to avoid the pitfalls of over-exuberance or premature dismissals, and enables them to navigate the hype cycle effectively.

While the hype cycle can create awareness among potential teams and customers, it can also have negative implications once disillusionment sets in. This can make it difficult for startups to maintain interest and secure funding, as other investors may become hesitant to invest during the phase of disillusionment. However, customers who stick with a technology and continue to support it during the downward cycle can indicate the solution to a real-world problem. These loyal customers can become the anchor customers for a startup and contribute to its long-term success.

Founders and CEOs play a crucial role in navigating the hype cycle by staying grounded and maintaining proximity to the product and customers. This enables them to remain connected to the practicality of their vision and make informed decisions during periods of over-exuberance. Taking money from investors when available is suggested, but it is important to balance the expectations that come with excess valuation. Maintaining a sense of balance helps to avoid unnecessarily high expectations that may lead to stock-based appreciation issues in the future.

In addition to its impact on startups and investors, hype cycles can also have wider implications for the tech industry and sector reputation. If the performance of technologies and companies does not meet the exuberance and expectations surrounding them, it can affect the overall faith of buyers in that particular sector. Therefore, it is important to manage expectations and focus on delivering value to the customer rather than solely on market valuation.

The media plays a significant role in hype cycles, as it often scrambles to cover emerging technologies and the funds they raise. This focus on funding is considered an inevitable part of the evolution and growth of the tech industry. However, it is essential to distinguish between privately-held companies and assess their true potential rather than solely relying on funding as a measure of success.

Overall, hype cycles are a natural and necessary part of technological development. While they bring challenges and risks, understanding and effectively navigating these cycles can lead to successful and sustainable innovation. It is crucial for stakeholders to stay informed, grounded, and focused on delivering value to customers throughout the various phases of a hype cycle.

Audience

The audience members are interested in the timing of investments or entrepreneurial ventures in relation to trends or waves. They want to understand how to capitalize on these trends and waves to maximize their chances of success. Additionally, they are seeking advice on how to remain grounded during the start-up hype cycle, which refers to periods of extreme excitement and popularity surrounding a new business or technology.

Devany Smith, a representative of Global Shapers, asked the question on behalf of a delegation of young entrepreneurs. This indicates that the audience consists of aspiring business owners who are eager to learn from experienced founders and investors. They value the insights and experiences of these industry experts in navigating the challenges and pitfalls associated with the start-up hype.

The main focus of the session is to gather advice and strategies on dealing with start-up hype. This suggests that the audience members recognize the need for a measured and level-headed approach in the face of excessive optimism and media attention. They likely understand the importance of staying focused on the fundamentals of their business rather than being swept away by the hype and risking poor decision-making.

It is noteworthy that the audience members are also interested in the timing aspect of investments and entrepreneurial ventures. This indicates their awareness of the significance of market trends and waves in determining the success or failure of their endeavors. They are likely seeking guidance on how to identify and capitalize on emerging trends, and how to time their investments or ventures accordingly.

Overall, the audience members are seeking practical advice and insights from founders and investors who have experienced the start-up hype cycle firsthand. They are interested in hearing about strategies for remaining grounded, making sound decisions, and capitalizing on market trends to increase their chances of success. By providing these insights and experiences, the speakers have the opportunity to offer valuable guidance and support to the aspiring entrepreneurs.

A

Audience

Speech speed

204 words per minute

Speech length

325 words

Speech time

96 secs

AA

Azeem Azhar

Speech speed

184 words per minute

Speech length

2940 words

Speech time

956 secs

DM

Daniel Metzler

Speech speed

198 words per minute

Speech length

1072 words

Speech time

324 secs

MH

May Habib

Speech speed

198 words per minute

Speech length

1583 words

Speech time

481 secs

SH

Siyu Huang

Speech speed

192 words per minute

Speech length

1230 words

Speech time

384 secs

ZB

Zachary Bogue

Speech speed

210 words per minute

Speech length

1336 words

Speech time

381 secs