Tailwind
We believe the opportunities resulting from technologically-enabled innovation often are underestimated or misunderstood by traditional investment managers. The main reason for that is, that human psychology can't understand exponential growth.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
-Albert Einstein
Introduction to Hypecycles
When is an innovation ready for primetime?
“For investors timing matters a lot. A company missing results by even just a year or two could be fatal. The goal is it to understand when the costs, complexity and time has come down enough to disrupt the legacy business. All the seeds of todays innovations were planted back in the dot.com & telecom bubble”
Richard Schäli
Founder Secanta Capital Research
01
Innovations can have long flat adoption curves as inertia and lack of understanding can delay their embrace.
02
Performance tends to decline during the gap between the early adopters and mass market acceptance.
03
Growth can accelerate quickly. Many truly innovative products and services are platforms in “winner takes most” markets.
Hypecycles occur more often and play out faster then ever
Why we are living in truly unique times
Secanta believes, that enabled by technology, never in history the economy has undergone so much tranformation. The pace of innovation has accelerated significantly in the last few decades. For the Internal Combustion Engine (ICE) to go through the entire hype-cycle it took more than 20 years, where as virtual assistants only took 4 years to go through the cycle.
It grows gradually before it takes off into to the unknown.
Exponential Growth is misunderstood. Even by experts
We never think exponential in our daily lives, so it is hard for us to interpret anything that follows that kind of function. Picking up the simplest example: look down the hall and think about walking 30 big steps. You can visualize yourself after those 30 steps, you would probably end up in another room or the other side of the office. Now, try to picture yourself walking 30 exponential steps. Hard to do, right? You would have walked, more or less, 25 times around the world. (1)
Source:
1. Luis Roque, Medium: Exponential Growth, Exponential World — Part II: The Framework
Case Study: Exponential Growth with cost declines
Lithium Ion Batteries
The cost of Lithium batteries has dropped by 97 percent since they were first commercially introduced in 1991. This rate of improvement is much faster than many analysts had claimed and is comparable to that of solar photovoltaic panels, which some had considered to be an exceptional case.
As a result, we see exponential growth (demand) for these batteries. Costs have come down to a level where they could make economical (+ecological) sense over oil and gas. With prices so cheap, people start to buy lithium-ion batteries, lowering costs even more and driving more and more demand. This cycle won‘t end until the “entire” market is penetrated.
