Is Sandbox Realistic In Real-World Venture Capital?
Note: spoilers ahead. You may want to go back to this post after you’ve watched the series.
“Startup”, tells the story of people in the world of start-ups. Sandbox is basically South Korea’s fictional Silicon Valley.
Before we talk about the nitty-gritty — Moonshot Incubator. I wanted to talk about Sandbox — the setting of the scene in ‘Start-Up,’ a Korean drama that depicted the bright journey of a startup and a ‘coincidental’ love story.
Sandbox started by Yoon Seon-Hak, a venture capitalist who was inspired after hearing from Dalmi’s (Suzy’s) father talking about how he always filled the bottom of the park swing with sand so Dalmi would not get hurt falling — therefore, she would keep trying. She has once said, “Running a business is hard, right? If you succeed, you’re called a CEO. If you fail, you’re called a fraud. It is a scary world.”
When Sandbox was created, it operates as an entrepreneur-in-residence (EIR) model, with an interrelated community of investors (e.g. SH Capital) and start-up companies. Similar to Accel, Y-Combinator recruited batches of Startup regularly (assumed it annually); however, the selecting process for Sandbox is dramatically different (more entertaining) than how most incubators work — Sandbox recruit talents with ideas first, then provides a platform for chosen leaders to recruit their technical team.
Ok. Let’s move back to reality. Why is Sandbox so intriguing? Firstly, it operates in a moonshot incubator that is rarely existed in today’s venture capital realm. Secondly, human capital is becoming more and more sacred in Silicon Valley.
[Skip to What Is Moonshot Incubator if you are familiar with VC]
Venture Capital is an industry where investors, so-called venture capitalists, investing in early-stage technology companies for a much more superior IRR. However, the most challenging part of venture capital is that over 90% of start-ups fail, and most decisions are made with cognitive biases and a lack of discrete quantitative support.
Venture Capitalists can be classified within angel investors, accelerators, traditional venture capital firms and corporate venture funds. The former two primarily invest at the Pre-Seed or Seed-Stage, whereas the latter two invest in Series A and beyond. Most described the companies’ difference as ‘before finding product-market fit’ and ‘after finding product-market fit.
What is Moonshot Incubator?
To simply put it, companies under traditional incubators are dead by default. In contrast, companies in moonshot incubator tend to receive more lucrative support before it fails. Incubating moonshot ideas often began with recognizing one of the world’s largest problems, an idea that is relatively much larger than most traditional incubator ideas — including automating agriculture, renewable energy development, self-driving vehicles, etc. As a result, often Moonshot Incubators are called an explorative factory — does not make risk-reward sense.
Then, Moonshot incubators will gather resources such as capital, engineers, training datasets, lawyer/accounting support the start-ups to the greatest extent. Comparing to traditional incubators, moonshot incubators have a much smaller batch with much greater equity investment. Also, to provide that that level of support, only privately funded Big-Tech company (Google X) and lucrative technology-driven universities (Stanford) could do that.
Back to ‘Start-Up’, Sandbox is debatably operating in a hybrid between the Moonshot and Traditional incubator. On the one hand, it encourages founders to execute broad moonshot problems. On the other hand, there is limited availability of resources available for cohorts (inter-competition).
Moonshot Incubating has become accessible only via Big-Tech
FAANG companies have all been involved in moonshot investing or incubating to a different extent. With Amazon’s Alexa Fund, Facebook’s New Product Experimentation (NPE) team, Apple’s rapid investments in payment/automotive, demonstrating technology giants are actively seeking alternative ways to grow their competitive moats. Nonetheless, I would like to highlight X Company, Google’s moonshot factory.
X Company works incredibly hard in tackling billion-dollar problems such as waste problems, smart city planning, reducing carbon footprint, vertical farming, etc. With Alphabet (Google’s parent) lucrative capital, Company X is able to (1) recruit and retain talents for a substantial period of time, (2) work for a longer time horizon without the fear of insolvency, which are two of the most common reasons why most start-ups failed. It feels like playing a 5-start Super Mario game with unlimited lives.
Rewinding back to the 2000s or even 2010s, moonshots were never popular among the private sector because of the highly competitive nature in any industry, including Walmart, Exxon Mobil, General Electric, etc. They were never operating at today’s big tech margins and owning today’s big tech competitive positioning. On the flip side, considering the level of excess cash BigTech companies own, they easily inject the capital through (1) re-investing in core operations, (2) acquiring companies in an adjacent market, (3) investing in moonshot ideas.
Moonshot & Human Capital
Furthermore, as the industrial-oriented economy continues to evolve and become more of a knowledge-based economy. The skill gap in young workers has become fiercer. Hence startups often have a hard time securing great talents. As a result, BigTech usually outcompetes Startups in recruiting young talented students with their brand and lucrative compensations.
Moonshot proposals are only practical when you gather top minds together to tackle one of the most challenging problems in the world. Therefore, BigTech’s unfair advantage in recruiting smart people has put themselves in the shoe to solving out-of-the-world issues, with the hope to create new billion-dollar market opportunities.
Final Question: Is Sandbox Realistic in Venture Capital?
To be reasonable, three conditions need to be fulfilled:
(1) The moonshot incubator cannot be profit-driven — like Sandbox
(2) The moonshot incubator can gauge a pool of world-class talent — Global
(3) The moonshot incubator needs to share a network of Venture Capitalists
At Startup, the founder of Sandbox, Yoon Seon-ha, shares a vision of a brighter future enabled by technology and empathized with start-up failures like Dalmi’s father’s online menu platform. I certainly believe the current venture capital ecosystem is accelerating innovations. However, moonshot projects are often too difficult for start-ups to complete and shall not be a BigTech competition.
I certainly hope that Sandbox can be created and connect talented young entrepreneurs to tackle some of the most challenging problems on Earth in the future.
Now looking at the today’s world with excess capital invested in technology companies, also witnessing greater consolidations in all areas of businesses. Startups and Governments in North America have increasingly suffered from talent acquisition problems, particularly when it completes with larger giant corporations with monopolistic benefits.
On the other end, all tentatively large corporations should at least consider dedicating resources to crowdsource talents/ideas (through a venture arm/incubator initiatives) than invest solely in R&D programs. With more prominent examples such as Stripe, Amazon’s Alexa Fund, Agropur, VISA Ventures, etc. Behind these investments, there is an implicit transfer of talents and resources between investor and startups, as a result, these product-led companies are much more likely to thrive with top-tier talents, debatablely more critical than the funding itself.
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