Over the last few months, we’ve watched the VC investing world get turned upside down by new innovations in technology—specifically the release of Generative AI. As investors who know that timing and early adoption is crucial, we want to take a closer look at this next innovation cycle and how investors can capitalize on these trends.
The Two Layers of Every Innovation Cycle
In the past 25 years, we have already witnessed two transformative innovation cycles that revolutionized industries and reshaped our world. These cycles have brought forth groundbreaking technologies and created immense value for early investors.
Now the question is how can you separate a true innovation cycle from technological changes we see on a regular basis? The tell-tale sign is that every innovation cycle has two clear layers.
The first is the platform layer where a disruptive new technology changes the way we interact with information, often on a large scale.
The second is the application layer. New companies emerge to build on top of the platform layer and deliver value to end users in completely new ways.  It’s the application layer where you find the greatest opportunities.
The First Cycle: High-Speed Access
The first innovation cycle occurred in the early 2000s, marked by the accessibility of high-speed Internet access. The platform layer was the wires and fiber provided by big companies like Verizon, Comcast, and AT&T who made fast internet access at home readily available. That speed powered the application layer, where companies like Google, Facebook, and Linkedin reshaped the way we search for information and connect with others.
Examples of value created during the first cycle include:
The Second Cycle: Smartphones and Mobile Web
For the second innovation cycle, the major platform layer was the launch of the smartphone. Apple was the primary driver of that innovation. At the second application layer, startups emerged to harness the power of mobile access like Uber, Slack, and Instagram, changing the dynamics of how we connect and communicate.Â
What value was created by these platforms and subsequent applications? How were these new startups and their investors impacted? Here are a few breakdowns:Â
Examples of value created during the second cycle include:
The Third Cycle: Large Language Models and Generative AI
In the third cycle, the platform layer is built on a technology called Large Language Models (LLMs) which are deep-learning models that understand and generate text in a human-like fashion. Most of us have heard of Chat GPT, run by Open AI and Microsoft or Bard that Google just released last month.
The exciting moment we’re seeing is that the application layer for this revolutionary technology is wide open. While we’re seeing chatbots that can answer questions, write emails, and plan travel, that’s only scratching the surface of the potential here.Â
The size of the generative AI space is expected to go up 20X in the next ten years. The technology applications are expanding from consumer use into fields like biotech, space, finance, education, and more being developed every day.Â
The Race to Realize Value
The timing of value accrual during these cycles is particularly noteworthy. The most substantial value is typically realized by companies founded within the first two to three years after the disruptive technology emerges. That’s why the next coming months are so critical for startup investing in the AI era. Â
During the first two cycles, ordinary investors had little to no access to these promising startups. With this third cycle, Republic is here to ensure everyone can participate in the next wave of innovation.Â
We are thrilled to have the opportunity to help you seize the potential of this exciting innovation cycle through the Republic Deal Room!
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