NFC Turns Four
Growing up in a blue collar town in the northwest corner of Pennsylvania, I dreamed a lot. I was 10 years old when Terminator 2: Judgement Day debuted in theaters. Already obsessed with Transformers, Star Wars, He-Man, and GI Joe; T2 and Skynet quickly became a natural continuation of my childhood fantasies. One of my favorite past-times was setting up battles on the “back porch”. I would regularly pit my plastic GI Joes against the evil metallic Transformers in an afternoon competition. A modest upbringing with daily adventures prompted by my neighborhood “Goonies” led me to not only fantasize in play, but to dream of a better life. Most of my neighbors’ parents worked factory, construction, or mill jobs hosted by a familiar cast of rustbelt corporations such as GE Locomotive, Hammermill Paper, Lord Corporation, and even Zurn Industries - yes, the company that makes the flushing valves for most public urinals and toilets.
Looking back now, I realize why I didn’t aspire to the path of working in a Pennsylvania factory. My ticket out of Erie in 1999 was to attend the US Military Academy at West Point. What transpired at West Point was a Post-911 calling to re-live those GI battles from my childhood. I was commissioned as an Infantry Officer in 2003, but ultimately ended up gravitating back towards my passion for technology when I separated from the military and co-founded a cyber security company. It wasn’t until I returned to Pennsylvania nearly 30 years after my action figures went the way of a garage sale that I realized what an important metaphor they represent.
What will be the impact of robotics and artificial intelligence on our workforce over the next decade and how will that change our societal definitions of work, learning, and life?
The reason for my return to Pennsylvania in 2019, and the unlikely source of inspiration to explore this topic? A conference focused on venture and early stage technology in the heartland of America: “Blueprint York”, hosted by VentureBeat. The topic? A favorite flavor from my childhood: Skynet and the Transformers, aka AI and Robotics. My greatest revelation at the conference was that the next decade is a very real time to pay attention to AI and robotics, because they are actually on the brink of coming to places like Erie, Pittsburgh, York, and perhaps even Montana - the state I now call home. However, the robots are not coming to battle with or against our real-life GI Joes, they’re coming to do something much bigger.
The robots are coming to take our jobs.
One of my favorite quotes from the mainstage at BluePrint York came from AI and Robotics visionary and fellow Veteran, John McElligott. With an optimistic dystopian tone, John proclaimed, “I don’t believe robots will take people’s jobs, but the [unfortunate] problem is that lots of people are doing robots’ jobs.” Robot jobs involve primary tasks which are some combination of complex, computational, monotonous, and dangerous. What primary industries will robotics have the greatest impact on over the next decade? A lot. Transportation, legal, insurance, restaurants, hospitality, law enforcement, Ecommerce, financial services, and security.
But there’s no difference between the AI-robotics wave and similar technology waves that came before...or is there?
Many reasonable counter arguments against McElligott’s uncomfortably humorous statement were raised throughout the conference. There was lots of sentiment that the coming wave of robotics and AI and their proliferation into economic processes are no different than past technology waves, in that they will boost productivity which will create opportunities for increased spending and investment, which will lead directly to new job creation. I challenge this assumption because the past rounds of technological advancement were largely related to automating mechanical processes – even though some jobs went way, they mostly shifted to more supervisory and analytical jobs - new jobs that required human thought and decision making. The major difference between the industrial, computer, and internet revolutions and now is that during the AI and robotics revolution we will be automating cognition, not just mechanism. This shift creates a very real potential that humans will be displaced completely from many everyday jobs.
Simmer down. It will happen much slower and with much less of a visible effect than we expect...or will it?
There were also counterarguments raised that the perception and speed of robots and AI replacing humans is far worse than what will actually happen. Even McElligott made that point that AI ultimately allows humans to be more efficient and to make better decisions, therefore the conversation should instead focus on augmentation not automation. I agree that augmentation will allow smaller scrappier towns with clusters of historical manufacturing excellence – gearhead towns like York, PA – to punch above their weight. Towns that recognize this opportunity to successfully leverage AI as “the new oil” (resource) and “the new soil” (foundation) to grow successful global businesses. One of the key differentiators for smaller towns in the heartland who are capable of achieving this end will be self-awareness: making efficient use of local clusters of academic excellence and industry expertise in order to leverage their unfair advantages in combination with AI and robots to scale.
Levering unfair advantages will be necessary to decrease the negative impact of AI and robotics on local economies.
One of my favorite local examples of an academic and industrial unfair advantage is in my own backyard. Bozeman, Montana is quietly known by many. It’s located in the middle of one of our nation’s most quaint college towns - Montana State University. Bozeman is an hour from one of the US’s most bustling ski destinations - Big Sky. Bozeman is next door to a blue ribbon fly fishing paradise - the Madison River. Bozeman sits on top of a super volcano that happens to be adjacent to one of our nation’s most treasured National Parks - Yellowstone...the list goes on. However, who would suspect amidst all of the classic headliners, that Bozeman should be known as a national cluster of excellence in the photonics and optics industries? Infact, the Gallatin Valley is home to more photonics and optics companies per capita than any other county in the nation; not to mention, home to The Spectrum Lab and The Optical Technology Center - two national centers of research excellence. It’s Bozeman’s unfair advantage – a hedge against the robots, a secret weapon to help Montana instigate job creation and growth in an AI and robotics driven future.
AI and Robotics will change the content of work.
There seemed to be an unspoken fear at BluePrint York that massive swaths of communities across the US will suddenly, someday soon, be unemployed. But it’s not as if there is a fixed amount of work to do. The content and definition of work will certainly change and automation will continue to be complementary to the tasks that people do as the definition of work changes. Even if a crazy number of jobs go away, at a rapid pace, that doesn’t necessarily need to translate to a crazy percentage of unemployed people. Why can’t policy makers and communities allow that shift to instead translate to positives: imagine a 20-40% shorter work week, extended paternity and maternity leave for new parents, or even flexibility for “re-treding” society (re-training, re-education, re-inspiring). Could music, literature, science, and technology become an even more emphatic portion of our lives, not just reserved for nights and weekends? As the definition and content of work changes, employment models may need to change also; from long-term full-time employment to more short term responsive and selectable “1099-like” offerings.
The AI and robotics wave should guide how we re-think education, workforce training, and workforce transition.
There were skeptics at BluePrint York who warned that the real issue related to the wave of AI and robotics isn’t an onslaught of unemployment, but rather a mismatch of skills and training related to rapidly evolving workforce needs. Perhaps there is some truth that employers, not employees should be most cautious about this wave. But why should a mismatch in workforce and needed skills create panic? Boundary pushing programs that are already rethinking workforce retraining will emerge as winners. Programs such as Gallatin College’s 2-year photonics and laser technicians program and the Flatiron School’s coding academy that offers fully refundable tuition...if you don’t get hired within 6 months of graduation. Policy makers and academics will also need to become more flexible in how they think about education. Instead of degree programs, academic institutions may need to establish more specific skills-based training programs. Focus will need to shift towards developing attitudes of life-long learning - teaching young adults flexibility, adaptability, and a level of comfort with change.
The greatest impact of AI and robotics has the least to do with robots taking our jobs, and the most to do with what will become of our planet.
Despite the fun and healthy discourse at BluePrint York, the aftermath of my reflection leads me to consider something that wasn’t even mentioned at the conference. Why not turn any thoughts of panic into a more pressing attention on on how we will net-benefit from the pending arrival of AI and robotics. Consider the arrival of this new technology wave as a very tangible opportunity to redirect human initiative and effort to where it is needed most. The industrial revolution led to the creation of a significant amount of leisure time, at the expense of our environment. We trimmed the average work week from 60 to 40 hours. With the added leisure time and increase in consumption and convenience, look what we did the planet! The “great pacific garbage patch” of plastic bottles located between Hawaii and California might be the best-worst mascot from this page of history.
Our most important work, isn’t related to the jobs that the robots will take.
Perhaps the most important job we have as a species during the pending AI and robotics revolution is to rewrite a future that in the current direction might not be that far away from the opening scene in Terminator 2: Judgement Day. I’m referring to the image where polished chrome robots crush human skulls under foot while traversing across a black, smog infested and destroyed planet earth. I believe we’re actually approaching that judgement day – not mankind vs. intelligent robots, but rather a judgment day with the planet. The greatest global impact of AI and robotics has nothing to do with unemployment, loss of jobs, changes in the workforce, or even changes in the definition of work, but rather the hope and potential to help us avoid an environmental catastrophe. How do we clean up this planet and reverse the damage done during the previous three technological revolutions? We could start by leveraging our singular concern – humans lacking employment and subsequently purpose - and pointing people at solving the problem. Combine the surplus of human labor with the augmentation of robots and accelerate the effort with the net gain in human creativity, leadership, and ingenuity resulting from humans pivoting away from doing robot jobs.
The greatest threat to embracing an opportunity of hope is the concentration of capital, talent, opportunity, and the robots.
The only threat to achieving this end might be an unbalanced concentration of technology and power. With three states in the country receiving over 75% of the annual venture investment, aren’t we negatively selecting that concentration of opportunity and technology already? Would not a further concentration of wealth and opportunity deride hope and eat away at the spirit and resolve in the heartland? I think a healthy national AI and robotics strategy is only optimized when we all work together, amongst the robots and between the coasts. Which is why investing in the heartland and encouraging the reinvention of communities through AI and robotics will help build community, create opportunities for all, and lead to a future of hope, not peril.
“I’ll be back [for an unlikely conclusion].”
Growing up, the Transformers always won on my back porch. If we approach the future of AI and robotics with a responsible eye towards opportunity and invest in the heartland while focusing any created surplus in human capital on the environment – I think this strategy leads to an unexpected victory. It’s the grand finale that even a 10 year old boy from Erie, Pennsylvania couldn’t imagine: GI Joe embraces the coming wave of AI and robots and learns to work together with the Transformers to create a better world.
Next Frontier is executing on our mission to partner with entrepreneurs to build Montana technology companies of impact, utility, and value, while adding Colorado and its vibrant ecosystem to our mandate.
Please find below an update on our portfolio and some exciting detail regarding MT's continued growth and development.
Fund II is off to an strong start with one exit to date and a portfolio of quality MT and CO companies, backed by some of the industry’s leading Funds. In 2018, Fund II made six new investments and, most notably, saw our first exit, Ataata (acquired by Mimecast). 2018 was also Les Craig’s first full year in the partnership and he is proving perhaps our best investment yet.
Over the life of the Firm, we’ve seen True, Venrock, Amgen, BMW i Ventures, Toyota, Millenium, Summit, Bessemer Venture Partners, Steve Case’s The Rise of the Rest Fund, The Chernin Group, and Foundry Group, among others, invest in NFC companies. The influx of capital into our companies to date, is making it possible for founders to build, fund, and scale industry leading companies in our market.
Across Fund I and Fund II, NFC has attracted over $120M of syndicated investment and a total of $141M capital invested in our portfolio companies, including NFC’s paid-in-capital. This represents a co-investment ratio of $5.71 for every dollar that NFC has invested in our region.
Before NFC started, MT attracted ~$4-5m per year, and we are proud to note that Pitchbook reported $83m in MT venture funding.
As a result of our activities to date, the Fund, for the second year in a row, was recognized by CB Insights as the most active investor in Montana over the last five years.
We are executing on our mission and are positioned as the investor of choice in our market.
NFC's portfolio is now 18 companies strong:
SiteOne Therapeutics, Bozeman and San Francisco
Orbital Shift, Missoula
Phoenix Labs, Vancouver and Bozeman
OppSource, Minneapolis and Bozeman
Remix Labs, Redwood City
Blackmore Sensors, Bozeman
IronCore Labs, Boulder and Bozeman
Ataata, DC Area and Bozeman
onXMaps, Missoula and Bozeman
TwinThread, Virginia and Bozeman
The MeatEater, Bozeman
Montana is Hot
Bozeman, Missoula, and Montana remain hot. For the second year in a row, Policon named Gallatin County (home to Bozeman) as the country's strongest economy of its size, see article here.
Bozeman International just announced a 9th straight year of record passenger traffic. The airport handled 1,340,857 passengers last year, an 11.8 percent increase from the year before, according to an airport news release. Annual passengers have almost doubled in the past 10 years and account for about 30 percent of all airline passengers coming in and out of Montana. During 2018, the airport expanded its year-round offerings to include daily, nonstop flights to Portland, San Francisco, and Los Angeles. Flights to Denver and Phoenix/Mesa also became year-round flights, and the airport started offering a number of seasonal daily flights.
MT Continues to Attract Major Company Operations and Investment
Companies investing in MT operations include the following: ClassPass, Perficient, Lexis-Nexis, FICO, Oracle, SoFi, Figure, Workiva, FLIR, Boeing, Applied Materials, Kampgrounds of America, Dataminr, Cognizant, and Intertek.
Notable recent Montana PE and M&A activity includes:
Elixiter, Bozeman (Acquired October 2018 by Perficient, NASDAQ: PRFT)
Advanced Technology Group, Missoula (Acquired September 2018 by Cognizant, NASDAQ: CTSH)
Wisetail, Bozeman (Acquired by Alchemy Systems in 2017, Alchemy acquired by Intertek Group LON: ITRK in August 2018)
Printing for Less, Livingston/ Bozeman ($25M Growth stage investment from Goldman Sachs, April 2018)
Nationally acclaimed professional service partnerships with top tier technology companies include the following: Medallia and Qualtrics (commonFont - Bozeman), SalesForce (Now it Matters - Bozeman), Marketo (Elixiter - Bozeman), and Oracle (Helix - Dillon).
Montana State University Innovation Campus
In the fall of 2017, Montana State University broke ground on the MSU Innovation Campus, a 42-acre research park. The Applied Research Lab has the potential to attract hundreds of millions of new research dollars to the MSU research enterprise, as well as encourage the commercialization of new technologies being developed in the photonics, optics, and microsatellite research clusters.
MT High Tech Sector: $1.7bn in Annual Revenues
Established startup clusters in SaaS, bio-tech, and photonics continued strong development in 2018. In March of 2018, the Montana High Tech Business Alliance reported that Montana hit a significant new milestone: tech companies generated more than $1.7 billion in annual revenues and were reported to be growing at rates nine times faster than the statewide economy, according to the University of Montana Bureau of Business and Economic Research. The Montana High Tech Business Alliance (MHTBA) now boasts over 320 member firms that where projected to add over 1,100 new jobs in 2018, an expected 18.5% increase. Jobs at businesses who are MHTBA members pay considerably more than jobs elsewhere in the Montana economy. The median annual salary at MHTBA businesses reported in 2018 was $63,000, more than twice the median salary per Montana worker as measured by the Census Bureau’s American Community Survey.
NVCA and Regional Venture Capital and Venture Capital University
In addition to our work in Montana and Colorado, we are also working with the NVCA and others to highlight the growth and impact of regional venture capital. Steve Case’s Rise of the Rest Fund, Drive Capital in Ohio, Arthur Ventures in North Dakota, and other regionally focused firms are working with NFC to build the case for regional venture as a source of both return to LPs and a critical driver of economic growth. Will chairs the NVCA Regional Capital Working Group and NFC plans to continue to work with our regional peers to help research, support, and highlight the national impact of investing in traditionally capital starved markets.
Come visit. We'd love to show you around Montana.
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