Xconomy Q&A: Intellectual Ventures Co-founder and CTO Edward Jung
Edward Jung, co-founder and chief technology officer, of Intellectual Ventures, has been out talking about how his company—which was recently described as among Silicon Valley’s most hated—is playing a long game to attack the big problems confronting the world today.
On the sidelines of the Boao Forum for Asia in Seattle last week, Jung sat down with Xconomy to talk about how he handles the fire hose of ideas he encounters each day, Asia’s trapped innovators, and where the company, based in Bellevue, WA, is headed now. It recently cut its staff of 700 by about 20 percent.
Jung had just come from a panel discussion at the event focused on U.S.-China relations featuring Bill Gates; Nathan Myhrvold, one of Jung’s IV co-founders; former U.S. Treasury Secretary Hank Paulson; and China’s former ambassador to the United States, Zhou Wenzhong. Their conversation highlighted the kind of huge, intractable global problems that governments—run by officials concerned with the next election, not the next generation—are ill suited to solve, such as climate change. Zhou at one point noted that China will need to import one billion tons of coal over the next 20 years, which left me wondering whether all the energy innovation espoused (and funded) by Gates and Myhrvold would make a lick of difference.
I asked Jung for his reaction, and much more. The following interview has been edited and condensed for clarity.
Edward Jung: I’m very optimistic about the world. The world today is full of optimists. The question is how can you unite them well. And, I think all the basic fundamentals—the innovation happening, the kind of funding that’s available—are acknowledgement of the problems. How you actually weave it together into something that’s actually likely to work, that’s much less clear.
Over the last 40 years what we’ve gotten really good at—your journal covers this quite well—is that if there’s a problem that could be solved by a well-funded company or maybe a small ecosystem of them, we’re really good at doing that now. Compared to about 40 or 50 years ago, you just couldn’t do that.
Now it’s been so mastered, and now it’s trying to be replicated all over the world. Everyone wants to build a Silicon Valley. That model’s well-known.
But now we also recognize that it can’t solve all the problems. So we now are challenged as a species to step up to the next set of things.
There were several times that the panelists were alluding to this notion that the problems are hard. That’s because the easy ones we’ve figured out. When you do that, the only ones that are left are the hard ones. So we shouldn’t be surprised that they’re the ones that government is not adapted to, and that companies aren’t adapted to, and the funding environment is not adapted to, because all the ones those were adapted to, we’ve knocked them down.
Xconomy: You have such a unique job and I’m sure you have a different day every day, travelling around the world. But what does a typical day look like for you, and particularly given what I assume is a massive flow of ideas that you are constantly encountering, what are some of the tools you use to keep yourself in mind of what innovation truly looks like?
EJ: Maybe I’m hoping—but also fearing—[for] the day when I do have a typical day.
One of the things that’s been fascinating about the whole experience with Intellectual Ventures is we’re making a lot of stuff up as we go along. The very business model and trying to approach it at the scale we do and in the manner we do it—there is no textbook to read about it. There’s no course at Wharton that says here’s the case studies that show you how to do this. You’re out there at the front. You’re the explorer. Explorers often get eaten. So you have to be a little careful as you go there, but we’re constantly taking risks and trying new things and learning.
My daily life is looking at the things we’ve done, analyzing how well they’re working, and then figuring out what we need to change. It’s a bit different than if you were in a manufacturing company where you optimize and analyze the stuff you’re doing, but you don’t sit there and keep fundamentally changing it. That would be very disruptive. And it’s a little bit different than say when you’re doing a movie production, where you have a year or two and you’re doing your movie, and then you’re done, and you could do it totally differently the next time if you wanted to. We’re somewhere in between. And I think that’s kind of fun. We have the context of doing it over a long period of time, because our funds are long-dated, and that gives us the flexibility to try these experiments, whereas if we were a typical startup and had to go raise money again every year, it’d be very difficult to change directions that way.
How do you manage it? I haven’t found any tools that are really good at it. Obviously, search is really helpful, and search over your own stuff now. But at the end of the day, I think a lot of it is just processing it in your head. And sticky notes.
X: Where are you finding valuable innovation today that you weren’t a decade ago?
EJ: China is one area. Asia in general. They really rode up the innovation curve quite quickly. Their innovators are mostly trapped in that they don’t have as many exits for their innovation as [innovators] have here in the states.
I had the very interesting experience of starting companies overseas. It’s a pain. It’s really hard. The first time somebody said you have to have this chop—literally like a stamp—and you have to put it in a safe, and the safe has to have an address, and people have to be able to visit you there. And I’m thinking, boy, when I was 14 years old, I incorporated in Delaware by mail. I think it cost me $35.
And you take a lot of personal liability for your company in a lot of Asian countries. They don’t have the same kind of incorporation and bankruptcy laws. So your ability to take risk is very low, which means there’s just, concomitantly with that, all sorts of things: less transparency in accounting, because people don’t want to tell you bad news; harder to actually start a company and a business; harder to export or import technologies—everything is harder.
But as a consequence, in some ways that’s good for my business, if bad for inventors in Asia. They have the ideas because they’ve got a great education system. They’re exposed to lots of interesting problems. They have the ability. They just don’t have the exits.
So, starting about 10 years ago [we] said, ‘Well, let’s give them an alternative exit.’ I knew that since 2004 there’d be a lot of venture capitalists and private equity pouring into those countries, because it’s kind of obvious, but I thought this is a case where I don’t have to be the fifth guy that showed up. I can be among the first to give them a different exit and a different way of thinking about how to do their inventions.
It has been a bonanza there, but it’s not going to stop there. It’s global. I went to a different conference where they were talking about building innovation ecosystems in places like Africa. And I talked to some very smart African inventors. And why are they good inventors? Because they see the problem right in front of them. It’s not just, ‘Oh, it’s clean water,’ but clean water in the following conditions that are constrained by the following environmental factors. Because they’re living there and they see it every day, so they’re actually better inventors than the superstars you could find at a Stanford or a Caltech looking at that problem.
X: How are U.S. universities doing on technology transfer and commercialization?
EJ: From the standpoint of the inventions that are produced there, and the capacity to produce inventions, they’re doing a very poor job. There are obviously standouts: Stanford and MIT, sometimes Columbia and a handful of universities do way better than your typical university, which has a tech transfer office that has done very few deals. On top of which, the incentives for a scientist, a researcher, or a professor to invent are sort of mixed.
We used to ask this question of how do you find a good inventor? What makes a good inventor? I haven’t mastered that yet, but I do know that you need people who can’t help but invent. They could be a postman and they’ll be inventing. They could be a professor and they’ll be inventing. And so, by and large, a lot of the great inventors you find at universities are those people. They just happen to be professors, in a way, but they’re inventors. And you’ll meet lots of great professors—top-notch educators, top-notch researchers—who aren’t inventors. But do the universities do a good job finding those inventors, and really taking care of them, and trying to do the best job they can to get their inventions out? No, not really. But having said that, they do a better job than say, Japan, so it depends on your point of view.
X: Turning to Intellectual Ventures itself, you’re out talking a lot about the company now and some of its new directions. But harking back to when you and your co-founders were setting it up, did you anticipate the kind of negativity that has been focused on the company through much of its existence?
When we started the company—Nathan [Myhrvold]—and I, we’re coming out of Microsoft and we can do anything we want, really. And a lot of people—keeping in mind this is 1999, 2000—were saying, ‘Hey, become a venture capitalist or whatever.’ Didn’t want to be the 500th venture capitalist. And I thought venture capital was doing a good job of doing what it does. I wanted to do something different. Solving the big problems, whether it’s talking to guys like Bill [Gates] who were trying to put together the foundation and trying to figure out how to solve huge problems at global scale, or the big problems of agriculture, IT, and so forth—it seemed like that wasn’t getting fixed. So we really wanted to build something at scale that could help do that.
Now, keep in mind, back then, and even today, if you read a management text book, or you talk to a CEO, they all know we really need innovation. So we’re thinking great, if we focus on just that, I bet we can do a really good job. Because in almost every other organization, [innovation] is a side-effect of their business, right? It’s a side-effect of being a university. It’s a side-effect of being a corporation that does product.
So if you just did that, you focused on it, maybe we could get really good at it. Just like Microsoft got really good at software by focusing only on software. Before that it was mostly the side-effect of a hardware business.
So that was the concept, but boy, it turns out that you go and build that kind of capacity—and because you have both the desire to productize your inventions, and the desire to protect them, which is enforcement—somehow the enforcement gets blown way out of proportion and that becomes most of the narrative or the rhetoric about what your business is about.
At the same time, the very companies that are saying, ‘We really want innovation,’ it turns out it looks like they don’t really want it that much. Maybe what they do is they want innovation that they produce themselves, but it’s harder to partner for.
Now, I’m being very stereotypical. There’s lots of companies, especially small- and medium-size enterprises, who are very anxious and very eager to in-source innovation, very willing to partner. But by and large, the two ends of the spectrum—startups who kind of have to go it alone, because they’re all about trying to get a million times bigger, or multinationals, who maybe aren’t used to partnering very deeply because they got to be multinationals by being the big guys on the block—it’s very tough to work with them.
So it’s a little bit discouraging that they tend to see more downside than upside. Yes, it’s very surprising to me.
X: Has that negativity resulted in any operational difficulties for the company to this point?
EJ: Well of course when you’re not popular, you can get operational difficulties, you can get morale difficulties. It’s kind of nice if you’re popular, as opposed to not being popular.
Nathan likes to joke that neither of us were particularly popular at school, so we’re used to it.
In fact, we do get some of the best inventors in the world to work on problems, and you can’t really do that if we don’t enforce the inventions. If we say, ‘Hey, come on here, use your best minds, and we’ll put you together in a room with other best minds to solve problems like energy problems for the world, but by the way, somebody could take it and we’ll just let them.’ That’s not going to work.
So it’s part and parcel of the whole system. Maybe right now, people—in the blind man and the elephant concept—don’t quite see how it all fits together, but they feel that trunk and they go, ‘I don’t like that. Must not like the whole thing.’
X: So IV has an enormous patent trove that it’s trying to put to productive use through startup companies that we’re hearing more and more about, in addition to licensing and other means. What are the most successful practices you’ve employed for connecting the right technologies with the right people to do something good with them?
EJ: Long ago, in fact at your Xconomy annual event [Xconomy’s 2011 XSITE event in Boston], I talked about this need to attack big problems, and that we have a system for doing that. One of the big problems I articulated had to do with urbanization.
What we do is we take those big problems and over a very long period of time, we look at things that you can solve quickly, things that take a long time and are more fundamental. You carve it down to smaller and smaller pieces. One of them happens to be about how you actually do modular, sustainable buildings, that can be very rapidly constructed, modified, and can be done very cheaply. You can manufacture your components differently from where you actually deploy the components, et cetera. It really changes end-to-end the business of construction, which is a big part of this urbanization of 400 million people that’s happening.
This joint venture [with Seattle architects CollinsWoerman] is a great success story in this larger activity we’re doing… about how do you get the deployment partners and the people who are coming up with the ideas and the manufacturers and the technology people and the inventors all connected together. This is an example of that, but there’s a lot more. It’s only a piece of a larger plan for how you actually make cities better.
There’re all these cities being built—more than in human history. And yet they’re being built the same way that cities have been built for the last 100 years. That’s just dumb. You gotta figure out the better way. But because of the way cities have been built in the past, the way construction is done, it’s very localized. So it’s very hard to put new technology into it.
We’re taking advantage of some of the strange economics that exist around why you want to build buildings quickly in places like China, having to do with the fluctuations of the economy. And it’s a great time to try to push this technology in.
X: That partnership has a lot interesting facets to it. Are you finding though that this becomes a bespoke activity for each new industry or each new technology, in terms of putting together that network of inventors and deployers, or are you learning the more you do this that there are some patterns that apply broadly?
EJ: I think I’m learning the patterns, but like I said, there’s no typical day yet, so we haven’t mastered the patterns. We’re constantly trying lots of different things and seeing what works. The more important thing than the process to produce it is the result you get. The result has to be very patterned and regular, because then companies can actually adopt it, startups can deploy to it. That’s the interface that has to be smooth. It’s like the API for iOS or something. What goes on underneath the covers, we don’t care as long it’s really good for deploying an application.
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