By Darin Soat, Updated: Jul 15, 2024
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Imagine being able to predict the future, spotting the next Google or Amazon before they become household names. For savvy investors, such as venture capital firms, identifying emerging markets early is often the key to earning outsized returns. If everyone could pinpoint the next big thing, there would be no mega winners in investing. So, how do they do it? This guide will unravel the essentials of investing in cutting-edge tech, providing key insights and strategies to help you identify which industries may emerge next.
Big ideas that can meaningfully change the world require someone to take a financial risk. Creating a private space company that would eventually become the dominant player in launch is a huge risk investors took when investing in the private rocket industry made no sense. Ultimately, that bet has paid off for early investors, and now SpaceX seems like a sound investment for many people. But there was a time when it seemed like an absolutely outlandish idea.
The name of the game for venture capital (VC), I’d argue, is a high risk, high reward one. Venture capitalists put money in hundreds of companies, hoping that 1-in-10 10x or greater, 4-in-10 break-even, and the rest go bust. That way, we can give those wild ideas that could change our lives a lifeline to develop and maybe become something. And if they don’t? At least they tried. But VC has moved away from that ethos as of late.
In the golden age of venture capital, from the 1950s to the 1990s, venture capitalists were true pioneers, taking extraordinary risks on unproven startups with groundbreaking ideas. Icons like Eugène Kleiner, Tom Perkins, and Don Valentine, among others, were not just financiers but visionaries with operational backgrounds. They invested in what seemed like wild bets at the time—companies like Apple, Intel, and Cisco—that went on to transform entire industries. Their willingness to take substantial risks helped shape the technology landscape we know today.
Back then, VCs were hands-on, often providing not just capital but also strategic guidance and operational support to their portfolio companies. This era of venture capital was characterized by a readiness to embrace the unknown and invest in revolutionary ideas, even if they appeared fantastical at the time. This spirit is captured by Peter Thiel’s famous lament: “We wanted flying cars, instead we got 140 characters,” highlighting the ambitious vision of past VCs compared to the more conservative tendencies seen today.
In contrast, the venture capital landscape has evolved significantly. Today’s VCs often come from financial backgrounds rather than operational ones, and the approach to investing has become more cautious and metrics-driven. The shift towards safer, more incremental innovations is partly due to the immense influx of capital into the VC market. This has led to a more risk-averse culture, where the focus is frequently on scaling existing technologies rather than betting on unproven, groundbreaking innovations.
The modern VC environment is also marked by the rise of “herd investors”—those who follow prevailing trends rather than making independent, high-conviction bets. This shift has led to a proliferation of investments in areas with immediate, tangible returns, such as social media and e-commerce platforms, at the expense of more speculative, high-risk projects like advanced space exploration or radical new forms of transportation. The emphasis on quick returns and scalable business models often means that truly transformative technologies receive less attention and funding.
In this section, we’re going to discuss a few emerging technologies, not as guidance on where to invest, but to understand exactly why they are disruptive to give you an understanding of the characteristics of emerging technology markets. As you’re evaluating an emerging industry, here are some questions you should be asking to help you understand if it’s worth taking a risk in investing in:
AI’s capabilities are vast and transformative, touching nearly every aspect of modern life. In the realm of daily chores, AI-powered humanoids are becoming increasingly sophisticated. Imagine a robot that can handle household tasks with precision, from cleaning and organizing to cooking meals. These advancements not only save time but also enhance the quality of life by allowing individuals to focus on more meaningful activities. Figure has teased this future in a short video.
In education, AI’s impact is equally profound. AI tutors are revolutionizing the way children learn, offering personalized instruction tailored to each student’s unique needs. These AI systems can assess a child’s strengths and weaknesses, adapt lessons accordingly, and provide instant feedback. This individualized approach can significantly improve learning outcomes. We’re already seeing this with Apple’s new Calculator app with Math Notes, which can serve as a math tutor in the palm of your hands.
AI’s applications extend to enhancing customer experiences in retail and entertainment. Virtual shopping assistants powered by AI can provide personalized recommendations based on a shopper’s preferences and past purchases, creating a more engaging and satisfying shopping experience. In the entertainment industry, AI algorithms curate personalized content on streaming platforms like TikTok, ensuring viewers receive tailored recommendations that align with their tastes.
AI is regarded as one of the fastest growing industries, due to its already known and unknown potential to improve our lives. Whether its cars that bring us places without the element of human error, robots that help keep our lives in order, or algorithms that have a much better idea of the things we want to buy before we buy them, the potential for AI is endless.
Space exploration is rapidly evolving from a government-dominated domain to a burgeoning industry driven by private companies and technological advancements. This shift addresses a significant and growing market demand for innovative solutions to challenges on Earth and beyond. SpaceX’s Starship, for instance, exemplifies how reusable rockets are drastically reducing the cost of space travel, making it more accessible. The use of methalox fuels in Starship, which are better for the environment than traditional kerosene-based fuels, combined with its full reusability, significantly brings prices down and opens new ventures such as satellite-based internet services and space tourism. Companies like Blue Origin and Virgin Galactic are also competing in this arena, each contributing to the dynamic and competitive landscape of space exploration.
The potential for scalability and long-term growth in the space industry is substantial. Satellite technology is revolutionizing communication, navigation, and weather forecasting, with companies like OneWeb and Starlink deploying constellations of small satellites to provide global internet coverage. These advancements have profound implications for bridging the digital divide and enhancing connectivity in remote areas. Furthermore, space exploration is opening new frontiers in resource extraction, with asteroids and the Moon being eyed for their rich deposits of minerals and water. This not only promises to fuel future space missions but also holds the potential to alleviate resource scarcity on Earth.
However, the space industry is not without its challenges and risks. Legal hurdles, such as the need for clear international guidelines on space activities and property rights, could impede growth. Additionally, the complexity and high costs associated with space missions present significant financial risks. Despite these challenges, the expertise and track record of key players in the industry, coupled with continuous technological innovation, offer a unique value proposition. The prospect of new revenue streams, such as satellite services, space tourism, and off-Earth mining, makes space exploration a compelling investment opportunity.
Biotechnology is undergoing a transformative phase, driven by advances in genetic engineering, synthetic biology, and biopharmaceuticals. These innovations address significant and growing market demands in healthcare, agriculture, and environmental sustainability. For instance, CRISPR technology has revolutionized genetic editing, enabling precise modifications to DNA that can cure genetic disorders, improve crop resilience, and even create bioengineered organisms capable of breaking down pollutants. Companies like Moderna and BioNTech have leveraged mRNA technology, a novel biotechnological advancement, to develop highly effective COVID-19 vaccines at unprecedented speeds, showcasing the industry’s potential to rapidly respond to global health crises.
The potential for scalability and long-term growth in biotechnology is immense. Personalized medicine, where treatments are tailored to individual genetic profiles, is becoming increasingly viable, promising more effective and targeted therapies. Companies such as Foundation Medicine and 23andMe are at the forefront of this revolution, providing genetic testing and insights that enable customized treatment plans. Agricultural biotechnology is also advancing, with genetically modified crops that yield more and require fewer resources, addressing food security and sustainability challenges. Additionally, synthetic biology is opening new frontiers by designing organisms that can produce biofuels, biodegradable plastics, and other environmentally friendly materials, presenting innovative solutions to some of the planet’s most pressing issues.
Yet, the biotechnology industry faces significant challenges and risks. Regulatory and ethical considerations, particularly regarding genetic modification and data privacy, present hurdles that could slow growth. Governments and international bodies are still crafting policies to manage these advancements, creating an unpredictable regulatory environment. Furthermore, the high costs and complexity associated with biotechnological research and development entail substantial financial risks. Despite these challenges, the expertise and track record of key players in the industry, coupled with continuous innovation, offer a unique value proposition. The potential for new revenue streams from biopharmaceuticals, agricultural biotechnology, and synthetic biology makes biotechnology a compelling investment opportunity with transformative potential.
Quantum computing is emerging as a transformative technology, offering capabilities far beyond those of classical computing. While classical computers use bits as the smallest unit of information, quantum computers utilize qubits, which can exist in multiple states simultaneously due to the principles of superposition and entanglement. This fundamental difference enables quantum computers to process vast amounts of data at unprecedented speeds, tackling problems that are currently intractable for classical computers. PsyQuantum, for instance, is at the forefront of this revolution, developing a fault-tolerant quantum computer aimed at achieving practical quantum advantage.
The potential for scalability and long-term growth in quantum computing is immense. In sectors such as cryptography, quantum computers promise to revolutionize data security by easily breaking encryption algorithms that are currently considered secure. In pharmaceuticals, quantum computing can simulate molecular structures and interactions with unparalleled precision, significantly accelerating drug discovery and development. Companies like IBM and Google are also making significant strides in this field, highlighting the competitive and rapidly evolving landscape of quantum computing.
But the quantum computing industry faces substantial challenges and risks. The technical complexity of building and maintaining quantum computers, such as achieving and maintaining quantum coherence, presents significant hurdles. Despite these challenges, the expertise and track record of key players, coupled with continuous technological innovation, offer a unique value proposition. The potential for new revenue streams from quantum-enhanced applications in cryptography, optimization, and materials science makes quantum computing a compelling investment opportunity with transformative potential.
Investing in emerging technologies offers significant growth potential but also comes with unique risks. Below, we outline strategies to help you navigate these investment opportunities effectively.
One of the simplest and most effective ways to invest in emerging technologies is through Technology Exchange-Traded Funds (ETFs). These funds pool money from multiple investors to buy a diversified portfolio of tech stocks, offering exposure to a broad range of companies in sectors like AI, biotechnology, and quantum computing. ETFs like the ARK Innovation ETF (ARKK) focus on companies involved in disruptive technologies, providing a balanced and less risky way to invest in cutting-edge innovations. By investing in these ETFs, you can benefit from the growth of multiple companies without the need to pick individual stocks, thereby spreading your risk.
Another strategy is to build a diverse portfolio of emerging tech companies. This approach allows you to directly invest in promising startups and established public companies driving technological advancements. For instance, AI companies on platforms like Linqto, such as Cerebras and SambaNova, offer exciting opportunities to get in early on groundbreaking innovations. Combining these with investments in public companies like Moderna, known for its mRNA technology, and NVIDIA, a leader in AI and graphics processing, can provide a robust portfolio. Diversifying across different technologies and companies helps mitigate risks and increases the chances of high returns.
While the potential rewards of investing in emerging technologies are substantial, it’s crucial to manage risks effectively. One key strategy is to avoid having too much exposure to any single sector or company. Emerging tech investments can be highly volatile, and even the most promising companies can face setbacks. Identifying which technologies will succeed is inherently speculative, so it’s wise to balance your portfolio with more stable investments. Additionally, keeping a close eye on market trends and being prepared to adjust your investment strategy in response to new developments can help you navigate the uncertainties of this dynamic field. Remember, a well-thought-out investment approach should always balance potential rewards with acceptable levels of risk.
Investing in new technology offers exciting opportunities, but it also comes with challenges. By understanding the landscape, employing sound investment strategies, and learning from past successes and failures, you can position yourself to capitalize on the next big innovation. Whether through direct investments or leveraging platforms like Linqto, staying informed and strategic will help you make the most of your tech investments. Most importantly, invest wisely, invest for the long-term, and don’t take risks you can’t afford to take.
Darin Soat
Darin Soat is Linqto's Head of Community and Education. Prior to joining Linqto, he spent half a decade in investment banking doing mergers and acquisitions in the healthcare and technology industries, most recently in San Francisco for Cain Brothers. While in investment banking, Darin held his FINRA Series 63 & 79 licenses. Darin also created one of the leading business and economics-focused YouTube channels, and has gained over million subscribers. He is based in Los Angeles.
