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Where Silicon Valley Is Wrong on Innovation

Silicon Valley exemplifies the saying, “The more things change, the more they stay the same.” Very little has changed over the past decade, with the Valley still mired in myth and stale stereotype. Ask any older entrepreneurs or women who have tried to get financing; they will tell you of the walls they keep hitting. Speak to VCs, and you will realize they still consider themselves kings and kingmakers.

With China’s innovation centers nipping at the Valley’s heels, and with the innovation centers that Steve Case calls “the rest” on the rise, it is time to dispel some of Silicon Valley’s myths.

Myth 1: Only the young can innovate

The words of one Silicon Valley VC will stay with me always. He said: “People under 35 are the people who make change happen, and those over 45 basically die in terms of new ideas.” VCs are still looking for the next Mark Zuckerberg.

The bias persists despite clear evidence that the stereotype is wrong. My research in 2008 documented that the average and median age of successful technology company founders in the U.S. is 40. And several subsequent studies have made the same findings. Twice as many of these founders are older than 50 as are younger than 25; twice as many are over 60 as are under 20. The older, experienced entrepreneurs have the greatest chances of success.

Don’t forget that Marc Benioff was 35 when he founded Salesforce.com; Reid Hoffman 36 when he founded LinkedIn. Steve Jobs’s most significant innovations at Apple — the iMac, iTunes, iPod, iPhone and iPad — came after he was 45. Qualcomm was founded by Irwin Jacobs when he was 52 and by Andrew Viterbi when he was 50. The greatest entrepreneur today, transforming industries including transportation, energy and space, is Elon Musk; he is 47.

See also: Innovation: ‘Where Do We Start?’  

Myth 2: Entrepreneurs are born, not made

There is a perennial debate about who can be an entrepreneur. Jason Calacanis proudly proclaimed that successful entrepreneurs come from entrepreneurial families and start off running lemonade stands as kids. Fred Wilson blogged about being shocked when a professor told him you could teach people to be entrepreneurs. “I’ve been working with entrepreneurs for almost 25 years now,” he wrote, “and it is ingrained in my mind that someone is either born an entrepreneur or is not.”

Yet my teams at Duke and Harvard had documented that the majority, 52%, of Silicon Valley entrepreneurs were the first in their immediate families to start a business. Only a quarter of the sample we surveyed had caught the entrepreneurial bug when in college. Half hadn’t even thought about entrepreneurship even then.

Mark Zuckerberg, Steve Jobs, Bill Gates, Jeff Bezos, Larry Page, Sergey Brin and Jan Koum didn’t come from entrepreneurial families. Their parents were dentists, academics, lawyers, factory workers or priests.

Anyone can be an entrepreneur, especially in this era of exponentially advancing technologies, in which a knowledge of diverse technologies is the greatest asset.

Myth 3: Higher education provides no advantage

Thiel made headlines in 2011 with his announcement that he would pay teenagers $100,000 to quit college and start businesses. He made big claims about how these dropouts would solve the problems of the world. Yet his foundation failed in that mission and quietly refocused its efforts and objectives to providing education and networking. As Wired reported, “Most (Thiel fellows) are now older than 20, and some have even graduated college. Instead of supplying bright young minds with the space and tools to think for themselves, as Thiel had originally envisioned, the fellowship ended up providing something potentially more valuable. It has given its recipients the one thing they most lacked at their tender ages: a network.”

This came as no surprise. Education and connections are essential to success. As our research at Duke and Harvard had shown, companies founded by college graduates have twice the sales and twice the employment of companies founded by others. What matters is that the entrepreneur complete a baseline of education; the field of education and ranking of the college don’t play a significant role in entrepreneurial success. Founder education reduces business-failure rates and increases profits, sales and employment.

Myth 4: Women can’t succeed in tech

Women-founded firms receive hardly any venture-capital investments, and women still face blatant discrimination in the technology field. Tech companies have promised to narrow the gap, but there has been insignificant progress.

This is despite the fact that, according to 2017 Census Bureau data, women earn more than two-thirds of all master’s degrees, three-quarters of professional degrees and 80% of doctoral degrees. Not only do girls surpass boys on reading and writing in almost every U.S. school district, they often outdo boys in math — particularly in racially diverse districts.

Earlier research by my team revealed there are also no real differences in success factors between men and women company founders: both sexes have exactly the same motivations, are of the same age when founding their startups, have similar levels of experience and equally enjoy the startup culture.

Other research has shown that women actually have the advantage: that women-led companies are more capital-efficient, and venture-backed companies run by a woman have 12% higher revenues, than others. First Round Capital found that companies in its portfolio with a woman founder performed 63% better than did companies with entirely male founding teams.

See also: Innovation — or Just Innovative Thinking?  

Myth 5: Venture capital is a prerequisite for innovation

Many would-be entrepreneurs believe they can’t start a company without VC funding. That reflected reality a few years ago, when capital costs for technology were in the millions of dollars. But it is no longer the case.

A $500 laptop has more computing power today than a Cray 2 supercomputer, costing $17.5 million, did in 1985. For storage, back then, you needed server farms and racks of hard disks, which cost hundreds of thousands of dollars and required air-conditioned data centers. Today, one can use cloud computing and cloud storage, costing practically nothing.

With the advances in robotics, artificial intelligence and 3D printing, the technologies are becoming cheaper, no longer requiring major capital outlays for their development. And if entrepreneurs develop new technologies that customers need or love, money will come to them, because venture capital always follows innovation.

Venture capital has become less relevant than ever to startup founders.

8 Insurtech Predictions for China in 2018

This post, which describes recent news coming from insurtech and digital insurance in China, was written for Daily Fintech by Zarc Gin from Insurview from within China.

Happy New Year!

It has been a great honor for me to share insurtech developments in China since last November. I hope my posts here help you understand what’s happening in China, so you can either learn from the experiences or even develop businesses opportunities in China.

Today, I’m going to share the predictions we made about insurtech in China in 2018. They are a combination of opinions, ideas, trend analyses and hopes.

1. More funds, more IPOs

We have seen huge amount of funds pouring into digital insurance in China, and top startups are well-funded. Because of the successful IPO of Zhong An, investors are looking for the next big name in digital insurance. Top startups are also aiming for IPOs to catch up with Zhong An. So the fever of digital insurance will enter the next level, with huge funds and IPOs in 2018. My forecast is that Ping An Good Doctor, a Ping An Group subsidiary, will be the first insurtech IPO this year.

2. More digital health insurance

Premium income of health insurance has been growing quickly since 2011, with 404.25 billion RMB ($62.32 billion) income in 2016 and a 68% growth rate. Exalted Life was one of the most popular health policies from Zhong An in 2016. Ping An also launched E-home and E-life, which were well-received. The competition of digital health insurance got more intense in 2017 with the launch of Wesure. So, the competition will continue, and health insurance will be even more widely received in 2018.

See also: How Is Insurtech Different in Asia?  

3. Opportunities for B2B startups

Over the past two years, B2C startups were in fashion. But the digitalization of the whole insurance industry is far from accomplished, and the infrastructure of insurance is still in its early stage. Therefore, the potential for B2B startups will be big in 2018.

4. Rise of a new type of broker

CIRC has been trying to weaken bancassurance channels in China. This led insurers to seek the support from broker companies, and the insurance intermediary industry is expanding with this opportunity. Life brokers like Mingya and EverPro are growing quickly. Focusing on quality of individual brokers is their key difference from traditional broker companies. Digital broker companies like Tuniu are also growing rapidly with the help of e-commerce resources. We believe brokerage will have a new age in digital insurance, and both the life and property sectors will grow significantly in 2018.

5. New look on auto insurance

With regulation on auto insurance tightening, the combined ratios for auto insurers are increasing. To reverse the situation, auto insurers need to grab the digital opportunity and develop policies from the perspective of customers. We believe digital auto insurer will explore the possibilities in the digital age and make a difference to the current auto insurance.

6. Opportunity in data and information

Insurers are connected with their customers’ lives, so they will have access to all the data generated, such as health, habits and behaviors. Data can show insurers where the world is going, so there will be a huge opportunity in data collection and analysis.

See also: Top 10 Insurtech Trends for 2018  

7. Globalization

The world is getting smaller thanks to the internet, both for China and for other countries. The interaction between China and the world is getting more and more frequent. Foreign insurtech companies such as Singapore-based CXA Group are exploring Chinese markets, and Chinese insurers like Fosun and CPIC are implementing their plans around the world.

8. Talent liquidity

Tencent, Alibaba and Baidu all entered digital insurance in 2017. They will heat up the talent liquidity in this industry. We will see an increasing combination between tech talents and insurance talents in the future.

This article first appeared at Daily Fintech.

Making China and India Great Again?

“Thank you for what you are doing for America; your successes have put India in very positive light and shown us what is possible in India,” Atal Bihari Vajpayee said to me in a one-on-one meeting during his visit to the White House in September 2000. He added that he would love to see Indian-American entrepreneurs return home to help build India’s nascent technology industry.

Bill Clinton and George W. Bush granted him his wish with their flawed immigration policies. The U.S. admitted hundreds of thousands of foreign students and engineers on temporary visas but did not have the fortitude to expand the numbers of green cards. The result was that the waiting time for permanent resident visas began to exceed 10 years for Indian and Chinese immigrants. Some began returning home.

Now, Donald Trump, with his constant tirades against immigrants, particularly from what he calls “s***hole countries,” is giving many countries the greatest gift of all: causing the trickle of returning talent to become a flood.

For India, the timing could not be better. With hundreds of millions of people now gaining access to the internet through inexpensive smartphones, India is about to experience a technology boom that will transform the country itself. And with the influx of capital and talent, it will be able to challenge Silicon Valley—just as China is doing.

This is the irony of America’s rising nativism and protectionism.

When I met Prime Minister Vajpayee, I was the CEO of a technology startup in North Carolina. Later, I became an academic and started researching why Silicon Valley was the most innovative place on this planet.

I learned that it was diversity and openness that gave Silicon Valley its global advantage; foreign-born people were dominating its entrepreneurial ecosystem and fueling innovation and job growth. My research teams at Duke, the University of California at Berkeley, New York University and Harvard documented that, between 1995 and 2005, immigrants founded 52% of Silicon Valley’s technology companies. The founders came from almost every nation in the world: Australia to Zimbabwe. Immigrants also contributed to the majority of patents filed by leading U.S. companies in that period: 72% of the total at Qualcomm, 65% at Merck, 64% at General Electric and 60% at Cisco Systems. Surprisingly, 40% of the international patent applications filed by the U.S. government also had foreign-national authors.

Indians have achieved the most extraordinary success in Silicon Valley. They have founded more startups than the next four immigrant groups, from Britain, China, Taiwan and Japan, combined. Despite making up only 6% of the Valley’s population and 1% of the nation’s, Indians founded 16% of Silicon Valley startups and contributed to 14% of U.S. global patents.

At the same time, I also realized that protectionist demands by nativists were causing American political leaders to advocate immigration policies that were (and are) choking U.S. innovation and economic growth. The government would constantly expand the number of H1-B visas in response to the demands of businesses but never the number of green cards, which were limited to 140,000 for the so-called key employment categories. The result? The queues kept increasing. I estimate that today there are around 1.5 million skilled workers and their families stuck in immigration limbo, and that more than a third of these are Indians.

Meanwhile, I have witnessed a rapid change in the aspirations among international students. The norm would be for students from China and India to stay in the U.S. permanently because there were hardly any opportunities back home. This changed.

My engineering students began to seek short-term employment in the U.S. to gain experience after they graduated, but their ultimate goal was to return home to their families and friends. Human resource directors of companies in India and China increasingly reported that they were flooded with resumés from U.S. graduates.

For students, the prospect of returning home and working for a hot company such as Baidu, Alibaba, Paytm or Flipkart is far more enticing than working for an American company. You cannot blame them, especially given that delays in visa processing will lock them into a menial position for at least a decade during the most productive parts of their careers.

This has been an incredible boon for China. One measure of the globalization of innovation is the number of technology startups with post-money valuations of $1 billion or higher. These companies are commonly called “unicorns.” As recently as 2000, nearly all of these were in the U.S.; countries such as China and India could only dream of being home to a Google, Amazon or Facebook.

Now, according to South China Morning Post, China has 98 unicorns, which is 39% of the world’s 252 unicorns. In comparison, America has 106, or 42%, and India has 10 unicorns, or 4%. An analysis by the National Foundation for American Policy revealed that 51% of the unicorns in the U.S. have at least one immigrant founder. It is clear how shortsighted the U.S. government has been.

With the clouds of nativism circling the White House, things will only get worse. America’s share of successful technology startups will continue to shrink, and Silicon Valley will see competition like never before.

America’s loss is India’s and China’s gain.

Life/Annuity M&A Is Heating Up

As life insurance and annuity carriers pursue greater market share and growth, a potential solution sits before them: M&A activity. This transactional path, leading to deep consolidation in the life insurance and annuity (L&A) sector in the U.S., is stoking much debate and discussion in company boardrooms.

The hunt for elusive growth and profitability for carriers in the U.S. has many players, creating a crowded marketplace for possible consolidation. The multi-headed acquirers come in three dominant forms: large insurance companies, private equity (PE) investors and foreign acquirers, driven largely by the Chinese and Japanese.

Insurance carriers intimately know about their competition and what companies in the sector would mesh well within their operations. Executives have the greatest amount of specific industry expertise and therefore can understand the pros and cons in a specific combination.

See also: How Life Insurance Agents Can Be Ready

Private equity investors have been turning to the life insurance and annuity field for several years to provide consistent returns, as these companies have predictable cash flows. Through these investments, investors can strengthen their returns for assets under management with steady growth. One caveat to this investment approach is the concern of the increasing regulatory state and federal pressures, as navigating through 50 individual state regulatory guidelines can be burdensome and difficult if a company moves out of a state and into a new one.

Foreign countries like China and Japan continue exploring opportunities to increase their presence in the U.S., the world’s largest insurance market. Reasons abound: Japanese insurance companies have found U.S. acquisition targets appealing to offset the aging of Japan’s population and to provide a more attractive interest rate environment. Chinese companies have been snapping up foreign companies, including in the U.S., searching for yield on their capital and economic growth.

Several reasons exist for this trend of M&A activity.

  1. Buyers are motivated by the current low-interest-rate environment and the opportunity to expand their assets and book of business. This has always been an essential piece of the M&A discussion as market conditions must be favorable to make any transaction worth its while.
  2. Sellers are suffering from the low return on their capital. By exiting less profitable lines of business, they can reallocate their capital for use in other capacities. As contemplation of one’s business clarifies, many carriers may conclude that selling, rather than buying, assets is the chosen path. Selling could stabilize or enhance a company’s bottom line as the capital obtained in a sale can be reinvested in its existing operations or be put to use for another potential acquisition.
  3. Increasing regulations are restricting the ability of companies to productively run their businesses; thus, they are looking for exits. Companies are often stymied by the sheer weight of complying with and managing regulations. Exiting businesses can become appealing.

Regardless of which direction is undertaken, one aspect paramount to success is the importance of ensuring that business continues to operate smoothly. In today’s environment, the role of technology, specifically at a time when companies are implementing and managing digital transformations, can be a beacon of light. And as acquirers delve deeper into possible transactions, increasingly they are employing an outsourcing model to extract more value.

See also: This Is Not Your Father’s Life Insurance  

Safeguarding a company’s operations and maintaining its continuity through powerful technology and servicing solutions, or what we call “future proofing,” has additional benefits besides the desired functionality. Companies must first build their vision and plans and then bolster them with end-to-end operational services. This step will then enable rapid expansion into new market segments, faster product launches and seamless servicing of open and closed blocks of business. By future-proofing through technology, carriers can drive greater efficiencies, lower costs and produce higher levels of customer satisfaction.

Implications of Our Aging Population

Aging is a key force shaping our societies and the economy. Too often, the current debate on aging and demographic change narrowly focuses on the direct implications for pensions system and healthcare and neglects the broader economic implications. An understanding of the wide ranging economic implications of demographic change, however, is fundamental for insurers and policymakers in order to make sound long-term decisions.

The world of shrinking workforces

The world is quickly entering a new phase of demographic development. The new world is characterized by a shrinking or – at best – stagnating workforce due to the continuous decline of birth rates since the “baby boomer generation.” While Germany’s working age population peaked about 15 years ago, according to UN figures, China is currently at a record. In the U.S., the working age population is expected to continue to grow due to immigration, albeit at a much slower pace than in the past.

But decreasing birth rates not only mean that that the workforce is shrinking (or at least not growing). It also means that the average age of the workforce is increasing, especially until the baby boomer generation will be retired within the next decade. We refer to this phenomenon as “silver workers.”

Furthermore, as people live longer, the proportion of retirees in the total population is going to increase. This increase will be far more pronounced in the future than it was in the past. In developing economies, this trend is starting at a much lower level, but the eventual change will be far more rapid and dramatic than in developed economies.

The economics of aging

These demographic developments – shrinking workforces, the rise of silver workers and increasing share of retirees – will have profound economic implications.

In a world of shrinking workforces, we cannot expect the economy to expand rapidly, unless productivity can be increased far beyond long-term historical averages. In fact, past growth rates were driven considerably by an increasing labor force. This is especially true for some developing economies like Brazil and Mexico. But also in the U.S., more than 40% of economic growth over the past 25 years can be attributed to an increasing working age population. We will have to get used to low GDP growth rates.

See also: The Great AI Race in Insurance Innovation  

However, overall GDP growth says little about the development of individual living standards. To assess living standards, we need to consider the implications of demographic change on GDP per capita.

Three forces are at play:

First, because fewer workers will have to provide for more retirees, demographic change depresses GDP per capita. In the U.S., the share of working age population to total population is expected to decline from 60% to 54% over the next 25 years. In China and Germany, the decline is more pronounced: from 67% to 57% in China and from 61% to 51% in Germany. This implies that, as long as the production of each person of working age does not change, per capita GDP would decrease by 9% in the U.S. and by 15% in China and Germany by 2040.

Second, future GDP per capita will depend on the development of investments and savings. As people will have to live longer on their savings in retirement, we expect saving rates to increase. As these savings are invested, there will be more machines per person (i.e. the capital stock will increase relative to the labor force). This will partly compensate for the negative impact of the labor force development on GDP per capita.

Finally, advances in productivity may entirely or partially offset the demographic pressure on GDP per capita. Projections of productivity growth are fraught with high uncertainty. However, based on historical productivity growth rates (about 1.5% per year in most developed countries), productivity growth will likely compensate for the negative demographic impact on GDP per capita in most countries (Italy being a potential exception).

Taking these three factors together, we conclude that GDP per capita will continue to grow in most countries, albeit at a slower pace than in the past.

The next question is: How will this per capita income be distributed among workers and retirees?

We expect that aging will depress real interest rates as the demand for capital is likely to shrink relative to savings. In fact, real interest rates have been steadily declining over the last three decades. We will have to get used to a low-interest environment and, hence, low returns on retirement savings.

At the same time, the relative scarceness of labor should bolster wages. Hence, the future workers will likely benefit relative to future retirees (who are today’s middle-aged savers).

A threefold challenge

This analysis suggests that there is a threefold funding challenge from aging.

First, low interest rates make it difficult for individuals to accumulate sufficient savings to fund their retirement.

Second, the increasing share of retirees in society exerts a rising funding pressure on public pay-as-you go pensions systems. While in the U.S. there are currently 25 people of retirement age per 100 of working age, it will be 40 people of retirement age in 25 years.

Third, the increasing average age of the workforce raises the risk of disability. Inability to work due to critical illness or disability reduces the ability of individuals to accumulate sufficient savings to fund retirement.

Policymakers have to consider a number of policy measures to address this threefold funding challenge. Potential measures include increasing the retirement age, providing incentives for individual savings, enhancing productivity, increasing labor force participation and increasing pensions contribution or reduce benefits.

See also: Demographics and P&C Insurance  

In most countries, however, none of these measures seems desirable or politically feasible on its own. In the U.S., for example, pension contributions would have to be increased by 63% between 2015 and 2040 to compensate for the increasing share of retirees in the population. Alternatively, the retirement age would have to be increased by seven years.

Policymakers therefore need to develop strategies that combine a broad range of different measures in varying degrees. There is a risk, though, that measures to enhance productivity, namely investments in education, will be de-prioritized as public finances come under increasing strain.

For insurers, this analysis suggests that they must adapt to a world of slow growth and low interest rates in the longer term. Furthermore, in a world of aging workforces, products designed to protect the income against disability and inability to work will become more important. Hence we expect to see a stronger shift from savings products to protection products.