"After Lyco Works asked just a few incisive technical questions, it became clear that we needed to rethink where the technology could be utilized.”

—Pete Canalichio
CEO at Brand Licensing Expert

The Dutch Tulip Mania of 1637… Learnings for Pre-Investment Technical Diligence

February 14th, 2019

A tulip bulb could cost a king’s ransom in 17th century Holland – but what lessons can today’s technology investors learn from the 1637 bubble?

An inventor’s enthusiasm and confidence in their technology can be contagious and compelling.  Sometimes, though, a nagging feeling persists that you’re missing something.  You may have ignored your instincts in the past and regretted it — nevertheless, you can’t quite put your finger on what’s bugging you this time.  No matter how attractive and compelling a technology may be, before you invest money into it, it’s always necessary to ‘look under the hood’ and understand how a technology works and / or how it was created in order to understand whether it is really viable or not.  The seventeenth century tulip mania phenomenon provides an illuminating anecdote as to the importance of understanding how a prized flower coloration came about, and why that plant turned out to be a bad investment… 

In early 1637, at the height of the Dutch “Tulip Mania”, speculative future contracts to purchase tulip bulbs grown later that year were traded at extraordinary prices.  The most prized and sought after varieties emerged during this fashion craze: tulips with streaked colored petals.  At the height of the tulip bubble, bulb contracts might change hands up to ten times per day without speculators ever seeing the tulips they were contracting to purchase in the summer and fall of that year.

The Viceroy tulip was one such variety, featuring beautiful striations of white and purple streaks on the petals. Contracts to purchase one Viceroy bulb were offered for sale between 3,000 to 4,200 Floren — more than 10 times the annual income of a skilled tradesman at the time.  The “Semper Augustus” variety (pictured) featured beautiful red and white striations. 12 acres of land was offered in exchange for one Semper Augustus bulb.   

We now know that the most prized colorful striated features were in fact symptoms of a viral infection of the bulb; an infection that caused redistribution of bright anthocyanine colorants in the petals, leading to the strikingly beautiful streaked flower patterns so sought after. These unhealthy bulbs were understandably difficult to propagate, and so, while costing the equivalent of several houses each, the tulips were ephemeral beauties once proudly planted for display. 

The lesson behind this story is that, no matter how attractive and compelling a technology may be, it is always necessary to look deeply at how technology works and / or how it was created in order to understand whether it is really viable or not.  That’s where Jason and Lyco Works can help. 

Our due diligence services help investors avoid investing in bad technology. We enable our clients to end investigations early and divert resources to exploring more viable opportunities instead.  When he worked for Newell Brands, Jason’s opinions were also relied upon by Newell Ventures for this type of pre-investment diligence. More recently, we’ve been helping Lateral Capital out of Florida — one of the US’ most active early-stage investors, with investments in 20 categories and 19 states. Other custom diligence has also been commissioned.

The service offering has been simplified into three levels of diligence as follows.  We also entertain special requests with specific questions.

  • Initial Scan:
    • Question Answered:  Does the technology conform to established scientific principles?  Or, does it include spurious associations or other bias?
    • Deliverable:  Recommendation with reasoning:  Move on to next opportunity   OR   Continue to explore investment.
    • Scope:   1-2 hours; publicly available information; review of offering materials.
    • Turnaround:   1-3 days
    • Invoice:   $ 600
  • Intermediate Scan:
    • Questions Answered:  Was the technology developed using sound scientific methodologies and principles?  Is there a clear future technology trajectory? Do their patents map onto their product?
    • Deliverable:  Recommend move on to next opportunity   OR   Continue to explore investment, with reasoning
    • Scope:   3-6 hours; Review of materials, target IP review, inventor & entrepreneur telephone interview.
    • Turnaround:   2-5 days
    • Invoice:   $ 2,000
  • Deep Technical and IP Diligence:
    • Questions Answered:   Customized – but often related to the uniqueness of the target’s technology, strength of their IP, the surrounding IP landscape, and their future technology trajectory.
    • Deliverable:  Recommendation with reasoning:  Move on to next opportunity   OR   Continue to explore investment.
    • Scope:   16 – 80 hours; Review of all materials, IP landscape review, inventor & entrepreneur telephone interviews.
    • Invoice:   $ 4,000 – $20,000 – call for quotation and timing.

Part of being a scientist is the formal study of a scientific discipline. Areas of science are often called ‘disciplines’, reflecting on the rigorous methodologies of critical thinking that are finely honed over years of training as a researcher.  Before you invest, let Jason and Lyco Works help you sort the wheat from the chaff, and keep your deal team focused on real opportunities.

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