I recently came across a compelling economic concept called ‘Time-Price’ in the Lux Capital LP Letter Q2 2023. In this era of social media, any negative news, information, or argument makes instant headlines. This is not unusual, given any unpleasant development typically represents a clear and present concern for readers (see: loss aversion), something that they are currently going through in their lived experience. It could be inflation, air quality, street crime, traffic snarls, depression, rising taxes, quality of education, cost of healthcare, etc. On top of this, a combination of politicians and social media algorithms ensures that these negative sentiments go viral.
While emphasizing negative stories in the short term, mainstream narratives totally ignore the steady improvement that the entire planet has experienced across almost all livelihood factors over the long term. Everyone living today has inarguably, a better quality of life compared to their grandparents. But, can this improvement be represented in a quantitative way?
Introduction to Time-Price
Rather than representing access to any goods or service just in terms of economic price (nominal or real), Time-Price calls for calculating the number of hours of work needed to afford something. It gets over the limitations of classical pricing that reflects only the concept of money (or currency). By smartly incorporating the concept of productivity, Time-Price expands the perspective on affordability beyond just dollar terms, and into the effort that is required to be able to access any goods or service.
The main thought behind this metric is human ingenuity that creates technology-driven innovation which, in turn, drives productivity improvements that, to quote Lux, “allows all of us to consume more for less and free up more time to generate even more new ideas”.
Lux presents some fascinating data on significant falls in Time-Price of multiple categories:
Applicability to Venture Investing
I find Time-Price particularly appealing as a venture investor in tech and innovation, as it helps to elegantly capture the actual delta any technology creates for users in real life. After reading the Lux Letter, I immediately started applying this framework to various startup ideas that went on to become large companies:
- Apple – A few decades back, one had to be part of a top university to access powerful computers. Apple brought this computing power first into everyone’s homes, and then into their pockets.
- Uber – Growing up, a chauffeur-driven car was a luxury that only the top percentile could afford. Uber created micro access to it for as low as $10.
- Airbnb – Traditionally, hotels in marquee downtowns like New York, London, or Sydney were expensive and thus, were accessed largely by business travelers with expense accounts. Airbnb opened up residential supply in the same locations, making staying downtown affordable for even student travelers.
- Hubspot (or any SaaS) – For decades, only large companies could afford expensive workflow software. The rise of SaaS has now enabled anyone with the Internet and a credit card to access ERPs, CRMs, and pretty much any software.
- Udemy, Udacity (or any edutech) – cutting-edge curriculums and the best teachers were housed in marquee institutions. Edutech platforms brought them out of these walls, broke them into bytes, and delivered them affordably to any learner anywhere.
Time-Price can also be helpful as a framework while assessing new investment opportunities. While most early-stage startups don’t have enough traction to validate whether their offering is already bringing down Time-Price viably, investors can at least evaluate whether the founder is imagining an end-future (the Mission) that predicts significantly bringing down Time-Price in a particular domain.
Running another set of Time-Price thought experiments, this time on some of my portfolio companies that are still relatively early in their maturity curves:
- Varda Space – making in-space manufacturing commercially viable and accessible.
- Yulu – affordable urban mobility solutions that reduce traffic congestion and air pollution.
- LetsVenture – organizing private markets investing to make it more accessible.
- Playto – bringing quality and affordable STEM learning to kids in high-cost developed countries.
- Lore – enabling groups to pool resources to be able to buy previously unaffordable, large-ticket assets.
A few caveats…
There are 2 characteristics any good tech investor needs to exhibit – (1) optimism for the future and (2) a non-zero-sum view of the world that believes in technology innovation expanding the pie for everyone to share. Time-Price encapsulates both these features rather nicely, proving to us quantitatively that humans collaborating on new ideas can help infinitely compound prosperity for the planet. That’s why as Lux says, despite an ever-growing world population and per-capita consumption across countries, we haven’t yet run out of food. Or fuel. Or metals.
However, this narrative around a perennially bright future needs some caveats:
1/ Peace – Historically, while 2 world wars did little to slow down technology progress (and might have even expedited it), the highest-caliber individuals that drive innovation for the rest of us (scientists, engineers, entrepreneurs) strive for security and stability. Amidst various pockets of geo-political tension (US-China, China-Taiwan, India-China, India-Pakistan, Iran-Saudi Arabia, etc.), it’s important to recognize the Time-Price dividends of prolonged peace.
2/ Science – Ensuring a steady stream of useful innovation requires encouraging fundamental scientific research. In addition to attracting the best talent and equipping them with capital and other resources, this also requires inculcating a broader scientific temperament within society that then keeps the spirit of problem-solving alive within communities, particularly among youngsters.
This is where the US and Europe have a massive headstart over emerging economies like India. Countries that generate the best original scientific research will continue to drink from that fountain of innovation for generations, maintaining their lead over others. BRICS countries need to have a 100-year roadmap to catch up with the West on this aspect.
3/ Entrepreneurship – Translating breakthroughs in pure sciences into products and services that can make their way into the lives of regular citizens requires an entrepreneur to take the risk of commercializing innovation. Bringing down Time-Price requires both science and entrepreneurship to work hand in hand. Else, the system becomes sub-optimal.
For instance, Europe is strong in science but lacks an entrepreneurial environment. While India has natural entrepreneurship in its DNA, it lacks the scientific research prowess needed to move up the value chain. Both these regions are, therefore, trailing the US which offers a unique combination of science and entrepreneurship.
While all of us get bombarded with various types of negative news daily, most of which is sadly also true, Time-Price provides us a tool to take a step back and look at human progress over generations. Fortunately, it’s all trending in the right direction, demonstrating how humanity continues to collaborate on new ideas that eventually end up making each of our lives better. Entrepreneurship is the core channel for delivering this positive transformation and this is what keeps me excited and motivated as a venture investor.
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