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The next wave of successful tech start-ups will be those that can modernise lumbering corporate giants, governments and the healthcare sector, according to prominent Silicon Valley venture capitalist Joe Lonsdale.
Lonsdale, a co-founder of multibillion dollar software firm Palantir, will be heading to Australia to present at the Sohn Hearts and Minds charity conference.
And his $US2 billion venture capital fund, 8VC, is betting that the next big trend in Silicon Valley will be a shift from consumer companies like Facebook to what he calls smart enterprises – tech firms that are "reinventing and replacing decades old technology infrastructure behind major industries".
"A lot of what we are doing is to fix the core processes that run the world's largest industries," Lonsdale tells The Australian Financial Review.
"If you look at healthcare, logistics, finance, government, there are all of these things possible that weren't 10 years ago [that can be applied]."
Twenty years ago the world's largest companies were industrial behemoths like General Electric, and Exxon Mobile. Today they're consumer facing tech firms like Google, Facebook and Amazon. Lonsdale says the current generation of tech leaders have a fair shot of staying on top in 20 years time.
"It's likely that those companies will be dominant if they are able to keep attracting top talent. We don't think there have been fundamentally important changes that will open the ability for a competitor to get in."
There was, however, a time when Facebook and Google were there for the taking.
"Because of the smart phone you had a few companies that were able to break in. You had new things like Uber, Lyft and Snapchat. Facebook had to buy a bunch of things. [Mobile] was a challenge they were able to overcome."
One of Facebook's acquisitions was Virtual Reality firm Oculus, which 8VC had backed.
"Virtual Reality could be a big enough shift to change who the big winners are. But as long as you have people like Mark Zuckerberg who are taking those next steps and see what is coming, it will be very hard to replace them."
The growth opportunity is in backing the companies that can modernise the processes and infrastructure of lumbering industrial and public sector enterprises.
"The global infrastructure for finance still runs on all this middleware. There are millions of people who are moving paper around in back offices by hand."
One area that is rife for disruption is wealth management – an industry of practitioners that have high emotional intelligence, but where Lonsdale says the technology is decidedly backward.
Lonsdale is a founder of Addepar, a wealth management software platform with over $500 billion of assets – and he's got plans to bring it to Australia. It recently acquired Alt-X, which uses behavioural data analysis to analyse hedge funds.
He will be one of several overseas speakers heading to Sydney to speak at the Sohn Hearts & Minds conference on November 17, where the world's top investors present their best investment ideas. Last year's event raised more than $4 million for five medical research charities – MS Research Australia, The Victor Chang Cardiac Institute, The Black Dog Institute and JDRF Australia.Lonsdale says there's a stark difference between making venture bets and picking stocks.
"In both cases you are analysing what is going to happen over the next five or 10 years, but in venture capital you are analysing trends and analysing talent. Its lot less about studying balance sheets, margins and monetary trends. It's about people products and other less tangible things."
Lonsdale says he's trying to back companies with "top engineering cultures" that empower the engineers rather than backing a "a bunch of business guys telling engineers what to build".
In venture capital there's also absolutely no reward for being too early or too late, no matter how big the idea. Take ridesharing, for example.
"If you did it before the smart phone existed it wouldn't have made any sense but if you do it now you are 10 years too late to get the really good returns. The question is, what is possible now?"
Lonsdale has a reputation for being on the most connected venture capitalists in Silicon Valley. The 34-year-old began his career as an intern at Paypal but is best known for co-founding secretive software firm Palantir along with Peter Thiel.
Palantir, which has clients in defence and finance sectors, is at the forefront of the big data revolution.
Lonsdale says the application of big data is only just getting started.
"Almost every industry you look at is being impacted by data to better run processes and that's a trend that will go on for at least the next decade."
Lonsdale says he's most excited about the opportunities to apply big data in healthcare and personalised medicine. "It will allow us to identify how people are unique to tailor medicines and treatments. It could also help us understand our moods, and allow us to coach ourselves into better frames of mind.
"There are times when you are more tired, impatient and frustrated. There are things that data can tell us about ourselves."
One of the young stars of Silicon Valley, Lonsdale says he's seen enough evidence in Asia to suggest it can be challenged as a fountain of innovation and riches.
"Beijing has really impressed all of us, especially at how strong the innovation culture is. We laughed at how they copied everything but suddenly before we knew it there was a lot [of innovation] going on there.
"I still think they are behind in the big data and enterprise area. Functionally creative destruction may be harder in the way China is regulated but I have been very impressed with how amazing the innovation has been at places like Tencent and a lot of other consumer companies.
"Asia can innovate and is going to be a competitor to Silicon Valley."