Please ensure Javascript is enabled for purposes of website accessibility

How Can Investors Find Innovative Companies Early?

By Keith Speights - Apr 4, 2021 at 11:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

10x Genomics' CEO identifies three key things to look for.

Innovators can often spot other innovators early on. 10x Genomics (TXG 11.91%) certainly stands out as an innovator in the genomics research world. In this video recorded on March 11, Motley Fool CEO and co-founder Tom Gardner talks with 10x Genomics CEO and co-founder Serge Saxonov about what factors to look for in identifying innovative companies.

Tom Gardner: I'd love to hear from you what you see as some of the patterns of greatness in your category. What are the factors that we should be looking for? How do we find the 10x Genomics-like companies earlier on and separate them from the pretenders, the promotional companies, or the followers versus the innovators?

What might be a few patterns? You can even name if you wanted to a company or two that you admire in your category, but just what are the patterns we should be looking for and therefore, those are the factors that we should continue to use to evaluate TXG?

Serge Saxonov: That's an interesting question. We try to think ourselves within the company, we try to think in terms of first principles, like what is the right thing to do and do it as opposed to modeling ourselves too much like other companies.

To an extent, I think there's a few common failure modes maybe on our industry, substantial companies, especially. When they sort of underinvest in R&D. Our space tends to be pretty sticky. So once you have a product that works, scientists like to use it until something much better comes along and so that creates kind of a fairly extended half-life of technologies and that creates temptation to kind of just keep sort of harvest cash and not invest in technology.

You can get into a vicious cycle where if you're not investing in R&D, great technologists and scientists don't want to work in that company and then you no longer have the capability to develop new products and so you keep cutting it further and further.

Gardner: Then you start making acquisitions that have nothing to do with real product development, innovation integration, and they're just more cash flow play.

Saxonov: Yeah, exactly. Then of course, even if you acquire an innovative company, those people don't necessarily want to work for their culture that is in the business of harvesting cash.

So I think that's a really important. Like focus. A lot of it is, much of success really comes down to people. Maybe all of it really comes down to people who love the company.

To my mind, that's the first thing I always look at, the quality. It's hard to maybe evaluate really well from the outside, but if you could, I would say that that is the No. 1 thing to focus on and in fact, back in the day that will give me initially the greatest confidence about 10x like they were going to go.

Back when we were really tiny. I mean, just a handful of people I knew we were going to do pretty amazing things because of the people we managed to attract to the company. So I would say that's a huge thing.

The third thing I would say is probably customers talking to scientists because, again, our space, our customers are incredibly smart and do they sort of respect the company? Do they respect the people there? Do they respect the products that come out there? I think that's very important.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

10x Genomics, Inc. Stock Quote
10x Genomics, Inc.
$52.99 (11.91%) $5.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.