My answer to the above question on Quora:
Compare two photo companies: Instagram and Lytro.
The technology in Instagram is mainly off-the-shelf (not to say it’s trivial, but well within reach of a good team). It’s about marketing, UX, iteration, luck and community building. Again, not trivial, but the risks are well understood, and starting the company is relatively cheap.
Lytro is a highly innovative technology transfer company creating quite literally a new kind of photography: “light field photography”. It’s an amazing idea, which will probably reshape large swathes of the industry for decades to come. And yet, they have quite high expenses and risks. They need to design, test, manufacture and market an actual digital camera, which is probably much more expensive for them than for Canon. And the camera itself is high risk–the resolution is fairly low for a very expensive device that is oddly shaped and unlike anything else on the market. It could be the right technology but people won’t buy it until they can get at least 6MP, or until it says “Canon” on the camera. Lytro might be driven into bankruptcy only to have its patents bought by someone else who successfully commercializes the technology. Or maybe the technology is wrong: the tech world is littered by technologies that looked like they were the next big thing until they suddenly weren’t: zip drives, laser discs, the Segway, etc. Very high risk. Maybe a huge return, but probably not.
Personally, I think that Instagram and Lytro are both great companies and wish them the best. But if I had to invest my money in one of them, as impressive as Lytro’s technology is, I would go with Instagram. Wouldn’t you?
Which is to say that I am relatively risk-averse, but so are most VCs. If I had an enormous pile of money, I would change my evaluation of which company is more interesting.