We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win…
John F. Kennedy, September 1962
I teach entrepreneurship for ~50 student teams a year from engineering schools at Stanford, Berkeley, and Columbia. For the National Science Foundation Innovation Corps this year I’ll also teach ~150 teams led by professors who want to commercialize their inventions. Our extended teaching team includes venture capitalists with decades of experience.
The irony is that as good as some of these nascent startups are in material science, sensors, robotics, medical devices, life sciences, etc., more and more frequently VCs whose firms would have looked at these deals or invested in these sectors, are now only interested in whether it runs on a smart phone or tablet. And who can blame them.
Facebook and Social Media
Facebook has adroitly capitalized on market forces on a scale never seen in the history of commerce. For the first time, startups can today think about a Total Available Market in the billions of users (smart phones, tablets, PC’s, etc.) and aim for hundreds of millions of customers. Second, social needs previously done face-to-face, (friends, entertainment, communication, dating, gambling, etc.) are now moving to a computing device. And those customers may be using their devices/apps continuously. This intersection of a customer base of billions of people with applications that are used/needed 24/7 never existed before.
The potential revenue and profits from these users (or advertisers who want to reach them) and the speed of scale of the winning companies can be breathtaking. The Facebook IPO has reinforced the new calculus for investors. In the past, if you were a great VC, you could make $100 million on an investment in 5-7 years. Today, social media startups can return 100’s of millions or even billions in less than 3 years. Software is truly eating the world.
If investors have a choice of investing in a blockbuster cancer drug that will pay them nothing for fifteen years or a social media application that can go big in a few years, which do you think they’re going to pick? If you’re a VC firm, you’re phasing out your life science division. As investors funding clean tech watch the Chinese dump cheap solar cells in the U.S. and put U.S. startups out of business, do you think they’re going to continue to fund solar? And as Clean Tech VC’s have painfully learned, trying to scale Clean Tech past demonstration plants to industrial scale takes capital and time past the resources of venture capital. A new car company? It takes at least a decade and needs at least a billion dollars. Compared to IOS/Android apps, all that other stuff is hard and the returns take forever.
Instead, the investor money is moving to social media. Because of the size of the market and the nature of the applications, the returns are quick – and huge. New VC’s, focused on both the early and late stage of social media have transformed the VC landscape. (I’m an investor in many of these venture firms.) But what’s great for making tons of money may not be the same as what’s great for innovation or for our country. Entrepreneurial clusters like Silicon Valley (or NY, Boston, Austin, Beijing, etc.) are not just smart people and smart universities working on interesting things. If that were true we’d all still be in our parents garage or lab. Centers of innovation require investors funding smart people working on interesting things – and they invest in those they believe will make their funds the most money. And for Silicon Valley the investor flight to social media marks the beginning of the end of the era of venture capital-backed big ideas in science and technology.
Don’t Worry We Always Bounce Back
The common wisdom is that Silicon Valley has always gone through waves of innovation and each time it bounces back by reinventing itself.
[Each of these waves of having a clean beginning and end is a simplification. But it makes the point that each wave was a new investment thesis with a new class of investors as well as startups.] The reality is that it took venture capital almost a decade to recover from the dot-com bubble. And when it did Super Angels and new late stage investors whose focus was social media had remade the landscape, and the investing thesis of the winners had changed. This time the pot of gold of social media may permanently change that story.
What Next
It’s sobering to realize that the disruptive startups in the last few years not in social media – Tesla Motors, SpaceX, Google driverless cars, Google Glasses – were the efforts of two individuals, Elon Musk, and Sebastian Thrun (with the backing of Google.) (The smartphone and tablet computer, the other two revolutionary products were created by one visionary in one extraordinary company.) We can hope that as the Social Media wave runs its course a new wave of innovation will follow. We can hope that some VC’s remain contrarian investors and avoid the herd. And that some of the newly monied social media entrepreneurs invest in their dreams.But if not, the long-term consequences for our national interests will be less than optimum.
For decades the unwritten manifesto for Silicon Valley VC’s has been; We choose to invest in ideas, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win. Here’s hoping that one day they will do it again.
If you can’t see the video above click here.
Listen to the post here: or download the podcasts here
Share this:
Filed under: Technology, Venture Capital |
The question is what we will find in the end of social media? Social media boost infromation overload for every active internet user in the world. And we think, that it is the reason for the next level. It should be simplified one more time. With personal web, for example.
Hasn’t it always been done by small groups of people? Hewlett & Packard, the Intel rebels, the PayPal mafia?
At least the cost of doing new and interesting things appears to be trending downwards over time.
Well put. The continued erosion of horizon makes me very sad. This kind of thinking, lack of vision and bandwagon jumping is delaying the project that will displace the web as the king of all Internet services.
Perhaps we need a new common practice ( conventional wisdom? ) in the investor class — 20% of all of today’s profits get tagged for investment in projects with 10-20 year horizons. If we can get some noted visionary (probably a celebrated tech author or investor, since we don’t really grow philosophers any more) to propose this “rule” we can even name it after him/her.
Any suggestions who?
@DanFarfan
something to consider, however, is that the social media explosion in investor ROI has created very quickly a larger pool of greater individual wealth. these are pools of smart people with more money than they know what do with. the problem isn’t that VCs are phasing out their life science investments. the problem is that the science community is still largely closed and hasn’t figured out a way to explain its value-proposition in non-technical terms. nano is huge but most people don’t even know what it is or why it matters. but tell a guy that one day his car will run on solar and have a built in mobile hotspot so that not only will he be connected 24-7 but he will help expand the mobile infrastructure of this country just by owning a car and that the immediate impact will be that mobile broadband will be freely and widely available and he no longer needs to buy gas and you get a story that resonates in layman’s terms. tell him that he won’t need under-serving, prohibitively expensive healthcare insurance because he can wear a patch that analyzes his cells and runs and records diagnostics and costs $.15 to manufacture $1 to buy, and $15 to see the doctor who reads the report and prescribes a treatment if necessary and it will mean something to him that matters. science needs to promote itself and the innovations that are in it’s community the same way startups leverage social media to launch viral campaigns for apps that let you pretend to make pictures out of shaving stubble for the cost of a free download. the value in this case isn’t in what that app lets you do. the value is in HOW someone took a completely retarded idea and made money almost overnight. science communities are where the real potential to change the world exists. but for it to matter, they need to connect with the real world, every day, in a way that translates and resonates. maybe, the few VCs who are willing to keep vested in this community will fund a social app that connects this community to the world at large.
@Steve, agree. Not to beat up on FB but if this is the best to have come out of SV after Google, something somewhere is terribly wrong. It is also a really bad example for the entrepreneurs looking to get inspired. It may be time again for the mother of all VC – the DoD to pick the tab for “real startups” and remind SV its higher purpose..while that happens, let me get back to building my FB killer social widget that runs on FB 🙂
Great article on the different faces of innovation and the way VCs look at them. I like to compare the way VCs operate with a manager of a portfolio of stock and bonds holding the them for the mid and longer term as opposed to the trader interested in the quick buck.
We see that more and more highly capitalised VC funds are going for the trader model, buying into a company at a high valuation betting that they make 3 to 5 times their investment within 18 months.
This is a bad tendency while this would mean (leaving aside that lots of hype and hot air needs to be created) that short term bets are getting the attention plus the money while longer term innovative projects (with a higher risk profile) are considered to be less attractive.
However when looking at the favoured company at the longer term, say 2 years after IPO, the story may be different and some will feel bruised while sitting on paper that fell in value then.
Hi there. Interesting article, but unfortunately, Steve Jobs did not create either of the smartphone or the tablet.
Clearly, in this video [first-gen iPhone announcement], Jobs himself states that the iPhone is a revolutionary phone. He did not create the smartphone. He helped guide the efforts of many people who actually created the iPhone.
Similarly, the iPad is not the first tablet device: it was released in 2010; Motion Computing released its M1200 back in 2002. http://reviews.cnet.com/laptops/motion-computing-m1200-tablet/4505-3121_7-9932171.html
Please don’t confuse popularity with creation. It just makes you seem less in-tune with the field. Please do actual research before spouting off misinformation [all of 5 minutes for both bits about the iPhone/iPad being “firsts”). I know your sphere of influence revolves around the business aspect; however, that doesn’t mean the first to make waves in the business circles is the first to create.
It depends on what you mean by create.
Brian Arthur is an interesting guy:
http://en.wikipedia.org/wiki/W._Brian_Arthur
Among other things, Arthur originated the idea of increasing returns to scale.
So he has this book:The-Nature-Technology-What-Evolves
at the core of whose argument (from Amazon’s ‘Book Description’) is:
“Arthur explains how transformative new technologies arise and how innovation really works. Conventional thinking ascribes the invention of technologies to “thinking outside the box,” or vaguely to genius or creativity, but Arthur shows that such explanations are inadequate. Rather, technologies are put together from pieces — themselves technologies — that already exist.”
I bought a gen 1 ipod. My guess is that Jobs’ had been watching the development of the enabling technologies for his vision. In particular, it couldn’t be built with the standard 2.5″ laptop hard drive (too big). So when Toshiba (I think was the first) invented the 1″ hard drive, Steve jumped almost immediately.
Actually, Brian Arthur “originated” increasing returns to scale in the sense that Steve Jobs “originated” the MP3 player. He just translated it into terms that the business press consumer could appreciate.
I contend that the real “innovation” in the iPod wasn’t the device at all–it was iTunes. That’s where other MP3 players died–they couldn’t get the record labels on board. If Jobs hadn’t rammed through the $0.99-per-song download business model, the iPod would have gone the way of Diamond Technologies.
So who were Arthur’s predecessors in increasing returns to scale?
I believe I also disagree with your second point but sometimes it’s good to take things one at a time.
Once upon a time someone coined the term “surface thinking”. It related to the sped and agility with which we accessed and processed information and exposed our very light attention spans. I’ve found the more we buy into the 24×7 totally wired paradigm, the less deep we actually think about anything. To me that is troubling, as I am one who used to analyze the details in a project with data and actually manage science in development of some of the world’s coolest products for manufacturing semiconductors. Having had some years on the SW development side now as well, I found it boring in comparison, but a great example of how VOC needs to really be understood to be successful and serve customers needs in the social products arena. I think the eventual combination of great SW thinking along with up front designation of the problem one attempts to solve, in conjunction with science as conceived and developed initially in universities, will be extremely rewarding for the VC community. It should be even more rewarding for the people who manage the development, iterate on the science, and create new markets on a global scale.
Humans love challenge, love personal contribution, and seeing it come to fruition. Thank goodness there is still a diversity in the gene pool which will drive different people to different types of cool investments and products, just based on interest. I understand the VC numbers game could lean towards the easy returns, but hopefully not every business decision is purely financial and hopefully a balance between SW and science leads to attractive market opportunities as well.
@DanFarfan @ed, contact me, revovisionay idea waiting to be implemented. We are going back to nature, technology will end when there is nothing left to exploit. Investment’s are becoming more unconventional, the world is going too fast and a lot are being left behind. It’s time to start something new like ecorevolution…@philinsect
There are a few folks in the VC community that are brave enough to say that they are not the experts in social media and continue to invest in material science and life science driven ideas. There may be a general perception of the herd mentality towards social media but there are always the exceptions that disprove the rule.
Yes, you are right, it’s only that Facebook being the epitome of success get’s the limelight. Life Sciences are indeed doing some advances but without much hype .But if you look at all the VC’s around lately, most of them are focused on technology related advancements which is not good but I think they will realize soon that the world cannot leave on tech alone as in Jesus say:) They need an epiphany as Steve say’s and realize that they need a diversity of investments to really make the system of things work. For now social media get’s the attention because of the massive scale interconnection of people and ideas and reaching out to these market is made easier by W.03 in real time and this is good, when it all settles down, tangible business models will find their niche and target market and hopefully prosper. Everyone should remember Social media is not the product but rather a tool for advancements. Facebook never ceases to amaze me although I may be critical sometimes. They are now introducing banking and finance to the FB system, “Brilliant”. I guess I was wrong earlier, Facebook will stay long as they innovate to the future. As for us, we will all have to adapt to the new system and order and reinvent our philosophies and strategies to fit in. Competition does make life worse and better, the algorithm of nature is shaping things up and we will just have to go with the flow. A question? what is the difference with heard mentality and going with the flow as in a river, and riding the waves? Is it guided or herded to the right or wrong direction and the river flow is to destiny? then riding the waves…If herded you are following? If going with the flow you are brought to destiny? while riding the waves is like waiting for things to happen. Do we or can we really control our destinies? The flash crash was caused by an unexplainable 3rd algorithm which we call Nature, intelligent people in Wall Street believes they create and control their own destinies. Who really controls?
Maybe crowd funding can come in and fill some of the gap left by VC’s , along with the lower barriers to going public when some of these startups need “real money”. That way the investors who really want to individually support cancer research, or clean tech, have access to do so.
In your argument you pose that Facebook will make vast amounts of money, but other startups which make less money are somehow more useful to society.
How do you explain this discrepancy? Do they really have more impact?
Facebook might not be terribly useful to one specific user. But it has a (small) user for a lot of people (900mln and counting.).
Social media has really changed the face of social collaboration. It has become possible to imagine true democracy in which all people—poor or rich—can effectively share knowledge. The same cannot be said about driverless cars, etc., which benefit but a few people who can afford them.
And moreover, social media is just starting. We have not quite started having fun yet.
My question is, how do we know when the tide has turned? Will it be a single day that we can point at and say, that was the day social became less interesting than all the new interesting things? Or will it gradually fade away?
I think Boston is likely to take the mantle for startups that work on hard problems that matter. BOS has two of the best hard science/engineering research universities (Harvard/MIT). Also, proximity to DC helps for tendering government contracts which is really the main source of early funding available for this sort of work. As you know, govt customers supported the early semiconductor industry as well as internet backbone tech.
SV is going to eat itself alive with this web stuff. You guys can keep it 🙂
Why not shoot for the moon when it comes to building a business? Many of the founders of the companies mentioned have contributed great sums to fund research and have made substantial philanthropic donations. Make hay while the sun shines. What you do with it speaks to your character. If anything Silicon Valley has proven it is rife with people of great character.
As always, a provocative post and commentary. Thank you, Steve. “Surrface thinking” described in a prior blog is another way to define superficiality; and those terms define the level of capability of most people’s thought processes, analytical skills, and ability to ‘connect the dots’ in today’s world. This is partly the result of our eroding educational system, where analytical skills and ‘deep thinking’ are just not encouraged, and partly the result of the entire social media bandwagon, where being connected via social media and constant superrficial ‘sharing’ and comparing has replaced deep interpersonal understanding and compassion between individuals and within and between communities. Connectivity is now defined by the speed of electrons instead of the depth of awareness and true understanding. And this shows across the board: VC devotion to the monetary return, to the virtual total exclusion of consideration of the non-monetary value added; education which permits students to “pass” rather than addressinng the fundamental learning challenges that if corrected would turn them into actual successes; a moral compass gone totally off the tracks in search of celebrity status and financial wealth (which, with the very wealthy, is so large it actually is of no value at all to them other than bragging rights.) Maybe our day has come, and gone.
Hi Steve. Yours is an excellent point, and I couldn’t agree more. Have hope, though… there are others working on non-social, non-trivial pursuits, including us here at http://www.nest.com.
Steve,
I share your POV. I wonder, with the flight of investors and capital away from hard science innovation, combined with the looming disruption in the role (costs/benefits) of universities: perhaps therein lies a solution– engineering universities shift their focus to investment, research and monetization of deep science problems.
They can take a longer horizon, they can exert direct control over the quality and hierarchy of innovation, and they have the capital to seed new ventures.
I planted a tree in my backyard a few years ago. On the side of the tree that gets the most sun exposure, the branches are more plentiful have grown longer, thicker and have much more leaves on them. The shady side of the tree has fewer and shorter branches. VC’s are looking for companies that are basking in the sun and can grow fast. It seems that small software companies that are facing the sunny side of the market are the ones that have a better chance of growth even in a crowded market.
Facebook will be having a hard time soon, new startups will disrupt it’s advance, Pinterest is proving to be one unless Rakuten’s valuation and eventual acquisition applies new features for the exclusive use of his group of companies (e.g, eBay on Paypal.) Facebook has the numbers (nearing a billion) but not the figures ($3.7B) There is perfect imbalance and GM have seen this. The latest feature they added -Timeline and Instagram only gives them advantage when the world goes mobile and there will be androids and iOS to compete with, not to mention Google, Twitter and thousands of Silicon valley tech startups. Google will not give way nor twitter, LinkedIn will not let itself be left behind. Small VC’s will never be able to compete with the titans. Everyone will disrupt each other and possibly, Google is feeling it after the FB IPO. They will have to and need to survive. The next big thing will be crucial, Pinterest is showing tremendous growth and potentials,.
So what will be the next big disruptive app? No one knows (except maybe the Big VC’s, Silicon is alive and in a great buzz) It’s like a bee comb very active on it’s growing gains and they are seeing smoke, the sign are there but it’s only smoke, they won’t leave the comb unless the fire shows itself.
Everyone is killing each other for market dominance. The tech revolution had the self destruct sequence even before W.03 started. Almost all the VC’s are promoting new disruptive technologies that will kill the other business and with over valuation, it will certainly pop. New disruptive technologies are being breed by the thousands in Silicon Valley and elsewhere, so where is the direction? Another Flash crash! Wall Street has the Red button to stop it. VC’s has none….
Marketing is a tool and not a product. Social media is the market and they are just clicking like and it’s considered a buy. I may like you but I won’t give you the money:) GM has not much like in Facebook, Likes cannot be monetized.
Hi Steve, great article. This is actually a structural issue that VC’s can’t, won’t, and shouldn’t resolve. If you look at any system, from an individual to company to a country, you’ll see that short run demands always over power long range developments/needs. That’s why your exercise regime tends to suffer when you’re too busy with work. That’s why most publicly traded company’s bemoan having to meet their quarterly targets at the expense of long range business development. That’s why NASA gets gutted when there’s a federal budget crunch.
Historically in our country, there has been an ecosystem of technology innovation where certain sectors of society have taken on the brunt of doing long range R&D. Silicon Valley wouldn’t have existed without Stanford. The Internet wouldn’t have existed without the DOD. Apple wouldn’t have grown to become what it is today without being able to “copy” from PARC. Notice that all of these great, industry moving technology inventions were first created in environments that allowed for deep R&D exploration without extreme short term time pressure.
VC’s have always played a role in commercializing early product innovations from these long range R&D sectors. (Specifically, VC’s usually invest between the Nail It and Scale It stages of the product lifecycle). In the past, VC’s also set their investment timelines and risk profiles accordingly (7 to 10 years, high risk). What you’re bemoaning in this article is that the VC sector, also under short term time pressure, is relinquishing this role to focus on lower-tech, shorter term opportunities.
But what’s really happening is that the long range R&D functions of society (universities, government, and corporate) are being gutted and must turn to wealthy, visionary donors for support. Just as Michelangelo had to get the support of the Pope, UCSB where I live must get support from the Chairman of Oracle.
As a result, where we see the long range R&D function happening in society today is now mostly from extremely wealthy individuals and certain visionary, well structured and companies (like Apple) that understand the importance of and have the wherewithal to invest in long range R&D. Basically, if it wasn’t for the proceeds of Virgin, Google, and PayPal, we wouldn’t have Virgin Galactic, Planetary Resources and SpaceX.
I think this loss of structural support for long range R&D is actually the bigger crisis. I say this because VC’s will always step in once an opportunity is pretty well-baked and there’s a sense of real return. For example, For example, I’m sure that once SpaceX has done the heavy lifting, VC’s will start to fund space exploration en mass. But what I fear is that our long range publicly funded institutions are headed for the scrap heap under this same short term time/money pressure.
To be a high-functioning society, we need to create the awareness and structures to support publicly funded long-range R&D to complement private initiatives and to go further afield where “no one has gone before.”
If anyone is interested in understanding more about the rules of structuring your business (or any system) for greater success, here’s an article that shed’s light on it: http://organizationalphysics.com/?p=2094
Best,
Lex
Excellent post, Lex! I obviously agree fully with the premise of it, and bemoan the fact that so little is being done at a high level by anyone with the power and influence to affect change on a national level. This is where the supposed “job creators” are supposed to be stepping up to the plate. Now that they don’t have to fret too much about taxes, they ought to be pushing real innovation in this country so that 10 or 20 years down the road, there are actual jobs available in the US that involve more than just flipping burgers or working at a retail shop flogging made-in-China tech gear.
This is an astoundingly myopic view of venture capital. In the first place, venture capitalists fund 5% of business started in the US (of course, we should take out all restaurants, but still…). Moreover, sure investors want the next Facebook, but there are thousands of private equity investors in technology. Look at the portfolios. Only a handful are “social media” only. Good ideas and good folks will raise capital, come hell or high water. If they don’t, they either weren’t good ideas or good people or both.
I agree to an extent, but the statement “Good ideas and good folks will raise capital, come hell or high water. If they don’t, they either weren’t good ideas or good people or both.” is not true. You are assuming an almost omniscient quality possessed by the capital sources, which is not true. Financial sources, VC included, have proven themselves shortsighted throughout recorded history.
What infrastructure is needed to make life science and clean tech startups as easy to create as consumer web startups?
OK, Ummm no, I bought your books, usually you are right on the money, but this time Steve, you are wrong.
We have Facebook, and Instagram made the Billion. Good for them. Now the rest are follow on companies, and dumb money chasing an idea they read about in the WSJ. Sorry, but that is not a recipe for success. Would you invest in “the next Facebook” when we have the real Facebook? That is lemming thinking.
No one saw Facebook until they were going and sweeping through campuses around the country. It did not fit the valley profile. The next wave is not in the news, or on the radar of any big name valley VC firm. Maybe they are H. and P. in a garage, or some random office park where the space is cheap.
The valley VC firms have money. When the next wave emerges you can bet they will ride it. The money can outlast some bad investments in follow-on social networks. Maybe it is memresistors or graphine or gene splicing or whatever.
Do you seriously believe this wave is the last one? This may be the high tide mark before things recede. As always another cycle begins, I would be surprised if it does not.
Also, clean tech is propped up by tax rebates, and government money. The Chinese imports are helped by the government to get an edge. It is like LCD manufacturing in Korea from a few years ago. That is a bad comparison.
next stop
scalar electromagnetics:
antigravity, energy out of the vacuum (or etheric membrane)
like
Social media, I hope, acts as a catalyst for social innovation and social entrepreneurship.
With regards to the erosion of the horizon, I feel as though it is important to bring SV thinking into our U.S. government (without the VC baggage).
We can help rebuild our failing infrastructure in ways that will enable us to sustain.
Social media may continue to boom for a while, but at some point doesn’t it all become a self-referential, zero-sum game? What are all us billions of people supposed to do when we’re not Tweeting and Texting and Instagramming? It’s a rather thin base to build a whole economy on. One does need some means of paying the cell phone bill, after all.
In a perfect world, VCs would be smart enough to see this and broaden their horizons, even if it demanded an attention span longer than six months. But sadly, they’re just as prone to a herd mentality as the rest of us (most definitely including their pals on Wall Street).
Social media creates significant economic value if it connects businesses and consumers together. Even if its not directly curing cancer or building moon bases, social media does help lift the economy in the long run, which lets people approach more of these noble pursuits as well. In a more and more social world, we’re seeing pretty much every brand trying to get more social media traction because its impossible to thrive without this. If you just look at the sheer number of people logging into Facebook every day you’ll start to understand why brands are flocking there. Facebook’s success in particular seems pretty unparalleled. You’ve got big brands throwing up Super Bowl ads that try and promote their Facebook pages, you’ve got dozens and dozens of companies listed atxxx.com that do nothing other than promote Facebook pages. Yes, there are some gaps in the market, but this just creates more opportunities for investors. If there’s money to be made, people will invest. If you see a gap in the market that isn’t being met, find other smart people and get together and solve a problem and convince an investor that you can make money. If there’s value to be found and money to be made, you can find those opportunities.
Social Media will taper off sooner rather than later because we are all already saturated with it. How many facebooks can you keep up with? I love pinterest but because I am on facebook, twitter, youtube and linkedin – not to mention email, several “groups” and networks, and some great blogs I subscribe to (like Steve Blank!) I just haven’t found the time for it.
As a type I diabetic I ask you all: can someone please find a cure already?!
Wow — really interesting perspective. I hadn’t considered how Facebook’s IPO would change the way business functions — but if pretty much all businesses rely on this one business to such a high degreen…wow, great food for thought. Unnerving.
For the very reasons above, especially the info overload and the 24/7 availability, I committed “social network suicide.” I do not regret it. I have my life back. Dan
[…] were advertised in some fairly wacky ways. Loads of pictures in this article. – Damon DarlinWhy Facebook Is Killing Silicon Valley Steveblank.com | A serial tech entrepreneur muses on how Facebook and the social media craze is […]
Steve, you are so right that the VC community has shed its interest in funding great ideas to maximizing returns. This has resulted in a plethora of vapid app start ups. It is no longer about ideas that will change and improve the world, but rather those which can be flash mobbed into money machines.
I state this with clear bias as a CEO trying to build a biotech company in this economic environment. I deal with expectations of shorter timelines to an exit every day.
Keep up the good fight.
As a self-funded startup seeking for capital we are seeing this “if it’s not the next Instagram I’m not interested” fever in investors. Investors don’t seem interested in solid business anymore, but just getting lottery tickets that can pay nothing or hit the jackpot x100. The funny part is that we are getting a lot of attention from the media and many potential clients around the globe, because we DO solve a real problem in an innovative way, but that “all or nothing” attitude in VCs and Angels is giving us a very hard time to raise even a small amount of capital. It is kind of frustrating…
Good businesspeople don’t just invest in ideas. They invest in good ideas that have some proof of knowledge and a strong promise of profitability. Facebook’s IPO hasn’t messed anything up for pharma. Today, people invest in risky stocks but also have their money invested in index funds tied to the S&P which historically and predictably produces 6-8% returns on investment. There are plenty of risk averse investors who will continue to fund businesses not just because they believe in them but also because they are sound investments.
Great piece, as always, Steve.
I know you are deliberately generalizing, but I think it is important to note that not all VCs are focused on Social Media. My firm, IA Ventures, exists to support what we perceive to be another transformative mega trend – Big Data. It is our belief that intelligent use of data will fundimentally transform every industry from education to healthcare, from retail to media, from government to financial services.
While I’ve yet to see a company pitch us about launching humans into space, I have seen a company pitch us with the goal of aggregating real time individual health data through use of mobile sensor technology with the goal of understanding global health trends for both preventative and proscriptive purposes. The vision is audacious and the potential world impact immense.
Regardless, totally agree with your macro point but want to point out that you’ll be happy to know that some of us are looking beyond social media to find companies changing the world.
Steve, the picture on this link is a great summary of such explosion http://www.businessinsider.com/social-media-marketing-landscape-complicated-2012-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29
FB has totally turned friendship into stalking relationship. The concept of true friendship has been forever diminish. We all live in unsocial world bec how FB made actual communications very cheap & lazy.
Was it Seth Godin who said “The future is not what it used to be.” Whoever it was, the sentiment echoed is similar and absolutely agreeable. Is this a problem with the ‘system’ or is it the VCs who thirst for quick returns, easy returns? Or is it the ‘users’ who cant stop getting the most happening ‘That app’ from out there – to tweet or update an opinion.
Methinks, once the lure of eyeballs still plays on from dotcom days. Only when some analyst pulls the rug under these metrics that this trend is likely to be broken. Oops! The analysts from Wall street seem preoccupied…noble knight! where will you emerge from. To redeem innovation. Seriously!
I agree with you Steve but I don’t know if you do what you preach
You are sying you invested in “awful” social media startups, but have you put your money in any of the companies you say actually matter?
And it’s very difficult to give weight to your opinions when you go and say Jobs single-handedly created both smartphones and tablets, not only because both existed before Apple made their own versions, but because those projects existed inside Apple and were probably created by other people in that company.
Why is so much of Silicon Valley obsessed with small ideas that don’t solve a problem?…
Update – 5/21/2012: I wrote the Original Answer below 6 months ago. Today, the eminent Steve Blank wrote a far more eloquent piece supporting the exact same argument: > If investors have a choice of investing in a blockbuster cancer drug that will pay …
I like your points, Steve.
VCs are always looking for where the money are, while startups are looking for sustainable business model. 🙂
But, frankly, your post sound like entrepreneurial manifesto for VCs: “guys, please, do not forget to invest in things, that are good for humanity, not only for your pocket!”.
Which is very good message, but it is still sounds very abstract and could be applied to any times and industries.
It sounds like this since you do not give comparison of concrete facts and figures in the post.
Common sense tells us people tend to invest where cost of failure is less.
But there are always those who is willing to take the risk and invest in where cost of failure is huge.
Economy is like Nature – it keeps balance between “more risky” and “less risky” ratio with Darwin’s Natural Selection.
We can say, it is a problem – portion of risky investors declined today in comparison with Apollo program times. Which could mean “progress pace is slowed down” or even “we are in regression”.
But to prove it we should at least know two portions out of all VC investments done today and at Apollo program times: content&media portion and sci-fi startups portion.
It could help to support your message, if you can share some figures. 🙂
Dear Sir
Everywhere I turn I hear the new dictum of “Lean start-ups” based on the secret sauce of trivially inexpensive “customer validation” cycles. As a long-time chip designer and inventor of difficult things that actually make mobile work, I turned to your recent start-up owner’s manual to see what I was missing. The answer was the formula for how to stand the best chance of creating the next big thing, as in a “web/mobile start-up,” not unlike Facebook did. There is some crude attempt to embrace “physical products” (aka hard-to-validate) in the book. The formula you have refined, not to be criticised for what it does so well, is exactly the optimum search mechanism for the type of start-up that many young entrepreneurs, engineers and software guys now look up to. I was beginning to think that I had totally misunderstood the true inventive spirit of Silicon Valley that the HP Garage iconifies. Facebook’s thumb on Willow road gets a big thumbs down for me. It is not the icon of Silicon Valley that I dreamt of before moving to this incredible place.
great post,
VC’s at the end of the day manage a fund, they arent there to drive technical innovation or change the world – though i think many see themselves that way and the media likes to perpetuate that. at the end of the day its a bunch of people making a living off the 2 and 20 (2% management fee, 20% upside) and there predominantly on the 2. There is a lot of capital chasing this investment class at the moment (see it the same way as bonds and property) so the amount of funding for similiar investments by people that (in general) arent able to discern or understand complex industries (like health etc).
I do think that the fixation with VC as “the way” to fund a business is what is doing innovative businesses a disservice. While i like the get rich quick world as much as the next guy, i see many around me who work hard to build sustainable businesses purely running on profit and then scaling these up over time. Ford etc werent started with VCs as we know them, in fact – what we term “angel” has provided far more capital to change the world than VCs have. It takes a bold decision to make those kind of bets, often easier done with family money versus an investment committee.
What’s next is for the social branding ROI has to prove itself in the next 18 months on Facebook or we will see more like GM backing away from another attempt at converting ad dollars to the next internet theory from more traditional markets.
I for one didn’t join Facebook in order to be marketed to the point of logging off.
IMWD agency
Will you give us a break? You’re trying to create a legend here, a noble one, with big Kennedian words shaping a political mantra in science and innovation. But the truth is that the Silicon Valley wasn’t what you’re suggesting it was. Silicon Valley was a place where entrepreneurs started small, and when you’re small you hardly afford to be noble.
Great read. Good forward thinking. I think the idea of scaling back investment in life sciences should be more carefully considered. As we engage emerging markets and emerging democracy areas, poverty reduction will be key to creating consumers who can actually purchase the goods and services ushered into their regions (largely rural areas). Mobile devices will be key to delivering a variety of services due to lack of basic infrastructure.
So, VCs and multinational corporations should invest in various poverty-reduction programs: education, healthcare, humanitarian issues because it better positions the populace to become healthy (physiologically and financially) consumers. Also, investing in such local issues grows brand identity and integrity, creates a “trusted” name in faraway regions = increase in consumers. The power in FB is in its open platform and ability to connect millions. If millions think the company is “bad” or untrustworthy sales will reflect this. People matter, FB demonstrates this on massive scale.
http://www.theglobalroundhouse.com
@GlobalJackie
To borrow from Harry Truman, “The reports of SV’s death are greatly exaggerated”. Silicon-based innovation was the initial phase. SV innovation has continued to evolve. (I agree that the often shown “Waves” diagram is too simplistic and misleading) Technology is the enabler, not the end of a longer innovation value chain which by definition continues to evolve. I think your beef is with the conventional VC engine that drives some, but not all of SV.
Over half of FB users said they never click on an ad. Hardly a revolution. And how big would FB be if you stripped away all the civilians following ‘celebrities’?
And making more solar cells that aren’t much better than the ones that have been around since we were on the roof at college doing experiments in the early 80’s isn’t ‘clean tech’ – it’s simply mass production. And the Chinese are better at that than the US or EU.
All i get from this blog is what I already knew: all the SV ‘change the world for the good’ clowns who say that it’s ‘not about the money’ are stone cold liars.
we need breakthroughs in batteries, not solar panels or wind turbines, two self limiting technologies. We need compressed natural gas filling stations every 100 miles.
Uncle Bernie, +1 that. I agree entirely with you. Innovation on these fronts that is made available and accessible without monopoly is the answer. You are a genius!
What do you think of the valuation of facebook? What if it fails in 3 -5 years? From what you have said, it all looks increasingly likely that this is just another bubble, serving only to enrich the likes of JP Morgan, Goldman and the rest of them
As I mentioned in my repost of your blog, Steve, to me the critical clue came from JFK’s words that the “challenge is …one which we intend to win.” As long as this country retains a fairly undiminished uber-sense of competitiveness, we likely will find something else (when, what? still unclear) to innovate and call Americans the winners & leaders. It wouldn’t hurt if that innovation inspired the masses like space travel once did.
Recently I met with several VC’s and all the talk was about social media and the next software to help tablets and phones etc. I hadn’t thought of how the science and technology landscape may be hurting due to lack of financing or interest in these areas. Perhaps a great case study for mass group think… Thanks for the post.
Great article! Thanks for sharing you experience and analysis.
Just as a sidenote, the video appears to come from HBO’s formidable “From the Earth to the Moon” miniseries (soundtrack is the same). Of course, the speech is available from a lot of different sources, but the series is absolutely amazing.
What about wearable devices? http://www.wimm.com ?
Thanks for this article, Steve – hits the nail squarely on the head and is exactly what I’ve been preaching for the past couple of years to anyone who would listen! I’ve unfortunately been caught up in the turbulent wake of the social-only focus of Silicon Valley VCs with my own start-up. We’re doing something extremely difficult that cannot just be flipped in a few months by “investors” into a jillion-dollar instant profit – a truly disruptive, next-generation medical imaging system that we like to think of as CT/MRI in a briefcase (OK, suitcase to start, but eventually working its way down in size!). It has none of the downsides of those two other modalities (ionizing radiation, contrast agents, high cost, limited availability, etc.) and will really move the needle as far as societal benefit goes once production-level systems are ready for the lengthy FDA approval process and wide deployment afterwards. This takes very hard work, very long hours, and very serious intellect (our CTO, for example, helped develop artificial neural networks decades ago, and everyone else involved in the company is either a physicist, electrical/computer engineer, doctor, or medical imaging expert). It also takes lots of money, and as a consequence of the current funding environment, that means little or zero pay for most of the staff, because whatever money we can manage to cobble together has to be used to fund hardware and contract services purchases to build our first working prototype (recently completed) and pre-production-level follow-on systems to be used for clinical testing. Lack of full-time pay, as you can imagine, makes it extremely difficult to bring in the additional staff needed to accelerate the R&D process.
It’s not that we’re jealous of the massive money pots these social media companies are falling in to – their employees are also hard-working and intelligent. The problem is that large-money funding is very limited – especially since the start of the Great Recession, and if the lion’s share is going to the sorts of companies your article talks about, there’s much less available for anyone else doing things that are of real, practical value to our country and to the world at large. We’ve been at this project for over 5 years (the original idea was hatched by our CTO 20+ years ago, but advances in technology have only now made it possible – and just barely! – to actually implement), and probably have another 2 to go. If the funding situation were different (pre-social media and “apps” craze), we’d have very likely completed the job by now and would already have systems ready for wide-scale testing and evaluation.
There are unquestionably hundreds or even thousands of other non-social media/apps start-up companies out there doing truly important work in all of the areas you mentioned and more. These are companies whose technology can really make an impact – improving health care, reducing our reliance on carbon-based energy sources, making our homes and offices more energy-efficient, advancing transportation systems, finally making access to space affordable and ubiquitous, etc. What a shame for all of us if venture capital remains singularly focused on social media and apps for very much longer, and these other companies are forced to shut their doors and simply give up (or perhaps, change their effort from developing alternative energy sources to merely writing an iPad app illustrating the effects of melting icecaps and rising sea levels on the outline of low-lying coastal regions of the world’s continents – with plenty of content-appropriate ads, of course, being displayed just a click away on the right side of the screen).
“If you’re a VC firm, you’re phasing out your life science division.” – This reminds me of an AMAZING speech given by technology forecaster Paul Saffo in 2000, now only available on the Wayback Machine: http://web.archive.org/web/20000816060120/http://www.tnty.com/press/transcripts/sftech-saffo.html. I think it relates nicely to your “Secret History.” Specifically, “We’re on the cusp now of the next revolution… We are shifting from a focus information technology to biology.”
Just as the Small Business Investment Act of 1958 was done in part to help us compete in that era’s ideological struggle, perhaps we once again need the same 4:1 bump the feds gave back then to prime the pump for riskier strategic (non-social) small businesses building the kinds of things Steve mentions – Steve and his group are already priming the pump by helping engineers filter ideas – why not take a package of the best ideas to Washington(during this election year.) Here is the proposal (I can see Mitt and Obama fighting over this) Let’s see, 100 start-ups with A round investments of 10 million dollars, that’s 1 billion – each firm has 5-8 amazing people making enough to justify leaving Facebook and return to real science, 20-30 recent grads and un-employed old timers who still have something to give. The money would come from a new “I love America Tax” This tax, applied to the rich (1%) would go to help fund the firms, that would be selected by the same rich investors, to start these new companies – the next generation of Fairchilds, Googles, AMD’s, Alza’s. The ILAT, tax would be a luxury tax at first, to be paid on Prada Handbags and Shoes, yes, it may influence the Thursday night a Rosewood look and feel but that would be a small price to pay for saving America. No kidding.
Vahe – nice ideal! Something like this is exactly what this country desperately needs. Without getting too political, though, at least one of the parties would scream “no new taxes” and “you’re having the government pick winners and losers”. As a result, such a proposal would ultimately be filibustered in the Senate and never see the light of day. It’s a shame, really, because every single one of America’s serious competitor countries (Germany, China, Japan, S. Korea, India, Canada, etc.) is doing exactly this to one degree or another. We’ll wake up to the consequences (no important new innovation and the jobs that go with it) in maybe 10 years’ time, at which point it will be too late, and we can all drown in our silly smartphone/pad/tablet “apps” and social media games. That’s how the end of our relevance as a country that actually builds things people want and need to buy will come to be. We’re just not a serious country any longer, and the ones that are serious, or are becoming more so, will eat our lunch.
Thanks Josef – I think the risks are great enough, as you state, where there is an interest in funding a few big ideas – JFK and FDR both took their ideas to the public to justify taxes, I think there may be a way to take the idea to a smaller number of wealthy folks and package this up as a tax/investment in the future – big ideas eventually create new markets, eco systems, taxes and hope – I agree, lets assume that Washington will find a way to screw this up, and lets hope that SV, Boston, Austin, etc can craft a tax, targeting the rich, that is really an investment that will save us from becoming a 1950’s version of Latin America (apologies to Latin America – I think I plan on retiring there.)
Hi Steve, I’m working on an incubator to help startups that aim to reinvent the way we produce, process, and distribute food. Your post is very inspiring: totally nails our challenge. Would love to have the opportunity to discuss my progress so far with you. Best! Bart
The social part of social media is just the beginning. Defining new ways for people to collaboratively get stuff done is the real opportunity. “Reinventing Discovery” covers cool glimpse of opportunities combining expanded data and collective intelligence to solve big problems beyond how heavy your high school friends are. “Social” media is an unfortunate name.
Crowdfunding.
Going to pitch events these days is like being attacked by little yappy dogs, most of the pitches are for Yet Another Pointless App – YAPA.
Now look at how China is promoting innovation in sectors like medical devices, solar, and such: http://h-et-h.snappages.com/blog/2012/06/01/the-american-innovation-model-was-broken-by-1995-in-2012-it-is-dead
This comparison of Hamiltonian v. Jeffersonian policy re the role of government in making or not making investments from this past weekends NYT book review adds some color to this thread me thinks
http://www.nytimes.com/2012/05/27/books/review/land-of-promise-by-michael-lind.html?_r=1&ref=bookreviews
Still waiting for my flying car…
[…] uma imagem que pode virar um pedregulho no sapato de Mark Zuckerberg. A alfinetada tem a ver com o artigo escrito por Blank criticando não o Facebook, mas o seu modelo de negócio, que siderou o Vale do […]
[…] had Steve Blank’s excellent blog post on Why Facebook is Killing Silicon Valley bookmarked for just over a month now, and I keep revisiting it to try and suss out what his […]
[…] Blank captured this sentiment earlier this summer in his provacatively titled comments on Why Facebook is Killing Silicon Valley. His post generated a lot of commentary–and critique–but it gets at a two key issues […]
Sensible article, though I do somewhat disagree with the final paragraph. I suspect that the SV VC ideology lies closer to:-
“We choose to invest in big-ticket ideas, not because they are easy, but because they are hard for others to reproduce, because attaining such goal will yield patent portfolios to monopolize rapidly growing global markets, and because tackling such challenges is the only way we can see that could justify the scale of the funds we continue to raise.”
In other words, not really very JFK. 🙁
[…] Lire la version originale […]
Don’t beat the VC’s up too much, their limited partners are also driving in this direction. Pension funds, endowments, high net worth investors, and all of the people who invest in VC’s are demanding short time horizon investment returns from the VC’s so guess what they do?
A man that I worked for years ago used to have a sign on his office wall that said this:
“Tell me how I am going to be measured and I will then tell you how I will behave”
Meanwhile the type of innovation that you speak of is moving off shore where the longer time horizon is more acceptable.
Steve,
Can I ask your permission to include the above chart – waves-of-innovation.jpg – to the http://www.netvalley.com/silicon_valley_history.html . The text link to your site – as a source – will be provided.
Thanks,
Gregory Gromov
yes