The Problem With Silicon Valley Is Itself | Hacker News Reader

The Problem With Silicon Valley Is Itself

thenextweb.com

299 pointsjmjerlecki188 comments

So she lives in San Francisco for 6 months and feels qualified to explain what is 'wrong' with Silicon Valley? (which is nominally the Santa Clara Valley btw) I've lived (and worked) in the actual silicon valley for over 25 years and I can tell you that evaluating the area based on a 6 month snapshot is worthless.

In 1984 I was Intel and the 'problem' was that there wasn't any real use for personal computers. A 1024 x 768 color CRT monitor was huge and cost about $3,000. Running at 640 x 480 in monochrome with a 'Hercules' graphics card didn't come close to the experience you could get with a decent minicomputer 'workstation.' But a workstation cost $50,000 and up.

In 1994 I was at Sun Microsystem (the Liveoak project, aka Java) and I would have told you that the 'problem' was that you couldn't do business over email and without an economic engine what would fund all the work. I told Eric Schmidt (who owned Sun Labs at the time) that so called 'e-commerce' was where all the money would be in 1995 and if Sun wasn't able to participate it was toast. (sounds pretty lame in retrospect, but they did sell a lot of servers to Amazon :-)

In 2004 I was at NetApp (after having my startup acquired by a company which would later be folded into Motorola in a deal which was reminescent of one of those trades in baseball where you get cash and a draft pick and oh by the way this guy over here.) I would have told you that the problem was that technologists had been pushed aside by MBA types who had lasered in on the 'rent seeking' business model and killed off innovation along the way.

There isn't a 'problem' with Silicon Valley, it simply exists like a beaker sitting over a bunsen burner. Over time different chemicals are available in the beaker and sometimes something magical happens, and sometime noxious fumes come out, but the place is an engine. A lot of startups are endo-thermic with respect to cash but a few are wildly exo-thermic. Often times the by products of those become the ingredients of the next round of innovation.

I'm not sure the author has had time to appreciate that while she may have encountered dozens of GroupOn clones, she seems to have missed that there are dozens of GroupOn clones. If you were in, say Minneapolis, how many GroupOn clone startups are there? Energy makes reactions possible, the SF Bay area is full of energy (and resources) which makes it easy to create a new company. That the companies that have currently been created are boring to you is merely a side effect.

Surely the recent spate of websites being valued in the Billions rings some alarm bells that something is seriously up?

I don't know how you can reasonably value a company that has only existed for a year or two at that level. Things can die / be killed as quickly if not quicker than they took to grow, and we see it happen every day.

You can reasonably value a company that may be killed soon for $1 billion if, in the case that it survives, it will be worth much more than that.

What people don't seem to remember is that Google came out of the last bubble and became what it is today. It captured and hoarded a significant chunk of the value that existed back then. The value of the Google of 2020 could be split across 30 companies worth 5B each today. 29 of them could die, one could be worth 300B.

"I don't know how you can reasonably value a company that has only existed for a year or two at that level."

That is a fair question.

Brad Templeton once observed that if he sent a joke to everyone on the Internet with the caveat "If you chuckled, click here to send me a penny." and only 1% of the population found it funny. That would be a $100,000 payday with a billion readers where 99% of the people didn't even think it was funny.

The secret truth that Brad captured (way before it was well known too) is that the rate at which a pure information company can earn money is essentially unlimited. Not a lot of people could imagine Brad's scenario, they got bogged down in the details like "gee processing the payment would cost more than a penny" or "how do you force them to pay a penny" or whatever. But now Google comes along and capitalizes on exactly that idea, except that rather than have the users click on something if they think its funny, they have someone click on something if they think it may be an answer to their question, and rather than processing them one penny at a time, Google gathers those clicks and just does an accounting transaction which becomes an actual payment once a month for the aggregate transaction. But they don't make anything, rather they convert an action into money, and they do that at web scale. No limit to how much money they can generate. So from an investment value, they have a very very large rate of return. The actual limit is how much money advertisers are willing to inject into the system.

So if you have a company whose revenue is only limited by the amount of money its 'customers' are willing to inject, and you can make a credible case for the fact that customers will be willing to inject $100M+ per year into the system, then you can make the argument that the company is 'worth' a billion dollars. (or multiple billions of dollars).

So while I agree with the unspoken criticism that some recent valuations seem high based on available information, if those valuations are coming from folks who have done their due diligence then I expect they have some line of reasoning that justifies that value to their own satisfaction. In the 'individual investor' bubble of the late 90's it was clear that individual investors were doing no diligence at all.

There's a flaw in the argument that most people miss, namely that since it's so easy to create and distribute information everybody does it, making it so much harder to create a viral effect.

To extend your example: If just 1% of the population sent a Brad Templeton joke to everyone on the Internet you would receive 10 million emails with a funny joke. If you chuckled at 1% of them you'd send a penny to 100.000 people. Not a very likely scenario.

Since none of us receive 10 million joke emails this means that things aren't as simple as they appear. The fact is that since so much information is being created the bar for virality is extremely high, and it's rising proportionally to how easy it is to create information. The chances of your funny email reaching millions of users are as high as your chances of winning the lottery. The resemblance to slick entrepreneurs pitching their wares with the clasical "if only 1% of the market uses our product we'll make billions". That's just not how it works.

Note that I'm not necessarily disagreeing with your thesis that once a startup has reached virality it can be worth a substantial amount of money, I'm simply stating that reaching that point is as hard as ever.

"There's a flaw in the argument that most people miss, namely that since it's so easy to create and distribute information everybody does it, making it so much harder to create a viral effect."

An excellent observation. And you have to consider that not all information has the same value and that its value varies over time.

Brad's scheme does have the flaw you describe (and it was another of the rat holes people would fall into, "Well Gee, once he sends out a joke what is to stop anyone who got from sending the same joke out to everyone but making them the recipient of the penny?")

The mechanism is valid, but, as you observe, won't work with easily reproduced information.

Google sells information that is both 'rare' and temporally relevant. They sell 'a person is looking for X right now' and advertisers buy access to that information with their AdWords bids. The nice thing about this information is that its very valuable to certain people (people who think they have a product for people looking for X) when it gets created and a couple of seconds after it gets created it is worth 100x less (maybe even 100,000x less, basically only as trending data).

That's actually very interesting - what you're proposing is that to create a viral effect you don't send the same joke to everyone but tailor it algorithmically to suit each recipient based on his history or some other parameter.

The trick, of course, is being able to gather and mine the data needed to do so.

It seems that facebook, Google, and a lot of other successful companies are following this model.

I was at a conference last month and was talking to a guy from Elsevier (a major scientific journal publisher.) I was telling him how getting a piece of content for 5 cents that makes 5 cents of revenue was "a pretty good business" and he was shaking his head as if I was insane.

Elsevier's business model is to take content for free -- indeed, to persuade people to beg you to accept it -- and then to sell it back to the same people for thousands of dollars.

Your extension changes the analogy. One person clicking on something relevant to their search is different than one person clicking on X relevant searches.

The "chances" of an e-mail reaching X number of people entirely depends on the e-mail list you've compiled. The company I work for sends an e-mail every week and it reaches over a million people every single time.

Even if you make a 1% conversion on that list each time, you are showing continual and repeatable return, which some call a "business model". A lot of us get caught up in the fact that this model has nothing to do with the actual product.

Actually, I think her perspective as an outsider makes her more qualified to point out what's wrong with the Silicon Valley startup scene.

Sometimes it takes fresh eyes to see things clearly.

The article may be right or wrong or both, but I've found myself thinking the same thing about a lot of the startups I've heard about recently. So far I've assumed I was antisocial or "didn't get it", but perhaps most of them are just as silly as I'd imagined.

Well said and don't worry about feeling like you "didn't get it" as neither do I. I doubt we are the only ones.

I'll throw my hat in here too.

Too many startups are pitching the most derivative ideas in a thoroughly half-baked manner. Seriously, how many different aspects do we need to force the whole social concept into? And it always surprises me how many launch with a hand-wavy business model of "visitors...ads...profit!"

I want to move to Silicon Valley and my cofounder doesn't. He says it's 1. expensive and 2. full of shortsighted startups that are really features, and people who start startups because they find it glamorous.

It seems to me like it's impossible for a place to be full of genuinely driven, intelligent, purposeful visionaries. Who cares how bad some people are, as long as the others are awesome?

Wish I could help, but it sounds like you're both right. Is getting funded absolutely necessary for your project?

Thanks. No it is not, which is why I'm not yet strongly pushing for the valley.

Its certainly possible, the problem is those people don't care about press or PR so they are very rarely heard about until after the event. Look in the various universities across the world and their spin outs and you will find some incredible people.

This is the main reason I live in Cambridge Uk and not London or SF, the vibe is very different around the startup scene, it actually feels like one of maturity driving a vision not a media circus. Sure it's smaller, it's all done behind the scenes, but some of them have and will continue to change the world for the better.

I am from Minneapolis and we have at least two Groupon clones. I think this says more about the abundance of Groupon clones than it does about startups in Minneapolis.

I can see both sides of the argument.

1) What the Wright brothers worked on meant that humans could fly for the first time ever. What Alexander Graham Bell worked on meant that humans could talk to each other over large distances for the first time ever. What the early PC/Mac pioneers worked on meant that huge computing power was put in the hands of the average person for the first time ever. These were history changers

I think many would agree that working on a project similar to one of the above is on a very different level, and much more satisfying, than working in a startup that is producing yet another photo sharing app.

What the author of the article may be lamenting is that so many bright minds are being "wasted" on yet another Groupon clone where no technical breakthroughs are being made, and not on useful projects where technical breakthroughs are needed, like renewable energy, natural language processing, etc. Whoever solves these problems will enable something that was not possible before and have an impact on the course of humanity.

2) On the other hand, there is nothing wrong with wanting to make money, and wanting to make it in the most easy way possible. If so many other professions can make a lot of money without really benefiting humanity, why shouldn't engineers feel free to exploit the recent gold rush in their field and make as much money as possible, with little regard to how useful their product is to the world at large?

She seems unclear in her own mind what she thinks the problem with SV is, because this seems to be a combination of all the standard brickbats people throw at the startup world (I wouldn't even say Silicon Valley, since these complaints apply equally well to any startup anywhere): that a lot of startups are "derivative" (like Google was); that startups tend to have exits (investors need them structurally, but founders like them a lot too); that startups solve trivial problems (like writing Basic interpreters for computers used by a few thousand hobbyists); etc.

I also think that the criticism that startups are not "big-thinking" enough is more appearance-based. She may be more impressed if startup pitches read like research papers and less like, well, startups.

However, there are a number of problems with conflating research problems with startup opportunities, one of the first being that the startup field is now a lot smaller than it was.

She talks about Stanford and Harvard students as though they're the best of the best and while it's true that recent graduates may have great potential, what you really want for research-level efforts is domain experts. It usually takes years to become a domain export -- far longer than the typical beginning-phase startup.

There are also a number of major problems with funding straight research efforts just from an expected-value point of view. Even Google was mostly working with known quantities (i.e., the exploratory research had already been done) when it started. If the result of a year-long startup effort is "turns out this is impossible" that's pretty bad.

Basically, there's a sweet spot for startups in a fiscal and informational sense and I think it will always tend to sound a little less impressive given that context.

It usually takes years to become a domain expert

Very true. Suppose you know coding when you're 25. Then you have even more years to study a domain and be able to apply your computational skills to the cutting edge and have that deep domain knowledge to pull off an amazing solution.

I would read a research paper-styled startup pitch for Color.

She seems pretty clear in her own mind to me. I'm not saying she's right, but it seems to me this is the essence of her argument:

"Groupon clone after Groupon clone, yawn… yet another social media dashboard, a cloud-based enterprise solution or, worse still, another photo sharing app; I’ve heard pitch after pitch of the same technology and keep wondering why all these highly intelligent, well educated youngsters, many of whom have been educated in the best universities in the world (Stanford, Yale and Harvard) are not putting their brains to good use by solving real-world problems. Instead they’re building technology to solve trivial issues – like apps that show where to spot your nearest tofu cupcake and share it with your friends.

I’ve come to the conclusion that entrepreneurship in the Valley has become productized, as organizations like Y Combinator attempt to marginalize, commoditize or manufacture a process that is inherently risky."

What's ironic is that the very tools she's using to complain are a product of the Silicon Valley. The blog itself runs on WordPress and pushes all its posts on Twitter. If it wasn't for the Silicon Valley model we may not be hearing her.

What you're pointing out doesn't really discount her point. There can be countless Groupon clones and photo sharing apps that blow hard and still be gems like Twitter and Wordpress.

So her argument is that we should try to only make successful products?

No, potentially world changing products. Most of which will fail. As most vc funded companies fail the failure is ok. She is complaining that the potential upside is too low due to lack of ambition to really change things radically.

Really I think her point is best summed up by "It’s never about the technology or impact it’s having, it’s about the game of entrepreneurship; getting users, funding and exiting as quickly as you can."

Her complaint seems to be that startups aren't trying to be successful businesses, they're trying to be successful startups, which aren't necessarily the same thing.

I think it goes without saying that you should try to only make successful products, but I think what is being argued here is that many of the companies she is seeing are just 'follow the leader' type companies. Groupon was successful, so we'll do the same thing. There are a few social metrics companies doing well, so we'll jump into that market and see what happens.

What the author, I think, is saying, and what I believe personally is that if you do the same things that others are doing, you're guaranteed to have lots of competitors to duke it out with.

Strike out and do something unexpected, find a market or make your own.

It seems that many people think that creating a copy of another company with 'better design' or 'feature x' is innovating, but it isn't. Innovate in technology, business model, anything, but be innovative.

The reason she mentions the companies she mentions is that it is easier to remember the innovators than the copy cats (and often the innovators have greater success).

It seems to me that the passage you quote could as well have been offered to support my point as to contradict it.

Though as long as we have it here, it's pretty self-refuting that she treats all "cloud based enterprise solutions" as being effectively identical. That would be like someone writing an article a few decades ago and treating all startups making silicon chips as effectively identical.

I think you're right. I've never worked in a startup but my understanding is that their purpose is to discover profitable business models, not to put the world to rights.

If your tofu-cupcake-locations-sharing app takes off and lots of people use it then you've found a way to add value to people's lives and make yourself some dollars. That's what capitalism is all about, right?

I'm fortunate enough to have graduated from a very good university and I can tell you that the majority of people I knew there didn't leave and dedicate their lives to an altruistic quest to improve the world. Lots of them left to be bankers and consultants, whereas only a few went into academia.

There's always a tradeoff between how selfless you're prepared to be and how much money you need to take home to cover your own needs. There's nothing wrong with making money so long as you're not stealing it. And let's not forget that the more money you have the more money you're able to give away to good causes.

I agree with most of what you said, but I think you are trying to assert that academia is altruistic ? Academia is not altruistic. The Universities are in the billion dollar education business. They are just labeled non-profit yet they make hundred of millions collectively in TV contracts but none of that is used to help the poor communities and families many of their athletes come from. They are no better than bankers and consultants, or entrepreneurs trying to make a buck.

I was suggesting that individuals who choose an academic life over a more profit-seeking life are making a more altruistic decision. I agree with you that collections of academics (i.e. universities) often act in predatory ways - this is true of any sufficiently large group of people with a common interest: http://en.wikipedia.org/wiki/Crowd_psychology

> I was suggesting that individuals who choose an academic life over a more profit-seeking life are making a more altruistic decision.

"Altruism is the renunciation of the self, and an exclusive concern for the welfare of others." (Wikipedia.)

Not so fast. Never confuse non-monetary rewards for no rewards.

Altruists International offers a slightly more nuanced definition than that single line from Wikipedia.

I don't think pedantry here will fundamentally change his argument.

> I don't think pedantry here will fundamentally change his argument.

I'm not trying to change his argument - I'm pointing out that he's wrong.

Academics make less money but that doesn't imply that they're not working for things that they value.

The fact that someone makes a potentially less lucrative choice does not make them altruistic. It usually just means that they're trading money for something else that they want.

You wouldn't assume that buying a car is altruistic, so why would you assume that making an employment choice that gets me something I want in return for less money is altruistic? (Yes, buying a car can be altruistic.)

I think you misunderstand altruism. And no, he's not wrong.

Since altruism is itself a value, it's erroneous to say that altruism requires a person to not work for things they value. So, whether or not academics are working for things they value has nothing to do with altruism.

Altruism is primarily about whether your motivations are driven by the welfare of others, or by the welfare of yourself. If you are motivated by the welfare of others -- if, as Bertrand Russell once said, once you find yourself thinking about human suffering, you find it difficult to think about anything else, and if you then decide to work on alleviating the suffering of others -- then you are acting altruistically.

Someone who makes the conscious decision between a lucrative career and a career in academia, and chooses academia in order to advance the field of their choice, even though they expect to make less money for themselves, is making an altruistic decision.

Your original reply said, "Never confuse non-monetary rewards for no rewards." That has nothing to do with altruism. It doesn't matter if a person is receiving a "non-monetary reward", in the form of a sense of fulfillment, or in satisfaction.

If a person chooses to do something which will benefit others, and not themselves, they are acting altruistically.

Now, I happen to think that a person can be selfish and still be altruistic, because of the non-monetary rewards you're alluding to. I am self-interested in improving the lives of the people around me, so, although my actions are altruistic, it still benefits me in a sense. But, that's not a very popular way of looking at it; by definition, when people talk about "benefits" and "costs" associated with altruism, they're talking about things like money or physical health. So, again: if your actions cost you money and benefit others, then you are acting altruistically. I would say that choosing a life of academia fits that rather nicely.

By the way, you and I have gone 'round about this subject not all that long ago (http://news.ycombinator.com/item?id=2695906). Your "envy driven versus greed driven" argument is still one of the most peculiar things I've ever heard in this subject, so I don't expect you to agree with what I'm saying.

> I think you misunderstand altruism.

Let's see if we disagree.

> Altruism is primarily about whether your motivations are driven by the welfare of others, or by the welfare of yourself.

That's basically what I said, so I'm not wrong about altruism.

The remaining question is whether folks who don't appear to maximize their expected monetary return are typically altruistic.

Consider an econ professor vs a strategist at a hedge fund. The econ professor has a much less stressful life. She's got interaction with students, etc. Some people value those things more than they do the chance at an extra $500k/year.

> "Never confuse non-monetary rewards for no rewards." That has nothing to do with altruism. It doesn't matter if a person is receiving a "non-monetary reward", in the form of a sense of fulfillment, or in satisfaction.

The claim was that folks who aren't receiving monetary rewards are necessarily/mostly altruistic.

I pointed out that they're often receiving non-monetary rewards.

It's not clear whether you're saying that someone who does something for non-monetary rewards is being altruistic, but if you are, you're wrong. (Consider working for apples, or so you can live some place that you like.)

> Your "envy driven versus greed driven" argument is still one of the most peculiar things

What's odd about it? People who are concerned about how they're doing relative to other people behave differently than people who are concerned solely about how they're doing.

Yes, it's possible to "implement" greed by taking from others, but that's seen as bad. For the envious, that's seen as good.

She seems to have combined a few separate gripes into one large rant.

The main issue (as I read it) was that the "YC system" has attracted people that are only there for a quick exit and a pile of cash. She wants more of those brilliant graduates of Stanford, Harvard and Yale to make the world a better place instead of cloning Groupon for a fast buck.

It would be nice, but it's probably a bit too idealistic for the real world.

Actually a lot of these people making a fast buck are moving on to the big companies with a stack of experience behind them where they are doing things that effect a lot of people.

Looking at the choices my peers made, a substantial proportion of Harvard/Stanford/Yale grads will opt for the most foolproof, lucrative career available. It used to be investment banking, consulting, or law school, but with those industries under pressure their seems to be a turn towards rolling the die in an entrepreneurial setting.

I certainly don't think most students these days consider an elite education carries an obligation to make the world a better place.

I guess I don't understand your meaning that "she's not clear in her own mind." I took it as you saying that she doesn't really know what she thinks. Did you mean that you thought her argument was intellectually inconsistent ... or something else?

You say clone, I say refined. You say derivate, I say enhanced. etc.

Sure, on the surface most things are clones or derivate in nature, but that's just the surface. Is the iPhone just another phone? Is OSX just another operating system? Is MongoDB just another database?

Well sure, they are, but a "solved problem" doesn't mean we should just call it a day and pack up. If we did I'd be writing this comment on my Window 3.1 "super computer" :)

I confess the exit-focus has always been disenchanting. I'm not a founder myself, but it always seemed to me a founder who starts a company with his eye on the door is a bit disingenuous compared to a founder who starts a company for... well, the company's own sake. Ref. Ford, Standard Oil, every hugely successful company from a handful of decades ago.

The only thing that really troubles me about exit-focus, to be honest, is the extent to which "a successful exit" can sometimes be conflated with "a successful track record." This definitely happens, and not just in the Bay Area. It's true that the ability to take a company from nothing to exit, and the ability to take a company from nothing to success in the marketplace, are correlated to a degree. Maybe even a large degree. Those skill sets overlap. But they're not perfectly correlated, and sometimes spectacularly not.

Achieving a successful exit is really hard and the vast majority of startups fail to do it. If someone has done it more than once they have demonstrated that they are exceptionally skilled at this game.

Your point does not address what you replied to. Your parent was pointing out that skill at exiting is not necessarily the same as skill at marketplace success, as an exit does not necessarily equate to marketplace success.

He said that multiple exits should not constitute "a successful track record" which is ridiculous. Such a founder is a rockstar and should be courted by all investors.

"He said that multiple exits should not constitute "a successful track record" which is ridiculous..."

First of all, I did not say that. I think you're pretty consistently misreading me here.

When I used the phrase "successful track record," I was pretty clearly talking about a record of success in the marketplace, i.e., a thriving company whose product(s) is not just being used, but earning sustainably growing revenue and traction beyond initial interest or buzz, and over a long-term period.

My entire point was that a record of multiple exits is to be commended, and is certainly what attracts investor confidence (for good reason!) -- but it can be conflated with in-market/company success, which can be dangerous.

The two things are correlated, and they're similar, but they're not identical.

The set of people who can take a company from 0 to 100 doesn't necessarily overlap much with the set of people who can manage it well at that point.

I might be missing obvious examples, but I can't actually think of top-tier examples of a founder taking the company from 0 to 100, turning it over to new management, and leaving, with the results being a great, long-lasting tech company. At least, I can't think of any that produced companies with impact on par with the founders-stay-for-the-long-haul companies: Microsoft, Intel, Sun, Google, Dell, nVidia, etc. Apple is an almost-example; both founders were gone in less than a decade, but the general consensus seems to be that the post-founder management didn't run it well.

It's hard to imagine counterfactuals properly, but I can't imagine any of those turning out better if the founders had left within, say, a 5-7-yr exit timeframe. An Intel where Gordon Moore checks out in 1975? Or, a Google where the founders retired post-IPO, around 2004-05?

Cisco?

I think you're correct that the best companies are those with founders who can both 'found' and manage, but is that a cause or effect?

Yeah, the piece she seems to be missing is that it is sometimes hard to tell what will be a game changer in the long run when it first appears. (If it were easy, this would be a very different kind of industry!)

I think you're being a bit flippant here, dismissing out of hand a point that she's not making with some examples that are only tangentially relevant.

Google was "just" another search engine, sure. But it was far better than any of the other search engines out there. You can't say that of the groupon clones. They're all slightly different ways of doing Groupon, and none of them at this point look like they're offering any significant advantage over eachother. They may be more or less sustainable or profitable than Groupon, but they aren't game changers in the sense that Google was.

She wasn't complaining that startups have exits, she was complaining that startups are being designed around exits. None of the counter-examples you listed, nor any established company that anyone can name off hand, was designed for an exit. You can look at the guys who did <s>gmail</s> Google Maps* or Youtube and say yes, they got a good exit, but both companies were designed to do something new, and their exit followed from that. A lot of startups these days seem to be designed to show off design skills and the ability to write an app, rather than actually do something unique and useful.

Which brings me to your last point. Writing Basic interpreters for hobbyists wasn't trivial in the sense that the author meant. Finding a cupcake or sharing a photo is trivial: it doesn't much change anyone's life, and it's been done a thousand times before. It's trivial in the sense that a fart app for the iPhone is trivial. Microsoft's innovation was not that it could write basic interpreters, as people wrote basic interpreters for new architectures all the time. Their innovation was that they were an independent software firm who contracted their services out to hardware manufacturers. This is how they came to land the DOS contract with IBM that catapulted them to success. That innovation was as big as the innovation where someone first said, "why are we hosting this on a server in the basement? Why don't we throw it up on some server out there that doesn't care where we are or what device we're using to access it?"

If you look at any of the big tech companies around today, they got their start by doing something either a) no one had done before, or b) an order of magnitude better than anyone had ever done it. Most of the startups you see today don't make any effort at a) or b), but they are c) designed to be flipped in a talent acquisition. This is what the author was complaining about, and if you don't accept it as a legitimate criticism then you at least have to address her actual point.

*Edit: see response from protagonist_h

> guys who did gmail or Youtube and say yes, they got a good exit

as far as I know gmail was built at Google internally, it wasn't an acquired startup.

You are correct. I was thinking of Google Maps.

Just a little irony: gmail was created (at Google) by Paul Buchheit, who is now... a YC partner http://en.wikipedia.org/wiki/Paul_Buchheit

Google itself was focussed on doing something worthwhile - a significant factor in their success was they had a simple, clear homepage, that was just for search - instead of a portal, covered in distracting stuff. They didn't engage in pay-for-placements, so their search results were objective. They were fast (turns out people really value speed). And pagerank was somewhat better (I did comparisons at the time, and search quality was pretty similar - but google felt much better to use because of the other factors). The competing search engines were focussed on monetizing users, instead of doing something useful for them.

I think she's claiming that few startups are acting like google did. Yet, google would likely have succeeded as a YC startup, because YC emphasises "building something people want", as opposed to being driven by a business model.

YC is attempting to productize startups - to find the rules that maximize startup success. The experimental approach of "lean startups"; trying something fast, then iterating; pivoting all seem to be sensible, and seem to be working. But whenever you have rules, there's possibilities in a complex world that escape them - and that may be where the greatest breakthroughs are.

It's true that young people are less familiar with real-world problems (in general, not just in the third world) - yet, many game-changing startups seems to have been founded by young people: apple, microsoft, google etc.

Personally, I very much like the idea of changing the world, doing something valuable and not just to make money. Many entrepreneurs have advised that startups are so difficult that money isn't enough of a motivator to get you through. So, in that sense, I agree with her.

I think you're right on many counts. As far as YC is concerned, I want to emphasize that I have no problem with what they do. It's an engineer's approach to entrepreneurship: quantify, then scale. I get that. I respect it. What concerns me, however, is the broader market trend that it represents. Like any successful business, YC spawned copycats. YC alone has funded 316 companies, and the copycats have funded many more. At that scale, you simply aren't betting on world-changers. You're betting on flippers. Flippers are your bread and butter; they're what keep the incubators going. It's the $20MM acquisitions that keep you going for the next round, and that make kids rich.

Here on HN we see a fair number of stories of the form, "We demo'd as x, pivoted to y, and sold to z for $25MM 18 months later. Here's how." I'm happy for the founders' success, and I'm happy for YC's success, but it all seems so...shallow. There's no substance there. Granted, those involved in the deal would likely disagree, but it feels like the commoditization of startups have cheapened them and changed the motivations of founders. The trend I see is a broad one and not limited to one company or YC as a whole, but the ecosystem in general. It just leaves a bad taste in my mouth.

If we view "flipping" as simply big companies paying for features and/or people that they would have spent more time and/or money building themselves, then why is this bad? Seems more sensible than the offshore outsourcing model that big companies have tried previously.

I don't think you need to worry.

In the bigger picture, there are many more startups than there used to be (and therefore more "deep" ones, in absolute terms). It's partly due to the cheapness of the technology, though there's also been a social/economic/political shift away from the paternal corporation; and YC itself also definitely helps. Even if most of the startups are shallow (I'm not convinced that's true, but just for the purposes of argument), I think that there are now more "deep" startups than there used to be.

As for the startups that don't eventually hit on a real problem to solve, or somehow don't manage to execute, or get blinded-sided by a competitor or otherwise luck out - is it really worse for society that they do this, instead of working at a law firm, or merchant bank, or financial analyst etc? Might they not learn something valuable, that will later benefit society? Can you imagine better training, for initiative, getting things done, working with others, exercising self-discipline than a startup?

But I think the bottom line is that if they are getting $25MM payouts, then that shows that our market society is valuing what they're doing. Now, possibly the acquirers are wrong; but that is a fault of our society, not of the startups. And if the acquirers are wrong, it will likely be corrected before long. And, if it isn't, we economically we will be overtaken by a society with healthier, more grounded values - perhaps China. The problem is with "what buyers want", not with the startups who make it.

BTW: I totally prefer meaningful startups - both in a technical sense, and in a making things better sense. (e.g. HP put making money as a means to fund technical contribution; and it worked out well for them.) I think that ultimately they will have the greater success, so I think it will all work out in the end.

At that scale, you simply aren't betting on world-changers. You're betting on flippers. Flippers are your bread and butter

That's false. Effectively all our returns come from the big successes. HR acquisition valuations are rounding error by comparison. Which is why for example when I recently estimated the total value of all the companies we'd funded, I ignored the bottom 90%.

At a 6% stake, even a $15MM acquisition leaves you with $900k, or enough money to fund 50 new startups (almost a full YC round). Are you saying these acquisitions have little to no impact on your bottom line?

Companies won't pay 15m for HR acquisitions. Try 3-5.

But yes, statistically, even 15m exits don't affect our returns much.

(Your hypothetical case is also off, because you forget dilution and operating expenses. A 15m acquisition would fund less than a third of a batch.)

People also need to realize that Y Combinator is really just a monetization of Paul Grahams blog that he has worked very hard at for over a decade. There haven't been any serious companies (or acquisitions) created through YC as yet. What's the most successful YC company? reddit/hackernews -- which is either an extension of Paul's blog or a digg/slashdot clone depending on how you look at it, and either way, a content delivery website.

What Y Combinator has been successful at is attracting money to Y Combinator -- in other words, banking on Paul's reputation established through his long-running blog.

Founders nowadays think about selling about as much, and in about the same way, as they always have. But it's meaningless talking about startups being "designed to flip" because you'd do the same things regardless of whether you wanted to sell early or keep working on the company for the rest of your life: you have to make something great and thereby get rapid user growth.

Ironically, the only externally visible sign that a startup's founders are hoping to sell early is when they don't do something she attacks founders for doing: raising a lot of money. Raising series A from a VC fund means ruling out an early, small acquisition, so founders who want to keep that option open try to raise as little money as possible.

Editing your post to say something entirely different after I've written a rebuttal to it but before I've posted it is cheating ;)

So there's three main methodologies I see at play in the startup world. There's the go-big-go-home crowd, the facebooks and groupons and squares and so forth. There's the ramen profitable crowd that operate like typical small businesses: the fog creeks and the like. Then there's the flippers.

We all know the story of the Go Big or Go Home guys; they've been a part of the SV psyche for decades. Similarly, the ramen profitables/small businesses are pretty standard. My uncle started a small game development house about a decade ago that makes FPS training programs for service rigs in the oil industry.[1] It's a new take on a very old business model, and while they make a very comfortable living they're under no illusions of a $40MM buyout. They expect to be doing roughly the same thing ten years from now that they were ten years ago.

Compare the above with flippers. We have founders who come up with an idea for a cool, if maybe gimmicky app. They build it; it's flashy and does something interesting. They iterate, pivot, and find a userbase. Then they sell to Google/Apple/Microsoft/whoever. Now, there's nothing wrong with this per se. The issue that the author and I both have is that this appears to have been the plan all along. There appears to be no desire on the part of the founders to build a business, rather they're spending a couple years on a fancy tech demo in the hopes of landing a sweet job with a fat signing bonus. It's almost like a practicum as opposed to a business, something that you do for a few years after college so you can get a better job. The defining question for me is this: how many of the founders would be happy if in 10 years their company had experienced healthy growth and they had 15-30 employees, taking home $300k/year? Alternatively, how many are shooting for an IPO and a company that will still be around in 50 years?

I'm not saying flipping a small startup is a bad idea, just that it feels a bit disingenuous to call these ventures businesses. They feel more like a graduate degree combined with an innovative investment engine. And, while I understand why you took umbrage at the author singling out YC, these ventures are exactly the kinds of startups that YC churns out.

[1]Shout out: http://cooleimmersive.com/

I think you have a misunderstanding of why people invest.

There is no correlation between the type of business and the willingness of the founders to sell out quick vs ride it for the long haul, assuming in each case the founders are equally rational.

There is however a difference in aptitude for running an early stage startup and building a business that will pay you $300K per year. Many times the founders intend to do this but fail b/c it's not their strength. Let's face it, a lot of success has to do with timing and luck.

This is where something like YC is hugely valuable. You're working with seasoned entrepreneurs who can help avoid common pitfalls (which looks like luck) and funding is also more readily available so you're less likely to make a decision out of financial desperation.

I think you have a bit of blindness (no offense) in your argument to the way that market forces dictate what the right decision is. Given equally rational and equally risk-hungry decision makers, the decision to be acquired vs sticking it out is not often ambiguous. To argue that it's a matter of the individual psyche is I think fairly silly and overly focused on the personality/pr aspect of startups than on economic reality.

I think you're reading my argument as something it's not. I'm not saying that the current model is in any way bucking market forces, quite the opposite. I'm saying that the current model of entrepreneurship seems to be focussed more on a quick ROI/liquidity event rather than innovation or business-building. That in itself is not bad. My complaint, which I think the author is hinting at as well, is that this model of startup is far more "credit swap" than "mom and pop". It is, as she said, a commoditization of entrepreneurship.

YC, while invaluable for founders, is also an investment vessel factory, and the economic model it embodies shares much more in common with the kinds of financial products we see from Wall Street than traditional venture capitalism. Yuri Milner's offer of $100k to each YC graduate embodies this. It's a scattergun approach that, while likely profitable, incentivizes flipping over innovating.

This sentiment is an insult to the hard work, blood, sweat, and tears that my YC friends and colleagues put in every single day.

YC is made up of brilliant, hard working hackers, designers and hustlers who are trying to change the world through building disruptive software. It's never been about flipping. It has _always_ been about making something people want.

Once you make something people want (which IS none other than innovation), only then do you have the optionality of selling or doubling down. This argument is utterly confused. In so many words: You can't flip something that isn't actually innovative. Because nobody will want it.

Not intended to be an insult, although it's nice of you to go ahead and downvote every comment I made on this thread. Perhaps instead of taking a criticism of the industry as a personal insult (and reacting in kind), you could look at the meat of what I'm saying and address those points?

Edit: Sorry, not just every post in this thread, but every post I've made today. Wow. Way to represent YC. Stay classy, man.

I think you're being oversensitive, especially given that redthrowaway was responding to a comment which said, in part:

"There is however a difference in aptitude for running an early stage startup and building a business that will pay you $300K per year."

...which, at your level of sensitivity, is extremely insulting to the rather large number of people that own and manage the many small businesses that society relies on.

Any angel investor or VC firm resembles wall street. As I'll explain, this is a meaningless assertion:

- Suppose there is high risk. Any investor, whether it's an angel, VC firm, hedge fund, etc., is going to very likely use a scattergun approach. That's just how the numbers must work when you're looking at high risk investments. An exception means that someone got lucky.

- Take a mom and pop business. Suppose it needs capital. The typical approach is to get a bank loan. This is similar to selling shares to a VC but with different terms and a different distribution of risk. Just because something like a farm lends itself to loans and something like a video game for the iPhone lends itself to VC funding doesn't mean that the two businesses are fundamentally different, just that the cash flow and risk result in a slightly different form of cooperation between the individual(s) and the financial firm.

- "Traditional venture capitalism" was simply a more risk-averse type of financial firm. They let angels take the big risks and reap the big rewards and settled for bets that looked more like a sure thing (but still riskier than would have made it suitable for other forms of funding).

- I don't think you have made the case that any of this incentivizes flipping, or that flipping is "bad". I'd argue that to the extent that firms exist b/c they can be flipped, that is innovation that would not have happened if the financial structures didn't exist to match investment dollars with innovation and entrepreneurship -- startups get acquired because an acquisition offers better value and/or lower risk to the acquiring firm than trying to develop the equivalent thing in-house. If you're stretching this into an analogy about elaborate financial instruments, I think it's quite a stretch.

I think that what you're actually seeing is a bit of a credit bubble around startups that resulted from the destruction of many of the risky (but well known) wealth creation instruments that Wall Street had been using. Of course, more investment means another "layer" of startups will exist with another "layer" of risk characteristics. Yes this is similar to wall street, but it's a consequence of the basic laws of economics and nothing else.

when did something great need rapid user growth? Investors often require that to make a return, but does that define that you've made something great? Random example plastic logic, no customer growth, raised ~£1B, will plastic electronics technology change the world more than any Valley based company to date, who knows, but it has a damn good shot at making an entire new industry. They might not succeed as a company, but as an idea they are making something astonishing.

> ...and thereby get rapid user growth.

Only for a small subset of businesses.

(Usually, the ones that investors are most interested in, because it's where they're more likely to make more money.)

> Founders nowadays think about selling about as much, and in about the same way, as they always have.

Is there evidence for this? I get the impression that HP, IBM, Apple, Microsoft, Adobe, Sony etc didn't think about exiting as much (of course, selection bias). Though Xerox and Google did try to get bought.

I don't think that short-term vs. long-term motivations encourage precisely the same behaviour.

I also don't really see the investors pushing startups which could be 5-10 year IPO-track big successes into early exits. An IPO or even late-stage M&A into a very related company (e.g. Mint's "takeover" of Intuit...) is really different from a 6-12mo flip talent acquisition, but both are called "exits".

If anything, investors want the moon shots more than most founders do.

She is simply suggesting that startups today aren't working on anything important. I somewhat agree with the article.

A criticism like this is difficult for tech-minded nerds to accept, since "importance" is a fuzzy concept lacking clearly definable metrics. But we can test it this way: Pretend a company disappears tomorrow without any warning at all. Do you care? If not, whatever it is that they do isn't very important. I think it's fair to say that those groupon clones and photo sharing apps wouldn't be missed.

I don't know what "important" is, but I know it when I (don't) see it.

Startups aren't working on anything important these days. It's true. But that's mainly a factor of the economy. The economy isn't doing well and there isn't enough confidence to invest in things that might do something important (read: last over time).

Stupid YC companies with all their stupid IPOs.

At a BBQ last week with a group of Y Combinator graduates, the conversation went predictably back and fourth, sounding something like this: What batch were you in? How many times did you pivot? How much did you raise? From who? How many users have you got now? What’s your growth rate? Who’s going to acquire you? It’s never about the technology or impact it’s having, it’s about the game of entrepreneurship; getting users, funding and exiting as quickly as you can.

Normal people call this "talking shop". Get a bunch of doctors together sometime and see if they're talking about changing the world.

I believe her point was that she expected to hear tech entrepreneurs "talking shop" about tech, rather than about "entrepreneurship".

To follow your analogy, it's as if you heard a bunch of doctors discussing how many patients they had last week, instead of interesting cases among those patients.

I don't live anywhere near the Valley nor am I an entrepreneur, so I can't either agree or disagree with her points, but I confess that I would've had similar expectations in her place.

Yes. I'm saying: you're more likely to hear them talking about patient numbers, or bitching about billing systems or medicare reimbursements.

You might hear them complaining about medicare reimbursement, because that's (sadly) part of the daily life of a doctor. You don't often hear them talking about Kaiser's quarterly revenue numbers, or who gave whom a loan to go to medical school, or how Stanford is totally dominating the regional market for organ transplants (or whatever).

I know a lot of doctors, and a lot of entrepreneurs, and I'll take the medical shop-talk any day of the week, because doctors are primarily interested in medicine, not business. It's unique and refreshing when you meet an entrepreneur who is primarily interested in something other than money.

These 'tech people' are trying to run and grow businesses. Everything mentioned in the GP is relevant to that so I'm surprised that she (and you) would think differently.

I dont know. These are business people even if they are in the tech business. So I would not be really surprised to hear them talk that sort of stuff.

Hey, maybe the OP isn't exactly the most informed. But you can't argue that Tim O'Reilly doesn't know what the Valley is all about. And he's said some similar things.

http://news.cnet.com/8301-13577_3-10045321-36.html

If I can "pivot" this discussion a little... as part of my job I've interacted a lot with Ward Cunningham, who invented wikis, helped invent Agile methodology, started people talking about design patterns, etc. This guy didn't exactly do any market research when he invented the wiki. He didn't throw up a landing page with a coming soon graphic. He didn't validate the concept with Google Ads. He didn't impress investors, or even customers. In fact it's likely that no one would have ever invested in the concept.

He created something that, based on his experience and judgment, that he thought users needed. Turns out he was right.

Maybe this kind of inspiration isn't productizable, which is why SV shies away from it. But is there no room for this sort of thinking? Even Google began in an academic environment, not in the business world. It seems to me that entrepreneur-thinking can get you only so far. Every really successful entrepreneur I know -- and I know a fairly high number -- has been a little bit crazy, and had ambitions far beyond monetization. Some of them ended up making a lot of money almost by accident.

In our time, the hackers rebelled against the suits and are now running their own companies. A magnificent achievement. But is it going to be the final irony, that hackers are now going to think and act like suits?

http://www.flickr.com/photos/caterina/158124358/

Gates, Jobs, Ballmer and Wozniak were supposedly rebels against Big Blue. So, history repeats.

Perhaps I did not explain my point clearly enough. Gates, Jobs, and Ballmer are all businesspeople. Only Woz is the kind of engineer I was discussing.

But... but they're the nerds who triumphed! The pirates of Silicon Valley! This messes up my hagiography in all sorts of ways!

This article raises a lot of interesting, disquieting thoughts about the Valley and its startup/VC culture. But change isn't going to come from within, because there is no present incentive for change. Why should VCs stop pushing for quick acquisitions and exits, when they're making damned good money on those exits? Why should founders want to stray from the prevailing model, when the prevailing model minimizes their risk and increases their chances of big paydays (not to mention repeat performances)? In a lot of ways, today's system seems to be working remarkably well for its participants on both sides of the equation. Arguably better than previous iterations of Valley culture and systems have.

It seems reasonable to hypothesize that the system is designed to reward its participants, and perhaps even at the expense of users or the "greater good" -- however narrowly or broadly we want to define that term. But this is just a hypothesis until we can substantiate it. Are there other regions, within and without the US, breaking SV's stranglehold on game-changing innovation? Has a competitive innovation-generating model arisen to challenge, if not shake up, the SV model? It's almost impossible to measure the success of SV's "greater good" on absolute terms, and as such, we must search for relativistic points of comparison. Measuring SV today versus What SV Could Be is fruitless without a tangible example of the latter, or else a prescriptive model of some sort.

How about starting something like YC, but adapted for and conducted in emerging markets?

If you look at robotics(which is probably a game changing field as the PC or more), Boston is a big robotics cluster , Pittsburgh is another. silicon valley is definitely not a robotics leader.

this is mostly because the best robotics labs are in that area (MIT and CMU) and guys like Rodney Brooks and Hans Moravec live in that area.

Most of the time, game changers don't look like game changers when they first start. So they're often dismissed as being trivial. It's true for anything that we depend upon today. cars, radio, tv, computers, internet, social networks, twitter, etc.

Most people, investors (and myself) included, are also not the most imaginative bunch. You can't hope to raise money from things that are more than one hop away from things that they know.

And lastly, innovation from a startup's perspective, is almost never a brilliant flash of insight. It's usually a gradual iterative process of discovery and learning that looks like a brilliant flash of insight in hindsight, especially to people re-telling the story. Everyone wants to hear about what was going on when the meteoric rise was happening (relatively short time), as opposed to all the time spent laying the ground work and exploration and deadends beforehand (relatively long time). You can only hope to do iterative discovery before breaking the ground somewhere. What the author complains about lack of innovation is really just what innovation looks like on the ground--feeling around in the dark. You have a better chance of finding something if you work from where you know, rather than just taking a giant hop. And really, innovation is never immediately obvious. It usually is just an inkling--a tickle.

On a macro level, innovation has flashes in the number of people that are working on it. Lots of people are doing groupon "clones" because it's still an area where variants are to be explored. If you think about us as a colony of ants, we're all looking for food (ideas), and once we find some, we'll exhaust that before looking for more. Where there is food is likely to be more food. It's not exactly a bad strategy.

Just because you can't tell what a game changer is in advance -- and that you might even consider it trivial at first -- doesn't mean that you can't tell what is geniunely trivial too.

"The problem is that it’s all about the money; it creates emphasis on Y Combinator startups to quickly exit or IPO."

This sentence makes no logical sense, quick exits and IPO's are the antithesis of one another - there has to be an emphasis on one or the other, not both. It's based on a false premise anyway, the Start Fund has had no impact on how founders choose to run their companies. Since she's talking about investor incentives, I presume she thinks there's an emphasis on IPOs. If this were true, it'd directly contradict her argument, I struggle to think of any world changing companies that didn't IPO.

"organizations like Y Combinator attempt to marginalize, commoditize or manufacture a process that is inherently risky."

I'm not sure how we marginalize the process. Perhaps she should have asked some YC founders whether we've ever presented the startup process as anything other than the brutal, risky slog that it is.

I was at the barbecue and can say that she took some license with the conversations there. I (and others I've asked) didn't hear anyone asking who was going to acquire x company, etc.

The entire article comes off as condescending and self righteous. The suggestion that your company isn't worthwhile if you're not solving 3rd world problems is absurd. As is the notion that founders who are in it to make money are misguided. This sort of thing is typically said by someone with money - in this case a VC.

Why was she at this bbq?

I was at the BBQ as well. I didn't realize it at first, because the BBQ she describes is completely different from the BBQ I attended. I'm so perplexed, it leaves me wondering if this is ethical journalism.

"At a BBQ last week with a group of Y Combinator graduates, the conversation went predictably back and forth, sounding something like this: What batch were you in? How many times did you pivot? How much did you raise? From who? How many users have you got now? What’s your growth rate? Who’s going to acquire you? It’s never about the technology or impact it’s having, it’s about the game of entrepreneurship; getting users, funding and exiting as quickly as you can."

Sigh. Another inconsistency. Asking how many users you have is another way of asking what impact you're having.

A company's having many users/customers is a type of impact, yes.

She said "real world" not "3rd world", which certainly adds different context.

To be fair, Silicon Valley "lean startups" can't get into many of the markets that are out there.

For instance, I know some folks who'd like to build a new kind of nuclear reactor that uses molten Thorium salt as a fuel. The kind of system could produce all the energy you use in your life with a ball of Thorium that you could hold between two fingers.

It would probably cost these guys $500M just to fill out the paperwork to build a test reactor... Even Silicon Valley investors don't want to spend that much cash. if you think the RIAA is bad just try the NRC.

There is a fairly deep difference between a software startup and a 'hardware' startup. The fundamental difference - IMO - is the 'get off the ground' capital.

Non-labor initial outlay for some hackers to build a software system is well under 100K.

To put together a chemistry lab takes well over 100K (or so I have been informed). Imagine having to spend 100K just to have a spot where people can work.

Those costs of course start to spiral heavily upwards as you get more and more high-tech in your hardware. Then, if you're setting up startups for the hardware world, what's the ExpectedValue of your ROI. Batting average ain't going to be great. So the incentives are skew compared to the software world.

That said, I'd love to be involved in the software side of nuclear energy. Among other things, you can't rely on your memory as a given, since it is more prone to corruption.

Boulderdash. It completely depends on the kind of software system you are building. Do you need formal methods? Do you need complicated mathematical tests? Do you perhaps need to acquire patents or 3rd party software? Extensive domain analysis can take months, even years. Complicated systems can take years to design, implement and deploy.

It all depends on what you are making. So far, the startup world seems to be in a goldrush with devestating results (both for investors, as well as participants). The article is right: why are these developers not making better simulation software? Why are they not creating the next iteration of mission critical control systems? Two words: gold rush.

So, if you talk about 'a software system', you should specify the bounds. Failing to do this, I have no choice but to diagnose you with yet another case of Silicon Valley gold fever.

Who, me? I don't even live within a day's hard drive of California.

you can't rely on your memory as a given

Oh, it gets even more exciting than that. You can't always even rely on your computations, let alone your memory!

http://en.wikipedia.org/wiki/Radiation_hardening#Radiation-h...

I think most computers in nuclear energy applications are going to be installed well away from places with significant radiation fields. Most things that are close to the reactor are going to have a multiplexing or demultiplexing role and can probably be better implement with programmable logic controllers.

consumers in the USA clearly want to play Angry Birds, whereas in some African countries consumers are more likely to be searching for their nearest Malaria drugs clinic.

Yes malaria is a huge problem in some African countries, but in case some Rovio staffmember reads that and suffers an existential crisis, here's an anecdote to make them feel better:

My 3 year old nephew loves Angry Birds, and got his nanny to play it with him. She was intrigued by it, and started learning how to use a mouse, launch Chrome, and launch and play Angry Birds. This is a 30 year old black South African woman from a rural area, with no prior experience of computers, who was forced to leave school in Grade 9, because of a lack of funds, who began learning a new skill. Will she pursue it? I don't know. Will she encourage her own children to become computer literate, maybe buying a cheap computer for her children to play with? Quite possibly. But it wasn't some World Bank funded outreach program that got her using a computer, it was Angry Birds.

If you credit yourself with being able to identify "game changers" among early stage startups, then you're crediting yourself with more wisdom than the VC community. Even VCs acknowledge that they are wrong a large percentage of the time.

Yes. If she's right, she's certainly better than me at picking winners. I thought Airbnb was a bad idea when we funded them.

Were they an "invest because they look like good people to invest in" choice then pg?

Yes. We funded them because we liked the founders.

" there’s only two, out of two hundred, I think are game changers. " -- 1% seems high to me, but it seems to surprise her.

AirBnb seems like a startup is getting significantly more success. Why this person considers them to be more innovative than many other startups however shows I think a bias towards selecting a winner after its already won. There are plenty of amazing, innovative startups in terms of their vision and technology that will ultimately fail. That's the nature of the business.

I think her problem is she just doesnt have the right deal flow, and doubt she has been part of or witnessed up close a game changer.

There are startups in the Valley that are working on microbial fuel cells, flow batteries, microwave radar, tumour selective drugs, computational photography, nano-controlled membranes for unprecedented efficient water purification, stream processing algorithms, optical computing, immersive UIs, gasification, robust computer vision, RF plasma lighting sources, novel financial transactions, high efficiency combustion engines, compressed air storage, green plastics, ML for genetic applications, next gen EDA for <25nm structures, and of course shoedazzle.

I think the issue is her dealflow and perspective. coming to SV for 6 months assuming you're going to see game changers when most VCs for 10 years dont is poor judgement.

This article makes a good point. The problem is not that startups are derivative or solving trivial problems. The problem is that the whole startup process has been manufactured and scaled to the point that it has lost its intrigue and stifled its innovation.

Apple, Google, and Microsoft were outsiders when they were startups. Current SV incubator teams are more like elite in-crowd communities, safe and insular.

Wrong, wrong, wrong. Nobody thought that Apple, Google or Microsoft would be game-changers when they were in the startup stage. When Apple and Microsoft were in the startup stage, their customers were hobbyists. When Google was in its startup stage, it was clear to everybody that they would never be anything more than a modest compliment to what Yahoo offered.

If every startups were to listen to this author, nothing would ever get done. We'd spend our lives trying to "change the world" without making the millions of incremental improvements that are necessary for the world-changing stuff to happen.

My point isn't to agree with the author that every company should try to be a game-changer. In fact, too many SV companies already think that they are game-changers before they've even launched anything. That's part of the problem.

My point is that when you have the startup process manufactured and replicated into a kind of meta-startup (like YC), at a certain point the goals of the founders become more about conforming to the community and impressing each other rather than creating a genuine product.

Obviously not all YC startups are like this, but any time something grows and scales, there is a danger of it losing its original purpose.

My goodness. You know what this means? This is essentially Peter Thiel's argument against college applied to startup incubators. Think about it- these incubators are giving startup folks aid and guidance that past generations of never had. This is essentially creating a new elite who instead of going to Harvard and getting a leg up, are going to YC and getting a leg up. In neither case are the kids scrapping together in a garage, driven only by their own vision and living hardscrabble until they can score their first angel investor.

Interesting thought, but there's a difference between an "elite" (who may or may not have earned what they have) and a meritocracy (who worked for what they have). Most people (except maybe the talentless children of billionaires) would probably agree that meritocracies are better.

I'm not saying that acolytes of YC do not deserve to be there. I'm just building on to the previous commenter's points about the creation of new Silicon Valley in-crowd communities. Now, I think this whole point is debatable- certainly incubated or otherwise guided (like YC alumni) startups are a minority of startups. And unoriginal, make-a-quick-buck startups can come from anywhere. I just think that maybe there is a point to be made that the road of startups is getting more and more structured and unofficially regimented, whether it is through an incubator, or just by a culture that promotes certain patterns to success. And with the guidance of groups such as YC or incubators, it's made more and more easy. But then perhaps that is about as valid a point as complaining that Stack Overflow (not to mention Google!) makes it quicker to solve programming problems these days, or that memory managed languages make developers lazy, or that not walking to school in 8-foot snow distorts the soul, and so on.

SV startups I've always felt are significantly less derivative than any other business that I've ever known.

99% (or whatever) of businesses started are another bank, Mediterranean restaurant, carpet cleaning company, franchise, etc. that are exact clones or nearly anyway of the same company in the next town over.

If by her scale there is no innovation in SV and YC then its just not happening anywhere.

She's just dealing with an unrealistic expectation of the speed and efficiency of innovation.

Coming to Silicon Valley and expressing dismay that the typical founder is single-mindedly focused on profits and liquidity events is a little like showing up at Rick's and expressing shock at all the gambling going on. It is all well and good to pass judgment on what you see, but what did you expect? Nothing fundamental has changed in SV over the years and the Valley has no need to justify itself.

Arbitrage vs Innovation - consider that startups that are using technology to make an existing market more efficient are profiting due to arbitrage of technology. Consider that startups that are using technology to create a new form of value are innovating.

Technology arbitrage is kinda boring, but can have big rewards. I imagine the profit distribution among these startups looks kinda bell curvish.

Technology innovation and commercialization is a different game - here you have a few big winners effectively creating new paradigms, followed by technologies that may add marginal value in a large number of markets.

Its part of any economy to have a mix of those who arbitrage and those who innovate. Silicon Valley is no different.. in fact, you could argue that the arbitrage plays are necessary to create the funding environment that can facilitate technology innovation. I find it a useful lens for understanding the startup infrastructure.

To further refine the lens, you can look at through the asset class that each startup is attempting to create (personal reputation, team, tech, users, profits, strategic value) - Elad Gil has a good blog on this http://blog.eladgil.com/2011/01/m-ladder-position-your-start....

So, I see what the author is saying, but really I think she is looking through the wrong lens. Funded innovation sits at the top of a complex economic ecosystem of interconnected, evolving pieces.

Are you saying "arbitrage" when you actually mean "incremental improvement"?

No, I was using the word in an economic context. Specifically the action of capturing value in one market with a technology that has been proven in another market. Groupon clones, Social game companies, etc

However, I believe incremental improvement is a fitness criteria of technology arbitrage.

An arbitrage trade is a risk free transaction that involves buying something at one price and then immediately selling it at a higher price. How does creating a Groupon clone fit into that model? How do you get from imitation to arbitrage?

Consider Groupon's tipping point sales model to be the innovation.

Groupon clones took a method known to work in one market, and applied them to new vertical and geographical markets before Groupon could. As far as the technology (in his case a promotion methodology) can be applied to the market, and as far as this can be predicted with some certainty, an arbitrage opportunity exists.

In my mind, yes, arbitrage is inherently a low-risk investment, but only when compared to the potential return of the investment.

This is also a problem for users, who sink time into supporting/using a service only to have it yanked out from underneath them.

Right now I'm averaging 5x daily deal emails per day. I can't stop subscribing fast enough.

The valley is very insular, and IMO it doesn't get out often enough. To make matters worse, any time I argue this with my friends in SF, they get very defensive. The valley is becoming the popular kid in school, for all of the wrong reasons.

The author seems to conflate YC with all Silicon Valley startups. This is clearly not the case and I would argue that if you are looking for big, world-changing ideas and only considering YC companies, you're looking in the wrong place.

Actually you should expect to find them disproportionately often at YC, because our structure (investing a small amount in a lot of startups) makes it in our interest to take the biggest risks.

That would be true if your investing structure were the only variable. I think Aloisius is talking about the YC culture. You have said that the idea doesn't matter nearly as much as the personalities of the founders. The implication is that founders are laborers with special skills who can produce a valuable commodity: start-ups.

As far as I can tell the founders' personalities are about the same as in the Valley generally. If there's a difference imparted by YC, it's that they're more confident. But confidence usually makes people more willing to take risks, not less.

Not always. I know many people whose "confidence" was predicated on success -- such as being accepted to Harvard, Y Combinator, medical school, whatever. As a result they felt compelled to be successful -- and ended up doing things like becoming a lawyer or selling their company for $1 million because they were too afraid of being "failures."

For the startups to be less of a commodity, perhaps you could look for some sort of unique perspective on the world that founders should have. It seems Google founders had a lot of that. This may not help with the returns though; maybe more money are there to be made from commodity startups than truly disruptive ones.

I'm playing devil's advocate here, but don't you think you're a bit biased? :-)

I mean, I bet James Gosling feels that Java is a disproportionately better programming language.

I came to the exact opposite conclusion - I figured the author probably just doesn't have access to the quality startups. It's very easy to meet hundreds of low quality startups in SV, but it would be a mistake to generalize that experience to the entire population of startups in SV.

You don't have to have access to startups, you can look at results. Maybe there are a bunch of stealth startups about to break through, but the only things the public hears about are groupon clones, photo sharing sites -- trivial apps with less of a business plan, less innovation, and less impact in the world than pets.com -- or biotech & green tech companies burning through massive government grants.

The last startup to have much impact was probably twitter, and there hasn't been much else before or since in recent years. Groupon is big now, but in a couple years it'll probably be sold for fractions of a cent on it's acquisition cost to someone who thinks the brand name and mostly defunct email list still have value.

isn't it really that web startups are "easy" and hard-tech startups (hardware, biotech, alt.en, pharma etc.) are...well, hard? (I mean this relatively speaking, of course) -- It takes close to zero education to sit down and create a product on the web (how many of us were building websites when we were 12? yup.) - hell, we're even now questioning the value of a college degree... To create Halcyon Molecular, on the other hand, you need world-class scientists culled from top universities with years or even decades of experience (never mind all the liquid capital you need). It's simply a different ballgame entirely. With this marked difference in entry requirements, of course the web-app startups outnumber the Halcyon's 1000 to 1. Is that a problem? Well, maybe. But is it a surprise? Absolutely not.

What I think the real problem is entrepreneurs who are primarily looking for money/recognition don't look for problems that need to be solved, they look for problems that can be solved. I would love to see more cross disciplinary startups instead of companies solving problems using purely software.

It's ironic, or whatever the word that we mean to say when we incorrectly say "ironic", that GroupOn started off as a "change the world" kind of thing (ThePoint) and then pivoted into "just" a trivial deals site. Also that it's a product of Chi-town, not SV.

Startups often seem like clones (of Groupon or whatever) when you only get the one-sentence explanation of what they do. But there's always a much deeper difference in goals, strategy and tactics when you get to know them. I don't know any Groupon clones. Groupon's operation is complex and subtle, and there are lots of related things that are also promising.

CityDeal was about as close as you can get to a full-on clone schlepped to another market. If the stories I've heard are to be believed, they actually sent people to become interns at Groupon to do reconnaissance. Granted, it was from the Samwers, who both are not Silicon Valley and are famous for cloning American startups. (They've done it with Airbnb now too.)

I think the Samwers are the exception that proves the rule, since their ventures seem explicitly designed as clones. The strategy is the same, it's just been translated into German.

Maybe, in the same sense that Volkswagen is a clone of Ford. Adapting a successful idea to a new market is interesting and hard, and often results in new ideas.

This makes me think of ridiculous derivative startups like BankSimple. We've had banks for thousands of years. Why do we need another? Everyone knows Bank of America is innovating daily in retail banking, especially in customer service. Plus, think of everything subsistence farmers are doing with Windows Mobile phones!

Oh, wait.

@ChuckMcMm @sendos great points. i've been in sf for 5 years and can vouch for how much energy, resources, and passion is in this city. i've never seen so many happy people working away at their jobs, living the life as a san franciscan; paying crazy rent but living in a great city enjoying the pleasures it has to offer. i know this because i'm doing the same thing. it seems no matter where you go everyone is connected with their mobile devices, talking about the next start-up, using the next groupon clone's deal, eating/drinking at the local hip spots, etc.. etc.. the locals use the local goods. seems like it does not stop there. im connected to all the people + their followers, friends, etc. online, while im at work! people here get things done, and enjoy it too. PG recent article comes to mind..

the author forgets that silicon valley has connected people in a way that one cannot even begin to imagine. i think people are happier with their web apps, sharing tools, social networks, etc.. i feel the article makes good points, but to say the problem is with silicon valley is rubbish. its with humans. silicon valley has done nothing but changed peoples lives and continues to be the hub for new ideas.

Anyone who thinks there is no innovation or risk taking in the Valley, contact me. I can point you to tons of companies that are keeping the old traditions alive. Those on the leading edge always attract wannabes and pretenders when they succeed, and when the success is big enough the wannabes and pretenders can overwhelm those on the leading edge. That doesn't mean they've gone away, it just means you have to look a little harder to find them.

It’s all relative of course, but the problems facing well-educated young people in San Francisco are certainly different from that of entrepreneurs in emerging markets.

How about a program where entrepreneurs are given a chance to live and work in cities in emerging markets for 6 months? At the end of this time, they can submit an application for a startup in that market, and if accepted, receive another 3 months room and board and $16,000 in seed money.

Most people don't want to live in 3rd world countries.

Why do people expect programmers to be Jesus?

When doctors, plumbers, daycare workers, and bus drivers start targeting the 3rd world market I will too.

I'm getting really sick of all these bloggers telling other people to do something meaningful. Take your own advice before telling me to donate my life to charity.

Emerging markets are all 3rd world? Brazil is an emerging economy, would you rate it as a 3rd world country?

Don't dilute the point with your logical fallacies.

"Emerging market" is a euphemism for "developing country" which is a euphemism for "third world"

Brazil is technically part of the 3rd world.

I enjoy visiting poor countries as much as the next guy. But I don't want to raise my kids there or work there for very long. (Maybe as an adventure in my early 20s)

Like every other normal human, including Brazilians, I want to have a good life. As a highly educated, highly intelligent person born and raised in the 1st world, why should I sacrifice all the comforts and enjoyments of civilization that my ancestors worked so hard for to please some bored blogger?

Would Brazilians sacrifice for me? No. They don't give a fuck about me, and neither does this blogger lady. So I am unconvinced by all the appeals that I go work some unprofitable job in some shithole country because Silicon Valley isn't "exciting" enough.

"Emerging market" is a euphemism for "developing country" which is a euphemism for "third world"

Yes, but "is a euphemism for" isn't the same as just plain "is." For example, not everything that's a "convenience" is a toilet. That's a huge logical fallacy there. You use the exact same fallacy twice in an example of fallacious overreaching to an extent which is fortunately rare here.

As a highly educated, highly intelligent person born and raised in the 1st world, why should I sacrifice all the comforts and enjoyments of civilization that my ancestors worked so hard for to please some bored blogger?

You definitely shouldn't do it to please some bored blogger. Are you implying that's the only reason why anyone, ever would want to do it? You're probably not the one to go. No one's going to argue that. It would be pointless to argue that. In fact, I don't see a point to staking out the position in the first place.

It's also quite clear that there are people out there in the 1st world who would want to go.

I'm responding to the moral outrage of the original post about how SV is too concerned with making money and running businesses, and not concerned enough about the author's pet charities.

I'm not against charity work -- I'm against other people telling me to do charity work.

In 2010 Brazil had the world's 7th largest nominal GDP: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomin...

China is #2

in 1990 the USSR was #2

The GDP ranking is not how you determine this

I agree to a certain extent, but labeling Brazil as a third-world country and a "poor country" seems really off. How does one determine the "third world" label anyway? It is subjective.

> When doctors, plumbers, daycare workers, and bus drivers start targeting the 3rd world market I will too.

Doctors already do: WHO, Medicins sans frontiers etc. How do you think smallpox and polio were eliminated world-wide ? Now that is "changing the world".

People expect more of programmers (well, startups, really) because they can be extremely amazing at problem-solving -- when they bother to research a problem rather than assuming that they already know how to solve it, anyway.

The drive, intelligence, and creative ingenuity of startup founders, applied to Big World Problems, would be amazing.

If plumbers went around talking about "disrupting" water systems all the time, I'm pretty sure people would start asking them why they didn't do that in the countries that needed it most.

As an ignorant observer, I feel like the Silicon Valley has to avoid becoming Wall Street--billions of dollars given to geniuses to make a profit while filling an existing but trivial need that truly helps a small portion of the population.

Ugh, what a rancid, judgmental article. His arguments about changing the world are stale. The problems of a Silicon Valley person are quite different from the problems of someone in an emerging market, such as rent of like $3000/month, and so it makes no sense for someone in Silicon Valley to address an emerging market that has no chance of covering costs of living back home. The people in the emerging markets are quite capable of helping themselves, and don't need privileged, naive Americans to step in and show them how backwards they are (ironically, most other societies are more socially advanced, even if they are technologically backwards, and could teach the Americans how to actually achieve quality of life without technology). [And if you are going to step in, please read Schumacher's "Small is Beautiful", and pay attention to his arguments for intermediate technology (i.e., you don't dump differential equations on someone still learning algebra).]

If showing someone how to best locate the nearest cupcake shop makes customers happy, then that is a virtuous reason for a startup to exist. It is silly and judgmental to say that people are wasting their talents because they focus on the materialistic first-world problems rather than desperate emerging-world problems. It is about making customers happy, employees (and founders) happy, and investors happy. The question should be: are the founders actually happy doing the work they have chosen? If not, then it is a mistake.

Perhaps what the author is really trying to say is that people are focused on getting rich quick off trivial business plans, which will be easily commodotized, or will have hardly any market, causing failure and loss of the investor's money. There is some merit to this sentiment given some of the examples he gave.

I'm almost certain that is her ultimate angle.

I can personally relate to this perspective as someone who doesn't live in the valley but follows it very closely.

Ultimately I think what the author is trying to say is that there is a lot of "disgust" (I'm trying to use that term loosely) about the current problem solving that is being produced out of the valley. Is it a problem that I walked by an old friend at a restaurant and didn't realize we knew each other? Oh, there's an iPhone app for that!? There is a difference between satisfying a market and actually solving what is to be considered a real life problem. I do think the current nature of the valley is that of "Wouldn't it be cool if I could..." rather than "My life would be substantially better off if I could..." I suspect this is what she is trying to highlight.

So this begs the real question - what do we consider to be real life problems? For an upper class American a problem may be that you were unable to figure out the name of the last song played on the radio and for poor villagers in Africa it's having no access to water. Is solving one person's problem more advantageous than another?

I think there is a notion that there is a finite quantity of innovation, or rather innovators- and if the economic environment favors photo sharing apps and so on, most innovators would rather try to make a quick buck putting their efforts and using their skills to solve "first world problems." And so the ultimate condemnation is that smart people are wasting their resources on issues that are of less social value than issues in the less advantageous world.

The 'problems' described here are actually the mechanisms of why SV works.

Yes, there are lots 'me too' startups out there. However, in any thriving ecosystem there will be a trend toward replicating success, and rabid competition.

Furthermore, these startups don't represent the vision of where the founder wants to take the company, but just a miniature vs of the startup for what is possible today with the small amount of resources they have.

As these startups gain traction, their vision will expand, and their innovation will as well. Some will die off, and a few outliers will emerge. Not every company becomes Facebook or Google, it's logically impossible for every startup to be an outlier.

The article becomes a bit absurd when it makes the implication that entrepreneurs may settle for cheaper locales like Chile or Cabo (I just returned from the latter and trust me although it's beautiful it's anything but cheap). Success depends not only on the abundance of VCs but also the available talent pool, experienced attorneys, landlords who get it, accountants, etc.

One big thing the author overlooks is how first-world technologies tend to eventually "spill-over" into the third-world where they find their uses. Just look how Facebook and Twitter are bringing democracy to the Middle East. Yes, these things were created to solve problems of an American yuppie, but people in the poorer parts of the world find how to apply them to solve their problem. It's hard for an American entrepreneur to build a startup which solves problems of the developing world, because they are not exposed to those problems. You can only solve problems you understand.

Made me suspicious about her claim of other countries start-ups hub. I checked the Chile ones, and well, they are just poor.

I picked two start-ups randomly: Askbot (http://askbot.org) which is an awfully designed clone to StackOverFlow.

The other start-up I picked is AI Merchant (http://www.aimerchant.com/) which does commodities exchange in a lower abstraction level. The realization, however, is very poor. I prefer the Silicon Valley clones and crap.

Author makes some valid observations but misses something important.

Who's changing the real world today? People like Bill Gates, putting billions of dollars into the fight against malaria.

What process generated that wealth?

This author sounds to me like she wants Silicon Valley to entertain her.

She sees the valley not as a normal participant in the Western economy, but rather as some kind of vehicle for the creation of her utopia.

If you're going to condemn people for not sacrificing their lives for the Africans, why start with programmers?

When doctors, lawyers, plumbers, bus drivers, real estate agents, elementary school teachers, civil engineers, security guards, 7-11 owners, and bloggers stop trying to make money, I will too.

Right, and there are various startups in and out of Silicon Valley working on humanitarian projects. The funding model is quite different, based mostly on grants. That kind of funding is even more fickle than VC money, and nobody expects to get rich. The people I know in that sector have no problem recruiting talent if there's enough money to provide reasonably stable (but somewhat paltry) paychecks. Lots of people want to save the world, even geeks.

I want to exit so I can have enough money to not worry about if something I work on or come up with isn't 20 years ahead of it's time putting me in the poor house.

I worked in big corp thinking I could make a change but that didn't happen. Reached the top technically, and that was it.

So I can't blame these guys as I know some of them think like I do. However, like any good thing you can get caught up in it and forget why you started it in the first place.

I'm working on a startup (http://infostri.pe) that is way out side of SV and we feel it. I have no idea what it's like to be there in person but I imagine it would be a lot easier to meet, know and get interest from people if we were. Getting noticed as a super small (but tenacious) outsider to SV is.. difficult. That I do know.

> "But for every Airbnb and Udemy there are always more Netflix, Evernote and Spotify clones."

She clearly has not spent much time using or even understanding what the companies (Moki.tv, Noteleaf.com, or earbits.com) do... because those are not even close to clones.

> I’ve interviewed around two hundred startups and there’s only two, out of two hundred, I think are game changers.

Breaking news: only 1 in 100 startups will significantly change the world. Film at 11.

This is nothing unique to Silicon Valley. A hub of any kind attracts opportunists of all qualities and intentions without discrimination.

Some universities and clever ads have brainwashed non-technologists like Ms. Way into thinking that software do a lot of things that they do not really do. In some cases, the illusions are lies; in other cases, these folks are hoodwinked into believing that what software can do is done without much effort.

What SV needs to do is help the GDP go boom so they can chip in enough tax money to cover NASA's expenses for their groundbreaking discoveries. +1 if you agree!

Okay, I'll bite at this flame bait:

First, sorry to be 'sexist', but the pattern is far too strong to ignore: For some reason, maybe part of some of the old teachings and/or attitudes of the Roman Catholic church, heavily in Western culture women are supposed to want to dedicate their lives to 'saving the world'. A belief is that, if they dedicate their lives to saving the world, then the world will be obligated to save them and will. Indeed, it is common for such a woman to be 'married' more strongly to their church or saving the world than to their actual husband. That is, she is married to her husband but 'commits adultery' with her church or the whales.

Also, the women are supposed to regard money as something they are supposed not to be interested in. Indeed, a belief is that if they do have have money, then they will no longer deserve to be cared for by the world and, thus, will have a big net loss. In addition, there is a belief that any woman who does anything that results in making money is somehow doing something immoral and, thus, causing her, again, no longer deserving to be cared for by the world.

If the above points seem absurd to you, then I congratulate you on hearing these points finally now instead of later. I hate to say this, but basically on these points I'm standing on rock solid ground. Believe me, I came to understand these points only very slowly and reluctantly and at enormous cost. Let's not go into all it cost.

But, I can tell you, it's far too common for such a woman, with a loving husband, a house, three small children, busy at home, in a job, and at church, to attend a lecture on some need on the other side of the planet and, then, to give up everything to rush to the other side of the planet to address the need. One women I know even wrote a book about her effort along these lines, and I could, but won't, give you the author and title of the book.

I kid you not: A LOT of Western women are out to 'save the' world, whales, environment, polar bears, kitty cats, puppy dogs, poor people in countries X, Y, Z (mostly NOT their own countries), etc. E.g., even the movies understand as in the remark in the second 'Jurassic Park' movie: "80% women, Greenpeace".

So, she's out to save the world and is upset because SV is not.

Okay, now lets set aside her point about saving the world.

I'd make another point about 'finance': Yes, we would value a company based on 'discounted future cash flows'. But we nearly never have any way to know about cash flows very far into the future. So, net, a lot of financial evaluation is based on just the latest data, adjusted for 'variance'. Are the short term traders making a mistake? They are watching many times a second and will sell at the first evidence of a change in the status of the company and, thus, don't get caught when the price falls. If the cash flow indeed lasts, then the short term traders will again be doing the right things.

VCs and their entrepreneurs can't sell in a fraction of a second, but, still, a short term horizon for evaluation seems to be ground into pricing in finance.

So, that she is concerned about short term pricing is nearly inevitable.

Next, that there are clones for GroupOn is not an example of something silly about SV: Instead, GroupOn is quite obviously vulnerable to a different clone in each of Peoria, Paducah, and Pleasantville. Indeed, a clone in Peoria might have better connections with the businesses in Peoria and have an advantage. Net, the many clones of GroupOn are mostly due to what GroupOn is doing instead of SV.

So, why can GroupOn have such a high market capitalization? Because of the practice of pricing companies based only on very recent data.

I would have another objection about SV:

I can believe that the biomedical VCs know what they are doing. I believe that the 'problem sponsors' at NSF, NIH, DARPA, ONR, etc. know very well what they are doing. But for the information technology (IT) VCs, I ROFL and then crying. The incompetence is astounding, outrageous, off the wall, out of some Alice in Wonderland, beyond belief. Actually, YC is a grand exception: Most or all of the partners actually have some solid qualifications in IT. Otherwise, we're looking at history majors who got an MBA, worked in 'management consulting', 'development', 'marketing', analyzing stocks, and, thus, accumulated "deep domain knowledge". What a LAUGH: They don't know the first thing about IT, even the old stuff, and they have not a clue about evaluating things for the future.

What technical IT founder would want to hire one of these ignorant, arrogant blowhards? These blowhards are not qualified to do anything technical, teach a technical course in a university (or even high school), write a technical paper, review a technical paper, get a research grant, etc.

Again, at biomedical VC, NSF, NIH, DARPA, ONR, and YC, the situation is wildly different.

The non-technical situation in VC IT is so uniform that I have to look for a single cause, and my guess is that the situation is not due just to the VCs but to their LPs. It's very much as if some of the leading LPs wrote the criteria for each of seed, Series A, B, and C rounds on one side of a 3 x 5" card and insist that the VCs follow these criteria.

In particular, the criteria demand that the VCs just ignore the 'secret sauce'.

What to pay attention to?

Seed round: Look at the prototype software and estimate if many users will like it and give their 'eyeballs'.

Series A: Have the number of unique eyeballs per month at at least 100,000 and growing rapidly.

Series B: Have revenue growing rapidly.

Series C: Have earnings, and buy a chunk of the company based mostly just on the earnings and exit possibilities.

For any estimate of building a serious company, ignore that.

At an IT VC table, without YC, now tough to find an A. Viterbi or G. Moore on either side of the table.

That 3 x 5" card IT VC criteria explains the trivia she sees. On this point, I agree with her.

First, sorry to be 'sexist'

Apology not accepted. The over-200 that upvoted this are not all women; Tim O'Reilly is not woman.

We all agree with her assessment: that SV has become a place where people are not so much pushing the edges of technology but "innovating" new ways to make money with existing technology. The quotes are mine; that's not innovation.

Bob Marley once sang, "It's only machines that make man free." Progress is via expanded technology is a rising tide that will lift all boats. As computer scientists, it's our duty to explore what can be done, not what money can be made. It's our duty to expand the state of the technology, not the state of the industry. If you want to make money, be a dentist. If you want to innovate, get out of the valley, because it will corrupt you.

My remarks about women are dead on the center of the target. If you don't understand that, then I'm sorry: Read slowly and carefully and learn likely some very important information. The information could save a life, yours, some woman you know and/or love, and/or some children. NO JOKE. I very much know just what the heck I'm talking about, very unfortunately.

Sure, not all women are like I described, but some surprisingly large fraction are. I mentioned the Roman Catholic church as a source; review what you know about that church and add details for yourself. Sorry you didn't know those things about women. If you won't take this common wisdom from me, then take it from the writers of the second 'Jurassic Park' as I noted. The fraction of such women is so large that my description is a good candidate to explain what the author is saying. That is, she wants to 'save the world' and wants SV to do so also.

Deliberately refusing to understand women is foolish down to dangerous down to fatal. Literally. Do I have to give you names, circumstances, dates, and where the tomb stones are?

Just because some women are as I described does not mean that no men are. Okay, some men can be similar.

For your "duty", you are imagining things. You have no such 'duty' at all. None. Zip, zilch, zero. If following what that 'duty' would say is something you want to do, then go for it, but no one, neither you nor anyone else, should agree that you have a 'duty'. You have no such 'duty'.

For 'innovation', I've been there, done that, am doing it now. I'm doing a startup. I'm in NY, not SV, but I have a list of a dozen or so VCs in SV who are eager to see my software run and be ready for users.

Your claims of 'corruption' are out of some vulnerability to 'morality' plays, of some old claims that humans are evil, sinful, do transgressions, get retribution, and need redemption with sacrifice -- and now we will have the choir sing while we pass the offering plate. But I'm not "corrupted" at all. SV has done nothing to 'corrupt' me.

My 'innovation' is some original research in applied math with some theorems and proofs based on some advanced prerequisites in pure and applied math. Only a small fraction of university math profs have all the prerequisites; the fraction among computer science profs is much lower; the fraction among information technology entrepreneurs is still much lower, essentially at zip, zilch, and zero. So, my work is, if only being so rare, 'innovative'. It is also 'innovative' because it provides a new and powerful way for software to work with 'meaning' of quite general 'media content' as humans understand it although uses techniques much different than humans do. Maybe, if from my applied math and corresponding software my Web site becomes worth $150 billion from being by far the world's best at search, discovery, recommendation, subscription, and curation for about 2/3rds of the content on the Internet. then you will be convinced that my work is 'innovative'.

So it's fair for me to say I'm 'innovating'. So, SV has not kept me from 'innovating'. SV has not 'corrupted' me.

But absolutely, positively SV and VCs make no attempt to look at my research as part of evaluating the financial potential of my project. As I outlined, in biomedical VC, NSF, NIH, DARPA, ONR, etc., the situation is wildly different. And THAT is where I would criticize SV and VCs and agree with the article. I said that.

"Duty", "corrupt" -- you sound a bit 'moralistic'! Calm down. Cool off. Relax. Have a beer. Watch a movie.

For more on what's wrong with SV, it's not just the VCs who are not qualified compared with 'project sponsors' at NSF, NIH, DARPA, ONR and at the biomedical VCs; in addition the information technology (IT) entrepreneurs nearly never have the 'right stuff'. Sorry 'bout that.

As I've explained often enough, bluntly, frankly, 'computer science' is out'a gas and not the main path to the future of computing or IT entrepreneurship. Sorry 'bout that. For 'computer science', it's trivial down to junk think.

The bedrock and crucial content of the future of computing is from: Let me have the envelope please: Here is it: "Advanced pure and applied math.". Period. Sorry 'bout that.

E.g., at Stanford, f'get about the Computer Science department, look up D. Luenberger, and study, say,

David G. Luenberger, 'Optimization by Vector Space Methods', John Wiley and Sons, Inc., New York.

which is fun and profit mostly from the Hahn-Banach theorem.

Again, there is a fundamental problem: Only a tiny fraction of people can start really successful businesses. So, only a tiny fraction of people will know in good terms what the good directions are for the future. So, anyone with such understanding will necessarily be rarely understood and nearly always rejected.

For what is wrong with SV, I outlined it, but the details of my view are likely not widely shared. In particular, I doubt that the author of the article or many people upvoting this thread would say that the future of computing is much more in

David G. Luenberger, 'Optimization by Vector Space Methods', John Wiley and Sons, Inc., New York.

etc. than in computer science.

Right away, don't expect to accept what I'm saying easily. Still, rejection is dangerous: You have to consider very carefully because I might be right!

I disagree with your sexist views but I also can see that you've been hurt by a woman and I'm sorry for that. Let's leave it at that.

I'm writing because I couldn't agree more about this: 'computer science' is out'a gas and not the main path to the future of computing

The bedrock and crucial content of the future of computing is from ... "Advanced pure and applied math."

YES. I'm working on a software construction mechanism that's more about applied math than computer science. Hit me up with an email sometime. You're sexist and crazy (everyone decent is crazy) but you seem to be one of the few that actually get it and I'm impressed by that. I'm david927 at google mail.

just want to chime in real quick: she's a smart brit plus she's hawt.

right on!

i always believe in necessity being the mother of invention. a lot of what happens today is more synthetic and calculated seemingly: how fast can i grow this, it's not about how well i can build this to solve a problem, though building things well may be a driver of growth, it isnt the focal point for a few of these companies. the tofu example in the article was perfect although most likely fictional, but there are lots of these types of companies sprouting up.

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