The Instagram Effect: Causing Silicon Valley to fund the wrong companies?
gigaom.com
gigaom.com
This is what's known as the law of supply and demand, and isn't going to change. Sure I can start a business trying to sell salads because that's what people should be eating, but I'm not going to stay in business if people really want cheeseburgers and pizza.
This whole article also kind of points the finger at people in Silicon Valley and seems to say "Hey, you went to a good school and there are a lot of people around you with a lot of money. Why aren't you curing cancer?"
Two things- first, curing cancer is really fucking hard. Has the author of this article ever tried? Or is he assuming that some smart people somewhere else should be trying? I highly doubt that the guys behind Instagram are capable of curing cancer. So it's not as if for them it was interchangeable. It's also not as if the money that went to them would have resulted in a cure for cancer. To assume that it would have is to assume that there is somebody out there in SV going door-to-door trying to get funding for a cancer cure that would work.
Secondly, there is a lot of ongoing research in the "important" industries at Universities and research laboratories that do not rely on VC money. VC's couldn't afford to fund this research. It requires grants and donations on a massive scale. The simplicity behind this article is absurd.
Having spent some time in grad school foolishly believing that all biology needed was a sprinkle of math and a generous dollop of python skills, I think the problem is that in Computer Science we have problems that are sometimes insanely hard but due to the several layers of abstraction, are inherently rather deterministic and much less noisy than real-world systems. I think the best comprehensible example comes from the physical layer of most electronics where several of the modeling equations are naive approximations designed to work under specific conditions. The complexity becomes even more overwhelming when you look at biological systems: The nonlinearity especially in say genetic hacking becomes apparent when you realize that each tiny modification has so many unintended effects (making modeling in a computer environment especially difficult) which is why biologist go through the grind of running all those "boring" real world experiments in labs. I think there are quite a few research labs that are using data mining and machine learning techniques to try to solve problems but we are at most quality places well beyond needing "smart people with computer skills". After a while, fundamental research requires, like you said, money on a massive scale which VC's really can't afford.
No, a bunch of smart computer people won't solve problems that have flummoxed biologists for long. But a bunch of smart computer, biology, math, physics and chemistry people will. You are right in that ignoring bench work + domain knowledge and thinking one can come in write a bunch of programs and solve cancer is not only an insult but foolish.
Not all the problems have flummoxed biologists for long. The problem of sequencing improving faster than computers is a new one. And one where computer people can help. In fact modern sequencing techniques rely on computers to be viable.
Modelling phenotype from gene sequences and predicting possible drug interaction will become real soon.
Biology is complex yes but some of it is complexity introduced in an attempt to avoid difficult but simplifying concepts like non linear PDEs. Funny that you mention electronics. See what Yuri Lazebnik has to say about this. http://protein.bio.msu.ru/biokhimiya/contents/v69/pdf/bcm_14...
Computer people can help with tools, modelling, analysis and prediction.
1. Where the bio (in this case wildlife) people have extremely limited ideas about what happens during a simulation or modeling experiment, this leads to ridiculous attempts to say develop multi-agent models for hyena cooperation which if you read the paper make so many ridiculous assumptions that it doesn't really make sure what if any utility can be obtained as inferences from those models.
2. The other much more rarer situation where the bio people have a keen understanding of the basics of both C.S. and Math and are well aware of the limitations of what they are getting into. Such collaborations usually turn into using a C.S./Math (usually grad. student) person in order to delve deep into the technical specifics which the bio guy could understand with some help.
Yuri's article is interesting and while I do agree that some cross pollination of ideas (such as is happening in systems biology) is useful. I am not so sure I am that enthusiastic as he is about drawing so much hope from the engineering analogy (because there is an element of silver bulletism to it:).
Also, the law of supply and demand is not the kind of law you are obliged to follow under penalty of jail time. When Google got started, nobody was demanding a better search engine. But it turns out that the world really needed one, so now they have a $200 billion company.
There could be things like that just waiting to be built. But if the VCs are all pursuing the next quick-flip bubble BS, we may never know.
This is another over-simplification. There were loads of search engines coming out in the years before and after Google. See Cuil. Bing. Alta-Vista. Lycos. Ask Jeeves. Overture. The list is long and distinguished. Google built a better one. But Google is a poor example because it began as a research project at a large University. Just like cancer research is handled today.
It is no accident that most startups that get funding and press are social photo-sharing apps- on the curve of startup ideas, these are very easy to build on several dimensions- they don't require massive headcount, capital, or sales teams and marketing departments like typical businesses. I suspect that this is in fact the reason there are so many social startups. It's really about these being the path of least-resistance.
My point wasn't that VCs should be investing in search. It's that they should be looking for big wins outside of the current hot thing. Which, yes, means not purely taking the path of least resistance.
Just because those sites didn't gain the popularity that Google did, you are assuming the search engine market was "pretty much stable"? That is classic survivorship bias. When Google started as a research project in the Computer Science department at Stanford, the goal wasn't to become a billion dollar company. They weren't even incorporated when they got the $100k from Andy Bechtolsheim. You draw from a fascinating version of history. Please do tell me more.
"Also, suggesting that Google's origin is somehow like cancer research is laughable; they were two CS PhD students playing around with basic hardware."
And this is different than cancer research, how? Where do you think cancer research is happening? I assure you it isn't at a mobile app company being run by Kevin Rose or in somebody's dorm room at Harvard.
The distinction I'm drawing with cancer research is that we give major labs a lot of money to do pretty specific things. There is a lot of formality to it. And we do it that way because it's a huge problem with a long time horizon and no commercial incentive. That's very distinct from Google's origin. Billions were not appropriated by congress for search engine research. It was a couple of grad students, doing something they thought had merit.
Also, there is no need to be a sarcastic asshole. It does nothing to help me think your points have merit. And a lot to make me think that you're some anonymous coward who just likes to argue.
Now I'm pretty sure this will all wash out over the coming years as Facebook works harder to monetize and the true value of this stuff becomes better understood. The bottom line is that a lot more people will pay a lot more money to live longer than they will to send instagrams. But in the meantime you can't blame VCs for irrational exuberance when year-old, twenty-employee companies are selling for a fucking billion dollars.
People who are chasing currently hot things are missing the chance to invest in the next hot thing. VCs have a sweet deal: they get fat salaries, have nice offices, and have plenty of support staff. If anybody can afford to play the long game, it's them.
The only reason things are flipping for $1bn is that they are worth that to a much bigger company. Instead of going after the quick $1 billion company, I'd rather see them going for the "slow" $60 billion company (Facebook) or $200 billion company (Google).
As far as Facebook is concerned (well Mark is concerned) it is. But it begs the question of "Why?".
* Surely Facebook has all the users in the world. Getting a few more million really isn't that substantial. * And even getting more users is a good thing, I'm fairly certain that 90% of those users are already on Facebook. So what are they really gaining? * The technology behind Instragram isn't remarkable. From what I've read, they are a picture app with filters. Yes, those effects are pretty cool, but I find it hard to believe that a group of people that are able to build the social juggernaut that is Facebook couldn't set aside 10 guys to create filters and effects already built into Facebook.
Now perhaps its something else. Mark probably realized that they system was already in place through Instagram that all that was needed was to purchase them and slap a big ol' Facebook sticker on the cover. Done... Next task... I really don't know.
I believe that Mark is allowed to do whatever. Afterall, he did invent Facebook. A potential money-making powerhouse. We are essentially the outsiders looking in. We haven't built a multibillion dollar company, so we can't really dictate that this is a bad move or not. Its working so far for Facebook (yes the stocks are not as great as they wanted, but hey at least they are out there playing the game).
All I know is, its not my money, so it doesn't affect me. I would've just built the thing myself. But then again, I'm not the billionaire 28 year old. I'm just the 28 year old trying to start my own company.
The reasoning is probably that its really hard to get acquired by a company. But, its extremely hard to build a lasting company. So, pick your poison. I'm not sure how I would react if I had to sell a company that I painstakingly created. Would I want the "quick" cash or just say "No, I'm not done yet"? I cannot say. I guess it depends on where you're when/if a suitor does come along to purchase your company.
So I work that out to be >95% of VC deals were with companies that were not mobile/video/photo related.
Unless I'm missing something, I don't see a problem here.
Good for them. Internet and mobile are perfect for the first company you start. Elon Musk's first company was a non-world-changing Internet company (Zip2), but good for him that he started it. I'm sure he learned a ton about building a company, hiring people, etc.
VC-istan has become a good-ol'-boy network like any other. You need connections. You need the VCs to see you as a real person so that, instead of getting an indefinite put-off or a horrible term sheet, you either get (a) funding, quickly, on decent terms, or (b) a sit-down explanation of why your idea was rejected and either (i) introductions to investors who might be interested, or (ii) an EIR gig to pay the bills until you happen upon an idea that has wings. If you're not on those kinds of terms with VCs, and I doubt more a very small percentage of people are, then you shouldn't be wasting your time in VC-istan.
If you're a real founder, not getting funding means that a VC will pop you in to a high-level position at a portfolio company that one would never get on the open job market, and that will make up for the 6 months you spent without income. Actually, you're going to have more than one of these offers.
If you're not a real founder, not getting funding means that, congratulations, you spent months hustling with no income and no results.
The reason why lightweight companies are getting all the funding is that building up and maintaining those VC contacts is expensive and time-consuming. It's easily as large a time commitment as a full-time job, if not worse, and it takes months before you see any payoff.
VCs aren't preternaturally biased in favor of lightweight companies, but the people who are doing heavyweight stuff don't have the time to become "real founders" (i.e. "made men" in the VCs' eyes, who are entitled to sit-down explanations and EIR gigs upon rejection). So they have to pursue other routes to funding.
(This is in response to the grandparent: "VCs aren't preternaturally biased in favor of lightweight companies, but the people who are doing heavyweight stuff don't have the time to become "real founders.")
Also, here's the difference for real founders vs. the rest of us. Real founders get alternatives put in front of them when their ideas are rejected-- EIR gigs to pay the bills, spots in portfolio companies. The rest of us get zilch; spent months with no income and nothing to show for it. Real Founder social status doesn't mean that bad ideas get funded, but it does mean you don't have to deal with the extreme income risk associated with startups for non-Real Founders-- a risk that stops making sense to take after age 25.
I just think the sociology of the VC ecosystem is broken. I think there's a lot more social climbing and fluff than real technology and real work coming out of it, not because VCs are bad people (they aren't) but because the society has gotten to an undesirable state.
I don't have any direct negative experiences with VC, but I've seen some shitty human beings get funding, and then go on to do some awful stuff in their startups. And the ethical problems in VC-istan may not be directly caused by VCs, but the VCs are the actual bosses and they should be clamping down.
Regarding your comments on how VC's only fund "bad" entrepreneurs with inside connections... I've personally seen unknown entrepreneurs with good traction/product/vision/team get a fair hearing from VCs and actually raise a decent funding round. It's lazy and ineffective on the part of VCs if they don't find the best deals whomever they may be.