Last night I tweeted a link to this video, about the legendary scientist Nikola Tesla pitching Silicon Valley venture capitalists, and commented that the truth is sometimes funnier that comedy. And I was surprised by the sheer number of people who agreed with that sentiment. I went to sleep thinking about that reaction, and also thinking about it in the context of the decline of long-term thinking in our society.
If Tesla (I assume you know who he is) did indeed walk into a VC meeting, he wouldn’t get the attention or the money for his idea because it wouldn’t fit the time-scale of what venture-capital investments have become. Having followed the business of technology for a long time, I have seen that time-scale get shorter and shorter. I guess it’s the price to be paid for the excesses of the internet bubble of the 1990s.
The Bubble After Effects
During that time the business changed from funding innovation to funding concepts and eventually to projects. The fallout of the internet bubble was that venture-capital firms shifted focus. This shifting time-frame is one of the main reasons we are seeing fewer and fewer investments in hardcore technologies and more of the dollars being shifted to the softer aspects of technology.
Yes, bloggers like me like to harp on the fact that many investors are infected by short-termism. But let’s not forget that some of these folks have taken big risks, and sometimes have failed big, too.
Cleantech has ruined many reputations and resulted in billion dollar loses. Yes, there are a couple rare big bet successes that will come out of cleantech, like Tesla Motors and Nest, but the overall trend has been losses.
Now many of the investors that aggressively backed cleantech are trying to find a more cautious approach to cleantech that more closely aligns with the traditional short VC time frame. Kleiner Perkins Caufield & Beyers, which lead the charge on cleantech investments only to be left wounded, has recently changed tack in many ways, and in particular to go after social so it can get back into the quick returns on its investments.
That’s the trend that all investors, in some respects are, moving toward. They’re all looking for the next Facebook or the next Twitter, but no one wants to look for the next Juniper or the next Intel or even the next ARM. I am not saying Facebook and Twitter are not great companies and have not scaled dramatically and impacted the world. What I am pointing to is the fact that Silicon Valley funds fewer and fewer silicon companies.
Why are we assuming that we are all done with developing new kinds of chips for uses that we are not even imagining yet? Are we done inventing the routing technologies of the future?
It’s hard to invest in the future
Think of it this way: Had Vinod Khosla not backed Pradeep Sindhu to work on Juniper, we would all be living in Cisco’s vision of the internet future and using its hardware, which it would have made and sold at its own pace and at its own prices. Today, if you need to build a big company like that, you need to have deep pockets. Luckily Andy Bechtolsteim has those and that is why Arista Networks exists and is proving to be a major disrupter.
The point is not to just rant, but to note that there is a lot more innovation to be done. All of today’s stars — from Dropbox to SnapChat to every little hot company that pops up — is built on those basic building blocks, and we have to continue to make better, cheaper and beefier building blocks.
Yes, I understand that there is a chill around chip stocks, and Wall Street investors are showing more interest in pokes than petabyte speeds. I don’t necessarily think that this kind of rational thinking is bad for the investors, but when it comes to fundamental innovation, it points to a a real challenge ahead. And forget what Wall Street thinks, isn’t venture capital really risk capital? Risk, unfortunately, is a four-letter word around these parts these days.
Failure is an option
Forget chip startups, does anyone think that the Sand Hill Road firmament could have funded Amazon Web Services (s AMZN), a disruptive economic force, if they had a chance? Probably not. How about the iPhone? The same story. If you look at those two examples, and add Google’s self-driving car, Google Glass and what companies like Tesla are doing, you understand that patience is a virtue. Unfortunately, patience is in short supply in the Valley these days.
I wrote this on the first anniversary of Steve Jobs’ death, and I want to resurface it:
A dear friend put it best when he said that Jobs allowed himself the freedom to dream big and most of us need to learn from him and supersize our dreams. While that is true of everyone, the Silicon Valley of 2012 needs to pay heed. Silicon Valley of quick flips, petty jealousies and rampant short-termism needs to remind itself of a greater purpose than a public offering. Change is more than a headline. It takes patience. It is more profound. And it is thinking about more than just us.
Maybe this video is a reminder to all of us that while we might be living in great times, the future is still to be invented.
More about the video: The video is in support of a Kickstarter campaign that hopes to collect enough money to build a statue of Nikola Tesla. While to many Tesla might be a car, in reality Tesla was a scientist who worked on difficult things. As an aside, we at GigaOM are fortunate that our New York offices are in the Radio Wave Building, the very building where Nikola Tesla lived.
Updated on May 29 at 12 noon: A new Nikola Tesla in Silicon Valley video has emerged. Here it is for your pleasure.
What about Software, OOP is 50 years old. Everybody is talking about context, how about COP (Context Oriented Programming). Mirrored worlds are fine, Mirrored minds are the future, OOP vs COP. Google does only what’s suits them (nothing wrong with that), but COP would lower the entry to replace search as we know it. So no X-Project there to come, in SW development.
Take heart, there are still true innovation being pursued, it’s just moved a bit north of you good folks in the valley 😉 Check out what DWave (based in Canada) is doing in quantum computing:
http://www.technologyreview.com/news/514846/google-and-nasa-launch-quantum-computing-ai-lab/
But you’re absolutely right, disruptive innovation have very long timelines – DWave has been doing this for 14 years! And thank goodness there are still a few VCs who believe and invest in these audacious ideas, like BDC, DFJ and Jeff Bezos.
Some worthy commentary on D-Wave. Quantum computing has a long ways to go; I’d be careful betting in that world:
http://www.scottaaronson.com/blog/?p=1400
It’s a two-sided problem. VC’s look are obsessed with time-scale, but actual doers are obsessed with the funding events themselves. Everyone is more interested in the money than the prospect of building something enduring.
Jeff Putz
You are spot on with your assessment.
People’s obsession with money is disheartening but understandable to some degree if you look at the decline of job security over the past 30 years.
If people felt their jobs were reasonably secure, even at a lower salary than what they might achieve at a fast growing company, they are more likely to gain depth in a technical field over many years, take risks and build something of enduring value. Give a top engineer modest tenure along with talented co-workers and watch them build something remarkable.
The problem is not the VCs alone. The problem is all of us chasing returns (as LPs often a few layers indirectly in those same VC funds) and our failure to build a robust and secure work environment.
Kudos, Om. I think you can even dig deeper and say that those around for the dotcom era that were building things that were different or cutting edge – and succeeded after a while – are now doing the easy companies to get out faster.
Jeremy
I think founders adjust to the market environment. Look at it this way: if the market wants bold, long term, ground breaking companies, then it finds those founders. The funders can enforce the change, the question is how badly do they want it.
Reblogged this on The Edgefighter and commented:
Yep.
Thank you so much for this.
Nice post but in all honesty, this is what folks who live either at the edge of or just outside the Silicon Valley “bubble” (reality distortion field?) have known for some time. The majority of VC’s follow trends, they don’t look to be inspired by new ones (ie the next Facebook as opposed to the next new unknown thing). But hey, it’s a business that works for them.
Hi Om, Semil here. While I’ve seen all of the behavior listed in the hilarious video, I do think it’s also fair to point out that (1) there are plenty of parody startup pitches that could be turned into similar videos; but more importantly, (2) there are plenty of much quieter venture capitalists who are taking on risk themselves and funding companies both in more bread & butter infrastructure and silicon, as well as things like Tesla, etc. Again, I’ll admit the video is hilarious but there is also a certain pandering in it as well, and there are many, many investors who do not fit this mold, who do not Tweet or blog or seek attention. They are out there, as I’m sure you know.
Semil
I am sorry, but I don’t see the video as pandering. This is not about tweeting or blogging or seeking attention. I know all those quiet funders, people who do fund great companies. You know the Promod Haques and Gary Morganthelars of the world. From 1990 to 2013, things are remarkably different. There are fewer and fewer people who are taking on the risk: I can throw up the graphs and charts to reinforce my point.
The fact of the matter is that I have watched and watched and looked for those game changing ideas (and perhaps have written about as many as I can find) but the metabolism of the ecosystem has changed and not necessarily in a way that benefits the long term.
I honestly think it’s a question of knowing not only where to look, but how to work. You are a very intelligent person in this ecosystem — if not among the top three. But I think it has not been the metabolism that has changed. I think it’s the location of people within dark networks, and people don’t travel to them enough through their media and their relationships. The appetite for risk has changed, but so has what people are willing to take as the risk. Now the risk is network challenge. You don’t know who you don’t know. if we did know these unknown potential partners, investors would have discovered them.
Think of the new startup ecosystem as being just beyond the discovery of plasma in the universe. They are there, but we have not made the tools to find them. I think that will change in the next three years. Look at the CrunchBase partnership with those five VC firms, for one.
No argument that things are different, and you’d have more experience to draw from here. That said, perhaps recently the volume of noise in startup pitches is high, just saying that both those teams building for the long-term and their funders exist today, the new Morgenthalers, etc.
“The fact of the matter is that I have watched and watched and looked for those game changing ideas…”
Mr. Malik – If this is true and you are looking, let me introduce you to a startup that has achieved a 2.5x reduction in the energy required to move a four person car. This game-changing vehicle architecture and platform enable compliance beyond 2025 MPG/CO2 regulations today. It’s also cost-efficient enough for OEMs to build/sell at a price/volume to bring fleet averages into compliance more effectively than current compliant vehicles while also returning to margin for that compliance. Or it can become it’s own brand/segment vs. licensing to an OEM. Efficient architecture makes all the difference. http://edison2.com
We’re looking for patient investors. You can reach me at ericlane (at) edison2.com
Eric
Thanks for sharing Edison2. Will take a look at it.
The problem is not just the VCs. Young people these days do not spend enough time thinking about the big picture. they are not taught the fundamentals or, more appropriately, they do not care about the fundamentals, because it is too easy to cut and paste in this open source world. How and why things work eludes most college graduates. ask them how something like a battery works, how a computer works etc and you get bizarre answers. have one of the young hot shots explain to you caching, paging or garbage collection and they just dont know. what they dont understand is that for the past decades all that we have done is push computing bottle-necks around and that with the advent of new techniques or technology a new bottleneck (similar to that of perhaps a decade or two ago) will appear and create wonderful new opportunities. but, you have to understand the entire picture to see this happening. how many young people care to think this way? not many i fear. my 23 year old tells me that guys of my generation know computing far better than those of his. sad. hard problems require depth, lots of work and plenty of time. do the young people today have any desire for this? unclear.
the vc community does nothing to help this problem. a quick buck, spray and pray investing or lemming like investment, actually extinguishes the desire for creating. the key here is creating versus getting rich. after all betting on 10 startups with $500K investment in each is “more capital efficient” than one in which a $5M stake is necessary. where has “venture” gone from venture capital?
does the world need so many Y-combinator clones? what if the purpose of an incubator was to run a year long contest for the most innovative idea that could be found and then have that idea funded at the appropriate level with proper coaching and guidance so it could succeed? would we be better off? i think so.
lets think big, get our kids to think big and then place fewer bigger bets that will change our lives for good.
Ashfaq, thank you. Your comments resonate greatly with my experience.
I’ve spent a lot of the past three years working on ‘cathedral’-type software application, and framework. My actual day job is as a salesperson for a large cloud infrastructure company, but it is through my interest in programming that I came up with a solution to a problem not many people can easily see without being both developer and sales guy.
I first started writing small applications to make my life a little easier at work, before starting to see other people trying to solve the same problems. I quickly came to realise that my idea could have value, but the main motivation has been to create something effective that works and for which I gain recognition ( personal first, then professional, then hopefully financial ).
Although I dearly would love to be able to enjoy money, and to provide for those people, ideas and projects I care about, I could never have got where I have with it if I was mainly interested in making cash.
I would have never built the environment on open source code for a start, I would never have talked about it, and so would have missed out on advice, ideas and input from colleagues, friends and casual observers. I would have probably tried to make some money from it earlier, and compromised the idea and the opportunity.
Now that cloud computing is so advanced, well-understood and affordable, it means that I can consider delivering the software in such a way that should be much more lucrative than had I tried to sell the embryonic idea before the mass adoption of smartphones, cloud and tablets in particular.
I do appreciate that I am a better salesman, and business thinker for having picked up a bit more experience talking, listening and selling.
My inclination nowadays is to slum it on my own for as long as possible, to keep as much stake in my efforts as I can, stay away from VC’s and the like.
Don’t you think the video also revealed the idea that VC is about relationships, and what other people say you should invest in? Or what others invest in, you will be willing in, too?
Are you saying we suffer from “herd” thinking in Silicon Valley? #amused #lol
The article raises interesting questions to ponder. There is lack of risk in venture today. Too many startups and VC’s are looking at acquisition as the end goal by getting to a certain metric vs building a great and truly innovative institution. Makes me think that large companies like MSFT/Goog are infact in a better position to take these risks.
I also see far too many startups trying to solve first world problems and i forsee a real disruptor coming from the developing world.. it’s not different from what we see in pharma where a lot of R&D is is chasing first world dollars and it took a Bill Gates to drive innovation to solve some of the most challenging issues we have have faced.
Neha
Neha
I think that is very true. IN the past monopoly status accorded/afforded companies like AT&T and IBM to liberally spend on research. Google is doing precisely that with its hoard of cash. That said, some of the longer term innovations still need continuous and ongoing nurturing and perhaps need some inputs from government and the venture investor community.
Amazing, I love the video. It is almost word-by-word what we are going through. If you have a B2B model and you are a mature experienced person with an invention that would intersect more than one “market” this is exactly what we’ve been hearing almost word-by-word 🙂
So much of this is deeply embedded in the thought processes even at Silicon Valley’s best companies.
I recently did a job interview at a major brand name tech company. It was a monetization role for a recently acquired company.
One of the interviewers asked me what the UI for monetization should like.
I started asking questions about who the audience should be because small businesses have very different needs than database marketers with extensive consumer profiles. I was prepared to go down the path of asking whether there should even be a separate interface. I’ve worked with media buyers long enough to know that the better play would be to integrate with the parent company’s interface. (Media buyers are lazy and the easier you make it, the more you will sell.)
Bzzzt. Wrong answer. The write answer is to go up to the whiteboard and draw shit without thinking.
I have at least 10x the actual experience of the person doing the interview.
Very well said. I think this is one of those things I harp about: we all want to talk at the same time (social media) and in the process have lost the ability to listen and as a result can’t focus on what is right and what questions to ask. If you don’t know what questions to ask, how can you go in a different direction or perhaps even imagine bigger.
Again, “just draw shit” is a malaise that is completely widespread.
companies like Tesla’s (UX) Google (Glass) and Facebook (social graph) are so close to implementing the Semantic Web. Many of these new cos. behave like they’re novel and avante garde when in reality they could do so much more.
Facebook’s once unimagined promise lays dormant as I watch them try to monetize the social graph via ads versus work on being the first to achieve a true semantic web on devices, cars, new endpoints. Rather than project UI onto Mobile to sell ads.
what that tells me then – what this article calls long-term critical thinking – is that most VCs don’t have a good grasp of history nor liberalism. And really have no clue or wisdom what engenders innovation or the difference between say a CNBC ‘financial tip’ versus macroeconomics.
The lack of critical thinking indeed has infected not just VCs, but our body politic as well. A respite will lie in globalization as other countries take on the mantle that once lied in the USA. We may have to wait a while. But let’s hope we aren’t on some verge of some modern dark ages.
I think I understand your point. BUt Semantic Web to what purpose? Simply because it might be better for energetically, and in terms of efficiency.
Semantic web is only great if it makes sense for you to have it and pursue it, like any other feature or asset. Why in anyone’s name Google or Facebook or anyone else would want to work on something without working out how it benefited them directly, I can’t understand.
Now, of course, both Google and Facebook could stand to benefit from the realisation and popularisation of Semantic Web standards, but they are public companies, with pressing concerns that are their legal obligation to pursue; ie. shareholder value.
Incidentally, I should not have included Tesla, Musk’s car co., in the same sentence as Google and Facebook. Musk is doing unrivaled innovation and questioning every assumption of a stale industry and remaking it in his image incredibly so.
Brin just commented last week that if only tech cos cooperated more, we’d have more innovation banked by now. One could blame Microsoft’s monopoly. Or a lot of dot-com bubbled thinking. But all in all, that is true.
Fortunately we have the pieces in place that if connected and meshed together just so could achieved such halcyon visions like Semantic Web and unleash a brave new world of contextual intelligent computing.
Om,
My observation as a person actually in the trenches and who has stomached meetings like in the video (not too far from reality):
SV seems confused right now and in my opinion it’s caused by shift to mobile but poor distribution for mobile. Key = distribution.
Historically, when hardware became commoditized, software was valuable. Now that software is being commoditized, data is valuable.
Data builds services. Double down on companies generating new universes of (social) data.
That’s where new universes will be.
@chrisamccoy
I feel the same way about Pharma research today… none of the epidemics / diseases that were cured in the early part of the last century would have been cured today. Patients would been helped to manage it and live with it so Pharma could have a revenue stream and investors would be happy.
Uchil
Thanks for sharing that point of view.
AWSOME THANKS 🙂
Everytime some investor says, “Give me your elevator pitch.” Or, “You’ve got one minute to wow me.” Or, an incubator says, “You’ll have 3 minutes to pitch and then 5 minutes to answer questions.”
Walk away.
They are idiots. Their money isn’t worth it.
+1 to what you said @guest22
Great article, simultaneously funny and sad. We have been talking for a few years now on the systemic shift toward risk avoidance by VCs, who have historically been the very definition of risk capital. Like most things, this shift has been driven by both greed and fear: greed in the pursuit of outsize, short term returns, and fear of losing one’s job if you have too many sub-par returns.
The result has been a vacuum in early stage capital for several key foundation stones in technology: semiconductors, hardware, enterprise software, materials, and other “old school” tech sectors. Some of that void is being filled by corporate venture capital, but in the long term, under-funding these industries is like not making repairs to the foundation of a house – eventually it causes the whole system to deteriorate.
This post takes an element of truth and oversells it to the point that it is just plain wrong – “no one wants to look for the next Juniper or the next Intel or even the next ARM”.
In 2012, US VC funding for semiconductors was $920 million, $316 million for networking and equipment, $237 million for electronics and instrumentation, $453 million for computers and peripherals, and $2.7 billion (!) for industrial/energy. Yes, these numbers are small compared to $8.3 billion in funding for software, but they are far north of zero.
Mr. Malik starts with a reasonable argument, but then exaggerates it to the point where it loses all of its subtlety and most of its intelligence.
There is some distortion to the statistics that you cited, which is that a very large percentage of the venture funding in semis, hardware, etc. are follow-on funding of earlier investments, largely by insiders. There is very little funding of new companies in the semi space, which I can attest to from recent experience.
We recently helped a very innovative semiconductor company raise a Series B, and had meetings or calls with every key venture investor in SV and Boston who had a history in semis and cleantech, and every single one passed, many with meetings frighteningly similar to the animated video. The most common response was “we’re not doing much in semis these days.” We are getting the round funded from strategics, which are partially filling the void created by VCs who are not running after the next Facebook or Google, but the next Instagram or Tumblr.
Charles
Thanks for the comment and essentially answering on my behalf. I encounter such scenarios often enough to know first hand to refute @realist50 assertion of exaggeration.
What you say about VCs also stands true for the bulk of founders: they’re only interested in building a certain kind of companies, because, well, that’s low hanging fruit.
But it skips an important point: most of these game changing companies / founders were edge cases, outliers, in for the long haul, because they knew the pervasive effects of what they wanted to achieve. And such outliers will always be around.
I’m impressed how many people connected with this video. I’d agree that VC’s aren’t always present but that’s a more generalized problem (and not a new one).
When I’m facing a lot of rejection as an entrepreneur, it’s easy to fall in to the trap and blame VC’s for my failure to inspire them; however, when I’m honest with myself, I know that it was my failure and not theirs.
The fact is, Tesla was rejected many times by investors in his own day. It’s not a modern problem for smart people to fail to inspire the people with access to capital. He was also misunderstood by his peers as Tesla used to work for Edison who rejected alternating current, among other ideas, as bad.
Thankfully Tesla didn’t give up and anyone discouraged by the video should realize that great ideas will eventually come to be understood as such.
Nicely put, Cyrus Radfar. The message of don’t give up is key and important. Thanks for your comment.
Once my brother (worked in few pre-IPOs) said this to me (he got this from one start up veteran): “You make a company to grow, will have no problem in finding money and buyers… You make a company to sell, failure at every step….”
I have seen some pre-IPO loosing the stream as the management tried to sell hard, and eventually become desperate… Same goes with funding too…
@Om – I’m in a fundraising cycle as I write this. The video posted was a series of OMG! moments as documentation of my personal experiences with VCs. The environment has definitely changed, cloud & mobile has given rise to a lot of noise around concepts being funded under $250K. Some VC’s take this as their portfolio approach to find a diamond in the rough. On the flip side this has encouraged entrepreneurs to build an App. (some leave college early) This is good for getting lots of ideas and encouraging innovation, but creates a lot to look at for VCs.
The “bigger” VCs are looking for the next Facebook & Google, and in doing so, they will probably miss the next Facebook or Google because they are too busy to meet with the entrepreneurs, listen to their story and see of they can use their “vast” experience to grow them into a Giant.
Instead they deploy their army of “Jr. researchers”, (most of whom have never started a company from scratch) smart guys who listen and take notes and then represent YOU and YOUR company in the Monday morning partner meeting. (Often these people do not fully understand the space or the problem being solved) How can someone you met for 45 mins represent your company?
So it comes down to relationships and using them to get to the VC/Partner who can listen, advise and either help or say no (at this stage) quickly. its not what you know, its who you know…Innovation (is this the definition of innovation?????)
“Kleiner Perkins Caufield & Beyers, which lead the charge on cleantech investments only to be left wounded, has recently changed tact in many ways…”
I think you meant “changed tack” rather than “changed tact”
Reinforces the imperative for corporate venture funds to take a broader leadership role. Few others have the resources to find, fund and help commercialize arduous technologies that are essential to their companies’ future AND the future of innovation. Who else will encourage a tiny team developing new coating materials to boost solar panel efficiency? Or support the scientists intent on hauling the nation’s grid into the 21st century by applying semiconductor know-how to produce superconducting wire at a fraction of today’s cost. Or boost the physicists who are supercharging UV LEDs with the power to shatter the DNA of drug-resistant bacteria. These breakthrough hardware technologies – just a sliver of what’s percolating here in Silicon Valley – require a new class of “patient capital” invested by knowledgeable deep-technology types…a different type of capital altogether than what’s funding the tumblrs and Instagrams.
We named an app after him. http://www.tesla.im
Not a day goes by when I don’t think that history is strewn with innovators who didn’t benefit from their innovations. A constant reminder to myself to be more cautious.
om
Founder and CEO,
http://www.concentricsys.com
Business rules for everyone
Love it… just went to a VC firm that told me that if our technology not a trend that there is no possibility of funding. We said we were an infrastructure play and that we impact every trend – mobility, cloud, bid data, and much more… we have taken a boot strapping approach to avoid VC until now. Having disruptive technology that creates a paradigm shift is always hard. Boy this hit home… hard. sighhh…
Hilarious! Sadly, an extremely spot-on picture of buzz-word laden, completely in-the-box, “moneyball”-investing, name-dropping herd mentality infecting the investment scene. The number of ridiculous pitches the VC’s have to put up with, is an absurdity-amplifying feedback cycle. Sign of the times, with all sides victims of the quick-returns/flip mentality continually perpetuated by strong tail-winds of ridiculous precedent….What is the fix? Focus on fundamentals in education(not repackaging API’s with a window-dressing UI) , and change in investment-fund timeliness; neither is likely to happen anytime soon, as these typically are the purview of Government and will require societal change….