Why Silicon Valley Funds Instagrams, Not Hyperloops

[xoxoxoBruce]

Jerzy Gangi takes his fellow entrepreneurs to task for becoming sheep.
He uses a comparison of Instagram vs Elon Musk's Hyperloop, but it's really about neither.

My thesis is simple. We haven’t seen Silicon Valley develop a company like Hyperloop — even though the plans have been out there for over a decade — because there’s a systemic failure in the startup ecosystem. In short, Silicon Valley has killed major innovation.

Has the Valley become a bunch of sheep?

In all of the hype around companies like Facebook and Instagram — what really are just glorified websites — we’ve lost sight of some real innovation opportunities, most of which occur in the offline world.

The entire culture of Silicon Valley, and entrepreneurship around the globe, has taken on a groupthink that prevents truly novel inventions, like the Hyperloop, from reaching the market. The result is a major loss. It’s a loss to our society. It’s a loss to our capital markets. It’s a loss to private investors. And it’s a loss to entrepreneurs.

He goes on to outline nine reasons this has happened.

[tw]

Who says innovation is not happening?

From EDN Magazine of 15 Nov 2013 and related sources

We're still 220 years away from the birth of Captain James T Kirk, but that hasn't stopped engineers from making the technology of Star Trek a reality today or in the near future. In fact, in some cases, you’ve made the visions of Gene Roddenberry look like child's play.

"the famous Star Trek medical scanner"
Warp Bubble
Pulling particles using light rather than pushing particles with light
Star Trek-style 'tractor beam' is created on tiny scale
replicator
Holograms and Holodeck
Transparent Aluminum
Voice Commands
Cloaking Device
Transporter and Quantum Teleportation
Communications
Vision for the Blind

At no point was profit the motive for innovation.

[xoxoxoBruce]

Pure research/science is necessary and useful. But venture capitalists aren't interested in it. I believe the article was about angel investors and venture capitalists.
I see more wishful thinking than actual product in that list. Sure transparent aluminum would be cool and useful. But until they actually figure out how to make it, Me thinks they've got the cart before the horse.

[tw]

Originally Posted by xoxoxoBruce

Pure research/science is necessary and useful. But venture capitalists aren't interested in it.

That is the point. He has confused Fundamental (pure) research with application research. They are different and must be kept separate to be useful.

Concepts were well demonstrated in places such as the Bell Labs. But my experience says most under the age of 40 do not even know what basic research is let alone know what the Bell Labs were. Does Jerzy?

[xoxoxoBruce]

I don't think he's confused, he was talking about the silicon valley angel/capital boys and how their investment strategy is stifling them and killing inventors. These people were never interested in pure research, that's for big corporations and the government, where a clear path to profit isn't required for every penny invested.

[tw]

Originally Posted by xoxoxoBruce

These people were never interested in pure research, that's for big corporations and the government, where a clear path to profit isn't required for every penny invested.

And that is the problem. Pure (fundamental) research is no longer being conducted by big corporations when great labs such as Bendix, Sarnoff, and Bell created so many world class innovations. Take Big Pharma as an example. Once these companies (about 42) had 7 drugs in the innovation pipeline. Today there are less than 13 (due to M/A and other business school money games) with only 3 drugs in the innovation pipeline. Most research comes from outside sources (ie universities) and is paid for by government and other sources. Since profits are now more important than the product, Big Pharma now does less research.

Wall Street will not invest even in application research. Wall Street will freely invest in non-innovative companies like Kodak, airlines, Xerox, ethanol producers, GM, or hedge funds. A growing company for 3D printing in NYC needed crowd sourcing for capital. Wall Street cannot invest is a product that cannot be measured by dollars on spread sheets. Other companies that innovate find other and fewer who actually pay for, understand, and promote application research such as Venture Capitalists.

Unfortunately Jerzy does not know the difference between investors who invest based upon product's potential verses investors who actually think the spread sheet can predict future profits (as Carly Fiorina so boldly claimed). Instead his arguments assume profits (not the product) motivate innovators.

[Lamplighter]

The entire culture of Silicon Valley, and entrepreneurship around the globe,
has taken on a groupthink that prevents truly novel inventions, like the Hyperloop, from reaching the market.
The result is a major loss. It’s a loss to our society. It’s a loss to our capital markets.
It’s a loss to private investors. And it’s a loss to entrepreneurs.

I stopped reading the link, and LOL'ed when I read his complaint about
hedge funds making huge profits based microsecond-trading
of minute (tiny) stock price differences (e.g., Chicago vs New York exchanges).
But what does his "truly novel invention" do ?
... it proposes to get a few people to their destination some minute (time) quicker.

He is really only talking about how to gamble $ on the stock exchanges,
not inventions that have serious, life-changing, implications.

One example of recent life-changers inventions would be the personal computer vs.
the iphone/ipad/ipod/icloud/etc. products and "personal advertising" that investors are betting on now.
I see the latter as popular entertainments, and as such will fade,
just the way TV entertainment has faded under the onslaught of info-mercials, etc.

Google and MicroSoft being the best examples of corporations that have/are changing missions,
and will probably suffer under the investor (aka gambling) pressures of Wall Street.

What is ironic here is that Google just won it's multi-year court battle to scan all printed books
... to create a database allowing anyone to search for anything...
based not on copyright law, but on the concept of providing a service for the "good of the public".
This is diametrically opposed to the current concept of investors in the digital world.

[xoxoxoBruce]

Originally Posted by Lamplighter

I stopped reading the link, and LOL'ed when I read his complaint about
hedge funds making huge profits based microsecond-trading
of minute (tiny) stock price differences (e.g., Chicago vs New York exchanges).
But what does his "truly novel invention" do ?
... it proposes to get a few people to their destination some minute (time) quicker.

You obviously don't understand what Hyperloop is, or the tremendous impact it would have on the environment, energy savings, and (maybe) safety. But as I said at the outset, it isn't about Instagram or Hyperloop, they are just the extreme ends of the spectrum.

He is really only talking about how to gamble $ on the stock exchanges,
not inventions that have serious, life-changing, implications.

Since you didn't read the article, you didn't get the point that investment funds don't want to fund live changing anything, they want to make the most money with the least risk. That's logical and practical but doesn't spur or assist invention.

Google and MicroSoft being the best examples of corporations that have/are changing missions, and will probably suffer under the investor (aka gambling) pressures of Wall Street.
What is ironic here is that Google just won it's multi-year court battle to scan all printed books ... to create a database allowing anyone to search for anything... based not on copyright law, but on the concept of providing a service for the "good of the public".
This is diametrically opposed to the current concept of investors in the digital world.

This is true.
I'm not sure Google's goal is completely altruistic, but it's a tremendous service to researchers and thesis writers everywhere.

[xoxoxoBruce]

Here's something they could invest in.

Stanford researchers have developed an inexpensive device that uses light to split water into oxygen and clean-burning hydrogen. The goal is to supplement solar cells with hydrogen-powered fuel cells that can generate electricity when the sun isn't shining or demand is high.

[glatt]

Are you saying we might be able to run cars on water? Wouldn't that be cool?

[Lamplighter]

Ummm..... what's wrong in the lead paragraph:

Stanford researchers have developed an inexpensive device that uses light
to split water into oxygen and clean-burning hydrogen.
The goal is to supplement solar cells with hydrogen-powered fuel cells
that can generate electricity when the sun isn't shining
or demand is high.

If the Stanford process works, why not just use it instead of solar cells
Is it because there is always a loss of energy in every process.

Somehow the "something from nothing" never seems to work out quite right.
That is, Lucy always yanks the football away.

[Clodfobble]

I thought fresh water was already going to be in ever-shorter supply in the coming decades. Maybe if it can use salt water...

[tw]

Originally Posted by Lamplighter

I stopped reading the link, and LOL'ed when I read his complaint about hedge funds making huge profits based microsecond-trading of minute (tiny) stock price differences (e.g., Chicago vs New York exchanges).

Many trading firms spent big bucks on Manhattan real estate to get their computers located as close as possible to stock exchange computers. To shave microseconds data transfers via fiber optics. Because these computer trading ventures estimated something like $10,000 per minute for every millisecond cut from that communication time (numbers are only examples and probably wrong since I forget the exact figures).

As a result, the NYSE made a rule that all such traders must have at least so many feet of fiber between their computers and stock exchange computers so that all fiber optic communications take at least a same number of microseconds.

How does this make America wealthier, more innovative, or stronger? It doesn't. Just another example of companies more interested in profits rather than the product or productivity.

Another example is IPOs. Powers that be tell us how bad Facebook's IPO was because that stock dropped in value after the IPO release. Reality, that was good or best for the public - the common man. IPOs that increase in value on the market only enrich the bankers and other insiders at the expense of the public. Facebook did good by offering a stock at a price that would then stay lower for the next year. Because Facebook reaped more capital, the little investor got an opportunity to make a good investment (the common man is not permitted to invest in the IPO), and bankers, stock brokers, hedge funds, and other insiders did not reap 50% of the IPO's capital.

Twitter, on the other hand, sold for something like $26 and closed on the market for something like $50. IOW Twitter screwed us by enriching the finance people with almost half the capital investment - for doing nothing but being privileged insiders.

Both are examples of harm to America because the insiders believe profits - not the product - are more important.

[mbpark]

I can tell you exactly why.

Venture Capitalists are expected to have high rates of returns on their investments. Many of the investors in the VC funds are high net worth individuals who are looking for a 20% return. Many of the funded tech companies lose money. 90% or so go out of business. The firms like Instagram make up for the failures of hundreds of other companies. The goal of any funded firm is to make that 20% margin and get out, either by IPO or sales, and bring in a new management team to run it to predictable (read: boring) margins.

The evaluation system for new products focuses on two areas, which are minimizing risk and maximizing profit. Anything involving the environment, human safety, and/or transportation is ridiculously expensive now. Human Subject Research costs a lot of cash for lawyers, risk management, and information security (Note: I have helped fill out grant applications for the latter).

Your average university or academic medical center does not have the cash to pay for the research that goes on. Grant money is hard to find. There are, however, many large corporations that leverage universities and academic medical centers for research. More on that later.

Anything involving environmental studies or human safety has been safely legislated out of the possibility of existing. The cost of bringing new innovations to market in these areas is prohibitively expensive. The expectation of making returns on this is lower than that of pharmaceuticals these days. The amount of safety regulations for drugs has added such high overhead that it's now less profitable. If there is even the potential for death or injury, forget it. Look at the cash Wyeth and J&J paid out for their mistakes. No CEO wants that.

Considering the stock market (i.e. traditionally lower yield investments for those with not as much cash as the VCs) is based almost entirely on Earnings Per Share, and a large amount of the pension cash in the US is invested in the market, there is a proclivity to avoid risk. Reporting low earnings and underperforming will cause big funds like Calpers, Vanguard, and Fidelity to drop your company, and you will probably be fired.

Hence, non-profit universities, who are more efficient because they have a lower-cost labor force and less of the stress of reporting quarterly results, have been able to make a dent. The only difference between a university and a VC firm is that the university demands a lower percentage on its returns . There is still an expectation of profit and good publicity (papers, conferences, products, patents, treatments). If anyone tells you otherwise, they haven't worked with a research group recently.

All companies now have a process for evaluation of products that safely removes any risk from decisions made. We've managed to cocoon ourselves away from any potential risk. We've also managed to use litigation both offensively and defensively.

For high net worth investors today, it's all about low-risk, high-yield investments with a quick exit strategy to maximize profits and amortize portfolio losses to their advantage.

For everyone else, it's a cargo cult of trying to imitate what they do with stocks and investments. Has this built an unsustainable model? Yes it has. How will it end? I don't know, but I hope we can unwind it with minimal damage.

For the people that make decisions, it's about avoiding and mitigating risk and maximizing earnings so that your company can get a high EPS and you can continue to keep your job.

For those of us who understand technology and business, it's all very clear.

And FWIW, Carly Fiorina is safely away from ruining/running large companies. Anyone who tells you they can predict the future from a spreadsheet should be.

Be Well (Demolition Man reference). We're getting closer to the culture in that movie than you think.

[Happy Monkey]

Originally Posted by Lamplighter

Ummm..... what's wrong in the lead paragraph:



If the Stanford process works, why not just use it instead of solar cells
Is it because there is always a loss of energy in every process.

Somehow the "something from nothing" never seems to work out quite right.
That is, Lucy always yanks the football away.

For the experiment, the Dai team applied a 2-nanometer-thick layer of nickel onto a silicon electrode, paired it with another electrode and placed both in a solution of water and potassium borate. When light and electricity were applied, the electrodes began splitting the water into oxygen and hydrogen, a process that continued for about 24 hours with no sign of corrosion.

The solar cells would provide the electricity, presumably, to generate and store hydrogen to burn at night.

No doubt Lucy will pull the football away, but it isn't inherently suspicious to have them work in tandem. Burning stored hydrogen WILL be more effective at night than solar cells, but burning hydrogen as it is produced may not be as effective as the cells in the daylight. This would essentially be a way to set aside a certain amount of sunlight for use at night.

There are any number of potential football-yanking opportunities, though.
- How long past 24 (or 80) hours it goes without corrosion.
- Whether the potassium borate (and lithium, mentioned elsewhere) get used up either chemically or mechanically as water goes through the system.
- How expensive those chemical are, or become (with electric cars, lithium could get more expensive).
- How to deal with impurities in the water accumulating as the water is turned to gas. The chemicals added to the water make this a huge issue, as you can't as easily rely on the flow of water to clean the system if the water needs additives for the chemical process to work. If you feed water into a reservoir at a replenishment rate, then impurities will build up. If you let it flow through, then you need to continually dump more chemicals into the intake, and potentially clean them out again on the other side.
- How much solar real estate needs to be allocated to this mechanism instead of solar cells
- How much power from the solar cells goes to the mechanism instead of going out to the grid

[edit - ] Or does this work as a closed system, without a water intake, where a set amount of water is converted to gas and back as needed? That could mitigate the impurities issue.