
The Instagram Effect: Causing Silicon Valley to fund the wrong companies? - iProject
http://gigaom.com/2012/07/19/is-the-instagram-effect-causing-silicon-valley-to-fund-the-wrong-companies/
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dkrich
“You see people graduating from top tech schools… and they’re starting
companies in internet and mobile,” said Corey Reese, CEO and co-founder at
Ness Computing. “They’re not starting companies to enhance the life
expectancy, by and large.”

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.

~~~
eshvk
I think there is this (from my limited experience rather naive) belief that if
a bunch of smart computer people get together, they can solve problems that
have flummoxed biologists for long. This is something pervasive which afflicts
even the smartest ones (See Steve Yegge's talk
<http://www.youtube.com/watch?v=vKmQW_Nkfk8> on how The Data Mining needs to
be used more to solve problems in biology).

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.

~~~
Dn_Ab
You make good points but swing the pendulum too far the other way.

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...](http://protein.bio.msu.ru/biokhimiya/contents/v69/pdf/bcm_1403.pdf)

Computer people can help with tools, modelling, analysis and prediction.

~~~
eshvk
I am sorry if I came off as disagreeing with your main points because I
actually don't. Just to say a couple of things: At least from looking at such
cross-functional bio/c.s. teams work here in Grad. school, I have seen two
types:

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:).

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dasil003
It's a gold rush. We can't sit around and wring our hands over this.
Mobile/social are cheap and easy to get into and as long as Facebook is buying
them for a billion dollars, it's going to give better ROI than more
"important" ideas.

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_.

~~~
wpietri
I can blame them a little.

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).

~~~
aclimatt
Venture Capital doesn't generally work that way unfortunately. VCs typically
shoot for 10x over 5 years with the fund's total lifespan being approximately
10 years (from initial investment to return). So it's hard for VCs to make
longer-term investments in companies like Google which took 14 years to get
where they are today. (Sure, in the case of Google they could have flipped it
sooner, but even a few years ago it wasn't worth what it is today.)

~~~
lurker14
Google's IPO was in 2004 at age 6-years and returned 100x on investment, and
has had "regular" (on the high-end) big-cap growth since.

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sreyaNotfilc
Is Instagram really worth $1 Billion? Honestly we don't know. I would say no,
but I'm wrong on a lot of things. I'm also right on a lot of things. Who
really knows?

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.

~~~
veyron
Instagram, if it was allowed to expand and develop more social features, could
have actually left Facebook in the dust. Seeing as how Facebook is perceived
to be worth far more than a billion dollars, 1B is relatively cheap.

~~~
sreyaNotfilc
You could be right. I have been reading a lot about startups as well as
listening to podcasts and whatnot. It seems to me that a lot of them only
exist only to get acquired. Perhaps that was Instagram's reason for starting
in the first place.

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.

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amirmc
_"13 percent of deals were in the mobile sector with 30 percent of those
companies involved in photo or video technology."_

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.

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paulsutter
“You see people graduating from top tech schools… and they’re starting
companies in internet and mobile,” said Corey Reese, CEO and co-founder at
Ness Computing. “They’re not starting companies to enhance the life
expectancy, by and large.”

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.

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michaelochurch
The reason VCs are funding lightweight companies _isn't_ that VCs want to fund
lightweight companies. It's something else, and it's easy to see the reason if
you understand the sociology of VC-istan.

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.

~~~
pg
This is simply false. VCs have a network among themselves, but they don't
expect founders to be part of it.

~~~
michaelochurch
I think it's pretty accurate to say that they'll readily fund a band of
outsiders if they think the idea's good, but still, they also put out terms
that make it easy to take over the company if they don't see the founders as
"real founders", "made men", "like us", or however you want to describe that
status.

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.

~~~
pg
No, the reason experienced founders get better terms from VCs is that have
more experience dealing with VCs.

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indiecore
In addition to social apps being simpler and easier to start you also don't
have to deal with the reams and reams of paperwork and certifications that
getting into healthcare entails.

