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Why venture capital doesn’t build the things we really need (technologyreview.com)
113 points by agomez314 16 days ago | hide | past | favorite | 78 comments



This is a longer and more interesting article than I expected, but the title doesn't exactly reflect its contents. Is there a sentence in the article that could serve as a more representative title?

The primary profile subject is Ophelia, which is a YC-funded startup trying to address the opioid crisis. They did a Launch HN back in March: https://news.ycombinator.com/item?id=22570133. (I hope it helped!) The article tells how they successfully raised $2.7M at Demo Day. But the way the article is framed, titled, and mostly written, you actually expect a different outcome while reading it.

(Edit: I found one spot where the author describes the question she was interested in exploring. That seems more representative, so I've changed it to that for now. Better suggestions welcome.)

(Edit 2: since now people are reacting reflexively to the question "Is venture capital producing the kinds of inventions society needs?" in the title, I've reverted the edit. If someone can suggest an accurate and neutral title, we can change it again. The current title is both misleading and linkbait, which are both of the reasons why the HN guidelines ask for a title to be changed.)


Ironically, the underlying issue addressed seems to be, "why are VCs the only people investing in research?"

Software investors are going to invest in software.

What's Wall Street investing in?

What are the Fortune 500 investing in?

This article was almost so good. I wish they would have kept asking questions and looking at research spending in general.


Too me it seems like the private enterprise is not the right place too look for funding for meaningful research, at least not in the current economy.


Research has a value-capture problem. Until it's solved, research funding isn't an investment, it's charity.


I think the problem is that there isn't really anywhere to look for funding for meaningful research. The public sector isn't really picking up the slack right now.


Well, many government agencies offer funding for research. That seems like a good system.


Lots of universities have large endowments, which is used for research.


"Other ideas he’d considered earlier were more like moonshots—hotels for homeless people, for example."

I'm curious to know whether those moonshots were ideas he decided to not pursue himself, or if he was talked out of those ideas by VCs? I've noticed a trend of some founders I know starting with big ambitious ideas and then, after getting into an incubator or talking to a few investors, somehow coming to the realization that [generic software company] is the idea they're actually really passionate about pursuing. Also happens after they talk to some professors, but professors at wharton are likely not representative of academia in general I think. It seems even within the circle of people that have access to VC and such opportunities, even if they aren't originally representative of your standard software startup, they tend to be pushed towards that, maybe explicitly, maybe implicitly, i really don't know.


My feeling is that people start out wanting to create a company either because it's trendy to do, or because they have a big idea they care about.

I've rarely run into a business consultant, adviser, etc who doesn't immediately want to rein that in and advise that they do something smaller and profitable.

It's not bad business advice, but I think that people just tend to get more conservative about what they're willing to try after being bombarded by consistent messaging that they should scale back their ambitions. I'm not sure I think that's bad honestly, a lot of ambitious ideas are really bad and usually more based in the assumption that the competition is stupid than what I'd call honest vision.

It's good for the bottom line probably, but definitely sets an upper bound on how far you could take a project aimed at broad social welfare goals that wouldn't or shouldn't generate a profit. I've seen funding of non-profits (not sure if VC or not) but truly unsure how that works if investors actually expect something in return. They seem to have to rely on government grants and the largess of the already wealthy.


Is 'hotels for homeless' even a moonshot? The concept of providing short term accommodation for homeless people is hardly a novelty: it's just that since homeless people are hardly flush with cash it's mostly been the preserve of social enterprises, charities and local authorities

The only thing about it that might be a 'moonshot' is trying to persuade VCs they can build a billion dollar business from the concept, but that's because it isn't a billion dollar business idea and it shouldn't really need a conversation with VCs to figure out they're not the funds you should be pitching if housing the homeless is your priority.


> hotels for homeless

you mean like homeless shelters?


Yep. In the Covid era homeless people are even being sheltered in regular hotel chains.


Homeless shelters aren't a new thing, but there is a wrinkle in SF where financial innovation might work.

- SF homeless budget is $300 million per year, yet there's only 5,000 to 10,000 homeless people. So if you can do an Elon Musk and have the govt. bankroll your companies

- US cities outside SF would love to bus their homeless to SF, and keep on trying. Instead of letting them off with a 1-way bus ticket, charge them $10,000 a head.

- And as I have said previously, can't 50% of the SF homeless be helped with job and interview skills to get them off the streets, so the other mentally ill 50% can get focus? It's amazing how the SF Chronicle can always find 5 homeless people to do a lucid interview with.


> SF homeless budget is $300 million per year, yet there's only 5,000 to 10,000 homeless people.

The fact that "there's only 5,000 to 10,000 homeless people" is a direct consequence of this spending. From the Wikipedia entry on homelessness in SF:

> much of this spending is focused on housing the formerly homeless, or those at risk, and not the currently homeless.

You write:

> And as I have said previously, can't 50% of the SF homeless be helped with job and interview skills to get them off the streets, so the other mentally ill 50% can get focus? It's amazing how the SF Chronicle can always find 5 homeless people to do a lucid interview with.

Again, you're misrepresenting the situation. The homelessness budget is predominantly being used to stop people from falling through the cracks. Certainly you could spend more money on shelters. But it would only help the homeless if the money came via a budget increase.


I started a startup in the ISP space, and when I was running it, I was always kind of jealous of companies that just had a web app. Our target market was theoretically enormous, but in the day to day, adding customers was slow and difficult. It was easy to envy companies that just had to get people to click the sign up button, and then scaled with a few clicks in the AWS dashboard. Maybe founders and VCs end up making “generic software companies” because it’s easy money.


There are pros and cons to every business. The sweat and physical presence makes you sticky although slower growing. 99% of startup software companies break even or fail outright.


This critique, which annoyingly has little to do with the headline, is a regurgitation of many of the surface level critiques that have been made of VCs for years. Nothing novel about it.

It also wonders off to random topics, like Elon’s new baby’s name. I have a lot of respect for Elon, but a) I don’t care what his baby’s name is and b) what in the world does that have to do with the article’s main topic??

I usually enjoy articles from this publication and was looking forward to reading it but was sorely disappointed by the end.

Reader beware.


The answer is pretty simple: "Capitalizm". It doesn't fix all the problems. It fixes them for creating profit, and not every serious problem promises profit when solved.


Capitalizm isn't about doing what people want, it's about doing what money-weighted-people want.

This distinction has enormous explanatory power for why the market focuses on some things and not others, especially when there is so much low hanging fruit among the "others."


it's about doing what money-weighted-people want

So Coca-Cola is only made because people with money think it's worthwhile?


'Money-weighted people' implies if you've got a billion people willing and able to buy something which is cheap to make on a semi-regular basis that's probably a very good business. Helps if you've got access to the capital to sink into advertising to them and building out that supply chain of course.

It also implies that millions of Coca Cola's customers have absolutely no impact on the 'demand for new cars' and absolutely no four wheeled vehicles targeted at them because the cost of making cars vastly exceeds their purchasing power, whereas the weight of a few hundred rich people's money creates enough 'demand for business jets' to sustain competing products.


when moneyed-interests can make money by appealing to what non-moneyed people want, then there is alignment. this happens often in consumer products, including coca-cola, which I guess you're confusingly suggesting is an example of a smashing achievement of capitalism.

other problems, such as with providing universal healthcare, ending homelessness, poverty, etc, are inherently non-profitable, so moneyed people won't invest in it, so those problems don't get solved by capitalism.


>other problems, such as with providing universal healthcare, ending homelessness, poverty, etc, are inherently non-profitable

These are also problems that have no real solution outside of a general economic improvement.

Universal healthcare is a black hole for money. You can literally spend all of the money in the world on it and you'd still be lacking in funding. It's a problem space that expands the more we learn about it requiring even more funding to actually help people. Gene therapies are so expensive that if universal healthcare offered them the governments would go bankrupt. Yet the hope is that as we improve our understanding we can improve the price. Antibiotics cost next to nothing in developed countries. 200 years ago you could've been the richest person on Earth and you still couldn't get them.

Homelessness is a multifaceted problem. If you look at it from the perspective of trying to build more homes to offer it to people then you run into regulation issues. Everybody is in favor of it, as long as it's not in their backyard. On the other hand, if you try to focus on the homeless themselves, then it's largely a lack of self-help issue that ended up spiraling out of control. It's very difficult to help them, because many of them have different issues. The lack of a home is (usually) just a symptom of another issue. This makes it difficult to scale any actual solution.

Dealing with poverty is an interesting issue. When you look at developed countries, then you're almost always dealing with relative poverty. It is impossible to get rid of it, because relative poverty is simply the bottom X% of the population. The US (relative) poverty line is $12,760 a year for a single person. The average income in Poland is $16,052 (~$12,000 after taxes). Are the Polish poor?

There's also absolute poverty. This is set at around $2.2 a day or roughly $500-600 a year. We have been quite successful at improving the conditions for a lot of people in countries with large amounts is abject poverty. China is the poster child of this. China went from 88% of the population in 1981 living in absolute poverty to 0.7% in 2015. One of the main ways this happens is through sweatshops. Contrary to popular belief, sweatshops tend to be better than alternatives for the locals. That's why they work in them. It's not easy, but they've certainly lifted countries out of poverty.

All in all, I don't think the problems you mentioned are solvable by capitalism, because they're not really "solvable" by any economic system (other than abject poverty). These problems largely improve when we improve our economies. Capitalism seems to be the best at that.


Universal healthcare is accomplished in many countries, so how does it not have a solution? Yes, it's a black hole for money - that's my entire point, it's not profitable, but it can be addressed with more money. No system is perfect, but just because we can't be perfect doesn't mean we shouldn't deliver more healthcare.

In essence, I can answer all of your challenges with this: yes, every problem is multifaceted, but that doesn't change the fact that EVERY problem can be improved by giving people more money and services, and usually the problems can't really be improved without it. And instead of giving more and more profits to the people who happen to already own the capital to invest, we should be using those profits to take care of our people. If the economy improves but wages are stagnant (as they have been for years), then a rising tide doesn't lift all boats, because some people are hoarding all the...tide (bear with me).

I come across this argument about relative poverty sometimes and I just don't get it. There's nothing relative about working 2 jobs, having less than 8 hours literally in the day left for sleep, having no leisure time, living paycheck to paycheck, not being able to afford nutritious food or having time to cook it, not having any power at work, having food or housing insecurity, not being able to afford to live in a good area, etc. I wouldn't say any one of these is the definition of poverty, per se, but my point is that these are objective factors of misery, it has nothing to do with percentile. Saying eliminating poverty is impossible because its defined as the bottom 10% is - sorry to be snarky - Ben Shapiro-level strawmanning and pedantry.


~Capitalizm~ Capitalism is purely a theoretical idea. Free markets as capitalism defines them are impossible. Perfect information, competition, price taking, ect, which are baked into the economic theories of capitalism are simply not feasible.

Often our critiques of capitalism are not critiques of capitalism at all. In fact they’re criticisms of monopolies and oligopolies in our modern society, which are antithetic to capitalism.

The American economy is an aristocracy. VCs, the big ones at least, are members of that aristocracy. Many of which are filled with smart good hearted people. But there are some incentives baked into their position of power that we need to be cognizant of.

Edit: “free-market capitalism” would probably have been a better term. Clearly that was not the point I was making.


Perfect information is not a requirement of free markets.

The term for imperfect information is "risk" and pricing risk is very much an integral part of free markets.


> Often our critiques of capitalism are not critiques of capitalism at all.

While this is superficially true, the structure of capitalism arguably makes such concentration of wealth and power inevitable, so the phenomena of monopoly and oligarchy are intrinsic features of capitalism. Not free markets, but capitalism, i.e. the system where individual, private citizens own the means of production.

I'm not sure yet whether I think that capitalism can ever be made work for the people (including the underclass that our society currently consumes as human fuel to keep the status quo). I think it's quite possible that it will foil all attempts to reform it. But we'll see.


I’d argue that free markets are a requirement of the definition of capitalism, but like the term “communism” the definition has become squishy.

I agree that your definition inevitably leads to income inequality.

Either way, I think we agree on the nature of these problems.


'Capitalism' was a term conceived by Marx and despite Marx and many other anti and pro-capitalist economists having much more to say on the subject, has always had a pretty straightforward definition of being an economy characterised by capital owners hiring wage labourers to generate returns on their capital. A definition sufficiently succinct to describe both the excesses of Silicon Valley and the grim poverty of the Industrial Revolution.

The definition relies on the assumption the distribution of capital is sufficiently unequal for workers to need/want to work for capitalists to earn wages and the market sufficiently free for it to be possible for capitalists to hire workers to generate returns. But both the Marxist arguments that capital must inevitably become so concentrated that capitalists won't need to pay workers above subsistence levels [until it leads to revolutions] and the free market economist argument that competition will resolve this [and pesky social democrats will ruin it] are firmly in the 'squishy' parts of the definition.

('Communism', which had competing definitions before Marx started writing about it, has always been a bit squishy...)


Fair enough. I learned - in an American college - that “capitalism” was a term coined by Adam Smith in “Wealth if Nations”, which apparently was an incorrect conflation made by my Econ professor.

The term “free-market capitalism” is used often by politicians and economists, but apparently that term is conflating two distinct concepts by your definition.

That illustrates my point that the term’s meaning has morphed since it’s coining. Even the Wikipedia page’s disagrees with both of us!

> The initial use of the term "capitalism" in its modern sense is attributed to Louis Blanc in 1850

> Marx did not extensively use the form capitalism, but instead capitalist and capitalist mode of production, which appear more than 2,600 times in the trilogy Capital

https://en.m.wikipedia.org/wiki/Capitalism

What a rabbit hole! We’re officially lost in the minutia of term definitions. Time to log off of HN for the weekend haha


Monopolies come about because of government interference, not free markets.

The reason is pretty simple - the larger a company gets, the more bureaucratic and inefficient it becomes, until a smaller, nimbler company eats it for lunch.


A large company can benefit from massive economies of scale or upfront costs that create an impenetrable barrier to entry. e.g. Wal-mart, Barnes and Noble, mobile phone networks. In certain areas, once you amass enough power, you have the power to crush competition, no government interference necessary.

However, we're not just talking about market dynamics of monopoly, we're talking about concentration of power in a society. Billionaires control enough wealth to influence or even effectively buy politicians, who then make rules that benefit them. They use their money to control media narratives. They hamstring labor power and increase their own leverage without limit. You can't write this off as a consequence of government interference into an otherwise self-regulating system - government interference, and interference by other centers of power, on behalf of the super-rich is an essential feature of concentration of wealth and power in a society.


> A large company can benefit from massive economies of scale that create an impenetrable barrier to entry. e.g. Wal-mart, Barnes and Noble, mobile phone networks. In certain areas, once you amass enough power, you have the power to crush competition, no government interference necessary.

Isn't it interesting that the huge companies today are newish companies? How does that fit into your theory? What happened to IBM, Sears, RCA, the unstoppable juggernauts of yesteryear?

> You can't write this off as "government interference"

That's exactly what it is. And isn't it ironic that people who want to replace free markets want to replace it with a far more powerful government? Wouldn't that imply far more corruption?


If you're saying that monopolies only arise because of government interference, I'm gonna need a lot of citations.

I don't want to replace free markets or have a totally planned economy because I agree with you that excessive power centralization is a problem, including when it goes to the government. I am just saying that the system of capitalism (which, again, doesn't just mean free markets, it means that individual citizens can own essential means of production) has power concentration as an inevitable consequence. Government interference on behalf of the super rich, which leads to more concentration of power, is a consequence of capitalism, not a foil to it.

To be clear, I don't know what the best alternative is. But it looks something like more democratic control and accountability over the essential means of production. I'm not convinced government ownership would always accomplish this. But letting individual citizens own it and use it as leverage to increase their own personal wealth and power, virtually without limit, at the expense of those who depend on it and labor on it, is unacceptable.


> If you're saying that monopolies only arise because of government interference, I'm gonna need a lot of citations.

Name one that isn't. If your theory is correct, there should be free market monopolies everywhere.

> But letting individual citizens own it and use it as leverage to increase their own personal wealth and power, virtually without limit, at the expense of those who depend on it and labor on it, is unacceptable.

Who do you think sits in power in the government? Individual citizens.

> virtually without limit

Bill Gates, Jeff Bezos, etc., cannot order you arrested. But the rookiest cop can arrest you.

Amazon tried to influence the Seattle City Council election buy funding opposition candidates. This became a campaign issue, and Amazon failed badly at it.

Hilary Clinton outspent Trump 2:1 and still lost the election.

Bloomberg got trounced.

Wealth buying power in America is not nearly as effective as you suggest.


- Most industries in the US are largely dominated by oligopolies. I think it's on you to prove that they all, or at least most, arose due to government interference.

- As I said in my answer (are you reading?), I'm not sure that giving control to government is always the answer. Maybe a syndicalist approach, maybe community ownership, more power in the workplace, more accountability in the community, etc. But the current situation is untenable.

- Don't be pedantic. I didn't literally mean that every wealthy person has every possible power. Further, an example of wealth failing in one case doesn't disprove the 10 cases where it succeeded. For example, yes sometimes people lose in elections even when they outspend their opponents. This has no bearing on the fact that billionaires and their interest groups completely succeed at influencing politicians through lobbying, and even writing legislation for them to push.

I'm going to bow out of this conversation now because I don't feel you are engaging charitably and in good faith. I think you are ideologically determined not to recognize how wealth and power function. I would still have engaged for the sake of argument, but I can't do that with someone who's not showing efforts to represent my argument faithfully and charitably. Bye.


> Most industries in the US are largely dominated by oligopolies.

Oligopolies are not monopolies.

> an example of wealth failing in one case doesn't disprove the 10 cases where it succeeded

I gave several examples off the top of my head. There are many more. What wealth does is enable one to get one's message out - it does NOT buy the election. Voters still have to like the message and the messenger.

> completely succeed at

I can point you to any number of huge government spending programs aimed at the not-wealthy. Social Security, for one.


> But where was the cure, or the better protective gear, and why hadn’t venture capital—the financial engine of innovation—funded those ideas?

> the cure

Doing anything medical is very risky because of the enormous cost of FDA approval.

> protective gear

The surge in demand for masks is likely to be temporary, meaning if you build a huge factory to crank them out, the demand is likely to dry up before the factory is completed.


> because of the enormous cost of FDA approval.

Then one would expect some other country, with better costs for regulatory approval, to be a hotbed of medical innovations. Are there any examples?


Good question. I expect many countries don't have a regulatory approval process at all, and simply rubberstamp FDA approval.

Nevertheless, medical tourism is a thing to get non-FDA approved treatments. For example, "60 Minutes" ran a segment a few months back on a Cuban cancer treatment unavailable in the US due to the FDA, and I've read about a Thai hip replacement procedure that is not FDA approved, but lots of Americans go there for it.

I also don't know what US law has to say about a US company developing a drug for non-FDA use outside the US. Certainly, it would not be a good public relations move, and may be a legal and liability minefield. Would you be willing to risk your investment capital in such a venture?


Software is made in the image of it's funders.

Separately, individuals in the United States prefer to consume the majority of their income rather than invest it.

We have restaurant delivery because the people with money like getting their food delivered.

Can anyone name a problem that VC money could solve, that would generate the required 100x return to cover the failures, that would satisfy the "common good" requirement?


Preventing or curing every disease. Carbon-free energy. Self-driving cars with >10x lower accident rate. Many more at https://www.ycombinator.com/rfs

None of them are easy, but many of them will happen soon enough to invest in today.


We're not going to cure all diseases, being sick is part of being human.

There is no such thing as carbon-free energy available for investment. Batteries have to be constructed, charged and disposed of etc.

Reliably self-driving cars won't happen without a major leap in AI, machine learning by itself is not capable of solving the problem.

It's bedtime stories for adult children.


Curing disease is not likely to make more money.

Carbon-free energy: nuclear, storage??

Self-driving cars: just keep throwing money at it, eventually something will cross the threshold of good enough


Curing disease is actually a much better illustration of "why won't VC/capitalism fund the 'right' things?"

It is much more profitable to charge recurring "subscription" payments for treatments to keep you healthy-ish, rather than to give you a one-time cure that actually fixes you or removes the disease entirely. This already is a thing: https://www.cnbc.com/2018/04/11/goldman-asks-is-curing-patie...

There is simply no way to align healthcare with capitalism, without creating perverse incentives around every corner.


>There is simply no way to align healthcare with capitalism, without creating perverse incentives around every corner.

I think there is and we already have it. The combination of every drug needing FDA approval with 20 year patents aligns coming up with new treatments with capitalist funding. Regardless whether you come up with a cure or "subscription model" treatment others can provide it cheaper once your patent runs out. That's why generic drugs that cost a lot of money to create end up costing cents later down the line. Aspirin costs very little at this point. People just expect every new treatment to immediately be available at low cost.

Where it turns perverse is in mostly 2 points:

1. Regulation changes. It's sometimes easier to lobby for rule changes that allow you to repatent a treatment than it is to come up with a new one. An example of this would be asthma medication.[0] The price of inhalers multiplied in 2008 in the US. Inhalers used chlorofluorocarbons (CFC) as propellant. CFCs were banned to protect the ozone layer, but inhalers got an exception. In 2008 this exception was removed, which meant that drug manufacturers needed a new propellant. They ended up using hydrofluoroalkane, but this is considered a new treatment when it comes to patents. As a result the drug company could charge higher prices because there wasn't as much competition anymore. This is an issue with how patents are granted.

2. Single manufacturer. When a patent expires for a drug anyone can make it, which drives down the price. However, for some drugs there is only one manufacturer that can keep the price low, so nobody else is interested in making that drug. It then becomes possible for that company to increase the price and people will have to pay it. This was the case with Daraprim (Martin Shkreli).

Despite these two problems, we've never had as many options in healthcare and it is steadily improving. Conditions that were a death sentence just a few decades ago, such as HIV, are now manageable with treatments. I don't think that this shows that the system is irredeemably broken.


Big pharma is doing drugs, China is winning at solar, and every auto manufacture and major tech company are working on self driving.

Do you have any examples that aren't already flooded with funding?


Those can be hard to find, but very valuable. When there's little activity in a space, it usually means that entrepreneurs and investors don't think it's going to work. They could be right. But if they're wrong, you can have the field to yourself until they figure it out.

You have to analyze markets in much higher resolution than "drugs" and "solar". There is a lot of money chasing some drugs, but others are overlooked. And with solar, it used to be that the cost of the cells was so high that nobody worked much on bringing down the cost of the rest of the system (sun tracking mounts, wiring, cleaning, ...) Now that cells are so cheap, there is plenty of opportunity there.


Thanks, that's a helpful perspective!


People often forget that VC is a for-profit industry and that VCs invest money on behalf of investor who are looking for a return on their investment (Like pension funds) and where there are lots of places they can put their money to work. With that in mind, 2/3rd of VC backed companies will fail despite the best wishes of the founders and VCs, which means that to get a market rate return 1/3rd of your portfolio must generate a 10x return after multiple rounds of dilution. What this means is that most opportunities are not venture backable because 10x returns are hard. You can invest in a company at a $10m pre and you need a company to get to at least a $200m valuation (again multiple rounds of dilution). The kind of growth prospects you need to command that are extremely high. VC can address some problems, but not all problems because the risk eclipses the reward. That’s okay. At least it can do something which most industries can’t do.


Exactly. And VC is tiny relative to other asset classes. It's important to match the company's model & expectations with its financing. VC isn't the only game in town: Private Equity, Debt, Bootstrapping, etc. are all viable options too.

VCs are targeting hypergrowth companies with multi-billion dollar addressable markets that can plausibly see liquidity within the fund's structural 10-year lifetime. If this doesn't describe your company, then VC probably isn't a good structural fit.


Did not find this article interesting. Very long, not insightful into the reasons behind the title.

It's mostly an intro into VC, YC, KP, and some of the other players and there's some human interest stuff in there along with a comparison to how little money other groups get.


> Software and technology are only one corner of the innovation playground, and the US has been so focused on the noisy kids in the sandbox that it has failed to maintain the rest of the equipment.

This about sums up the topic. The article itself even spends most of its time pondering this alluring idea that the VC ecosystem could somehow be reformed to solve societal problems.

The problem isn't an insular background of potential founders. It's that a business can only achieve outsized returns by operating on scalable things - such as computing technology or casual replaceable labor. There is no Uber for <concern of marginalized people>, because marginalized people are an input which those services require to operate! Nobody is delivering groceries during a pandemic from a place of options.

> [Nikki King is] in a constant scramble for money, relying on grants, donations, and Medicaid reimbursements.

The money funding an organization that directly helps people is coming from government and charity. There is no monetary profit in this - if there were, Ms King would now own a successfully bootstrapped cashflow positive business. Instead she continues to scrape by.

Ultimately we've got the best society money can buy. Our assumptions of mutually beneficial transactions in a free market creating distributed wealth are not panning out. Instead we've gotten an ever-growing wealth imbalance, with the main goal of the wealthy being to perpetuate themselves. There are many theories on why this has happened or what to do about it, but suffice it to say as long as it continues our problems will only get worse.



Am I the only one here that hated this article?

If the point is we should invest more in things - we agree. We all agree. Pretty much everyone with any sense agrees. Even people on the right like Julius Krein have been pushing for nothing but this. The only ones that don't are our bought and paid-for politicians and their corporate cronies...but no mention of them.

But what does that have to do with private capital investment. Seriously? Where is the connection.

Why is it necessary to call out venture capital and "white male culture".

So far as I can tell this article was nothing but a bunch of crass and nasty attacks.

It starts all the way from white males nerds who "have no social lives". He thankfully teaches us that:

> In the white male culture ... those cultures are extremely narrow. For women and people of color, those cultures are much more expansive.

He then (wonderfully) quotes a failed start up by a black woman to have better substitute teachers that only failed because of lack of Andressen's money. That's some pretty powerful evidence right there.

He then goes on to more directly attack Andressen for the (absurd) notion that a software start up incubator did not help with COVID.

> I revisited the Andreessen Horowitz portfolio, which includes dozens of software winners, like Facebook, Box, Zynga, and Github, but not many companies building things that would have been useful in tackling the pandemic.

Of course anyone who works in tech knows that github and plenty of his startups are used for remote work every single day. But no matter they didn't cure covid, which is his test for good investment. I would love to hear what he thinks qualifies as we literally have no solution for COVID right now except to stay home and wear cloth over our face.

Then he goes on to quote his daughters making fun of Elon Musk and another unnamed executive.

> He doesn’t seem to realize he’s the Once-ler,” she said, referring to the character in Dr. Seuss’s The Lorax

And

> “Who would do that to their kid?” asked Quinn.

> “Don’t worry,” Lillie said. “X Æ A-12 Musk will be able to pay other kids not to bully him.”

I guess that's a good example of the "expansive" culture of women that we desperately need more of.

Of course most of this this article revolves around Ophelia a software startup trying to help with the opiod epidemic.

No where is it mentioned that the opiod epidemic is not a natural phenomenon, but was manufactured in the most heavily regulated industry in America: healthcare. It came from as far a place from Silicon Valley as you can get.

It was pushed by Big Pharma, their associations, and with the blessing of every government and non-government medical institution.

...but god I hate those Silicon Valley bros and their successful startups.


I think the fact is was Musk who 'chose' the baby name evidently and not Grimes, who I guess is just a house wife, sums up the article succinctly.

The writer could have written this without consistently insulting people, especially coming from a place of ignorance.

Musk's Starlink will change medicine in the poorest regions of the world, were at minimum Médecins Sans Frontières can certainly afford it.

But whatever, it's all about the click chasing.


Clean-tech was a hot investment area for VCs, for a while.

Weathering the Storm: Kleiner Perkins and the Tragedy of Clean-Tech Venture Capital

https://digital.hbs.edu/platform-rctom/submission/weathering...

The article above shows some of the numbers but it's not quite pointed enough.

The problem with investing in e.g. solar power isn't that it's a dead end technology. Just the opposite. It is a technology that is still rapidly improving on price:performance. But any technology rapidly improving on price:performance, without significant barriers to competition, demands ongoing investment and offers low returns on capital invested. VCs want significantly higher returns than they could get by investing in established manufacturing businesses.

There's too much competition in clean tech. Invent a better mouse trap for the energy sector and in 5 years you'll be competing with Panasonic, General Electric, Siemens, LG, and 4 Chinese companies you never even heard of before.

The same thing happened with the hydraulic fracturing revolution. Competition is too robust to deliver respectable returns, and the capital requirements are high.

Chesapeake Energy starts bankruptcy countdown

https://www.marketwatch.com/story/chesapeake-energy-starts-b...

Former EQT CEO: Shale Gas Revolution an ‘Unmitigated Disaster’ for Investors

https://www.oilandgas360.com/former-eqt-ceo-shale-gas-revolu...

"The technological advancements developed by the industry have been the weapon of its own suicide."

There are some non-software businesses that have significant barriers to competition, like medical imaging. But those barriers also hinder capital-lean scrappy upstarts. Invent a better MRI machine, and again you're competing with General Electric, plus you need to go through a regulatory gauntlet before selling your first unit.

After rejecting sectors where competition is fierce, sectors with barriers to competition that also hinder startups, and sectors where people can't/won't pay much (e.g. anything based on serving unmet needs of low-income people), there's not a whole lot left but software businesses and software-mediated platform businesses.


There are many things wrong with this article. The 16-year old daughter opining about what is wrong with VC is perhaps the most telling though.

None of the article is based on any deep understanding of the issues. It is generalizations about people (alarmingly, with the implication of race and gender) and an industry that the author doesn't seem to know (if you are using The Code as your source, stop...think about what you are doing).

As an example, people don't understand that SV benefiting from government research money is not the same thing as proving that research money was the cause. In fact, lots of other countries did this, and no-one else got anywhere. The UK, in particular, was entirely convinced by the notion that the govt could save the economy in the 1960s...nothing worked, and this attitude triggered one of the most severe crisis in British economic history (much worse than the Great Depression). The rest of the article continues in the same way: pointing to specific examples but failing to see that they don't generalize (the stuff comparing Nordic/South America/US is actually shocking to read as someone who studied economic history, willfully false).

I think the world is going to see more of this. People in tech are always wrong. Their identity is wrong. They aren't "like us". But saying that they fail to innovate is...insane. I am not a fan of tech people or SV at all...it is a hotbed of charlatanism...but that is the point of capitalism, that is why we don't like in wood houses anymore. No-one knows what is going to work ahead of time. The system must be decentralized, and we must not have people like the author trying to say that certain innovations are more valuable than others.

(Btw, one of the big issues that tech has is that lots of young people actually don't understand the real world isn't like the Lorax. There isn't this group of people who are automatically evil, and are causing all the bad things. Life is ambiguous, and people who often end up doing bad things have intentions...life isn't a movie).


Found this to be a pertinent article that shows the bytes vs atoms debacle going on.


> bytes vs atoms

I really like this


Because the things we need don't sell for 1 billion?


Betteridge's "Law of Headlines" suggests this headline was written in the form of a question in order to answer it in the negative:

> "Any headline which ends in a question mark can be answered by the word 'no.' The reason why journalists use that style of headline is that they know the story is probably bullshit, and don’t actually have the sources and facts to back it up, but still want to run it."[a]

[a] https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...


Is the title editorialized or has the publication changed it? As of now, the publication's title is "Why venture capital doesn’t build the things we really need", but the submission's is "Is venture capital producing the kinds of inventions society needs?".


I changed it for reasons I explained here: https://news.ycombinator.com/item?id=23655803. The article title is misleading.

However, since now it's triggering the Betteridge reflex, and people are reacting purely to the title, I've reverted the edit. If anyone reads the article thoughtfully they will see that the answer to the question can only be "yes and no", but we can't expect that.


> triggering the Betteridge reflex

Sorry about that. Won't do it again.


Oh no worries! but thanks for saying so.


Huh, you're right. It could also be that the publication changed the headline or is showing different headlines to different audiences (I've seen the latter happen), but as of now only the HN headline is editorialized that way.



No


By definition, yes.


No, by definition it's producing the kinds of inventions society will pay for. That's not the same thing.


I know a lot of people on HN hate VCs, but it is not the role of VCs to invest in companies who build things "the society needs".

They invest in things the society didn't even know it needed.

Of course there are huge flops and failures and near-scams, but I think it's good that these businesses exist, and I disagree with people who stigmatize the entrepreneurs who build the "stupid" startups and the VCs who fund them.

Imagine a world where everyone was building things that everybody already knew they needed. It would be a dull world and very deterministic. Not a world I want to live in.


Oh give me a break; no one is saying that we shouldn’t innovate.

And I don’t think people are hating on VC as a whole, this site is run by VCs after all.

Do you really want to live in a society where people go after businesses to make a quick buck no matter the consequences? I know that I self censor some of my ideas on the basis that I wouldn’t want to live with the results if they were wildly successful.

We all have an obligation to create a world that we (not the royal we) would like to live in. And that means constructing things with real, broad societal value. Think renewable energy rather than uber for liquor.


this is like saying art should not exist. I'm likening these companies to artists (no value judgement attached).

Artists make stuff they want to make, and it provides value to the world in some way. Otherwise they shouldn't exist. Artists don't deliberately make things with "real broad societal value".


> They invest in things the society didn't even know it needed.

That's an overly generous way to put it. In reality, VCs exist to fund companies that will make the VCs a lot of money. So either the companies they invest in have to (1) become profitable, or (2) the share price must increase drastically such that the VC's can sell their shares at a profit.

The reason VCs don't build hotels for the homeless isn't because "society already knows it needs this", it's because homeless people don't have any money so there's no profit in serving them.


> They invest in things the society didn't even know it needed.

1. They invest in things that will out-perform other investment vehicles over the time frame that the LPs are interested in optimizing over. Generalizing beyond that seems like a fool's errand. VC is huge, incentives myriad, but, at base, return to investors is eventually a hard constraint on any private investment vehicle.

The article's main point seems to be "venture capitalists are capitalists and often retain/double as fantstic PR firms". Which, yeah. Good or bad, it's true.

2. "invest in things the society didn't even know it needed" is something that most anything high-yield claims to be doing in one way or another. Not all, but probably most. Not many other places to get high yields.

> but I think it's good that these businesses exist... Imagine a world where everyone was building things that everybody already knew they needed. It would be a dull world and very deterministic. Not a world I want to live in.

This "is VC good or not" argument seems a bit off-topic for the article.

It's possible that VC serves an important -- even critical -- purpose, and also that VC needs to be complemented by robust public sector investment because there are some things that just aren't going to have good returns over even long times frames (or ever) but which still benefit society. "Markets a great but not omniscient or perfect". Which, yeah.

Anyways, I think the article does more harm than good, because it sets up an us-vs-them. But, as the digital libraries -> google example illustrates, VC and public sector investment aren't mutually exclusive. They can support one another in a virtuous cycle: public sector investment in scientific progress -> VC-funded innovation -> tax dollars -> public sector investment in scientific progress -> ...


They invest in potential for awesome profits, period.

There are no awesome profits in unknowns, too much of a gamble and too much effort to get there; better to focus on the hype.

Take Bitcoin, no one would have invested in the idea before it was a fact. Once the hype started winding up, VCs were all over it.


They invest in opportunities to build portfolios that provide a reward/risk ratio and performance/risk characteristics that are appealing to their LPs. If they don't, they don't survive. They aren't charities investing in things society doesn't know it needs, they're investment vehicles geared towards providing exposure to high risk/high reward early stage private investments. Some of them have a social impact angle, and those funds are different by nature due to the demands of their LPs, but it doesn't make sense to pretend this is about anything other than profit on a given timescale.




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