But the point that keeps resurfacing in my mind is SpaceX. SpaceX, from nothing, created a low-earth orbit delivery system that is revolutionizing satellite launches and (soon) the cost of getting men into space... for less than the price that a bunch of people can send photos to each other with cheesy filters .
It would be difficult to overstate the impact Elon Musk has had, is having and will have on humanity (and no this isn't hyperbole) through SpaceX (and maybe even Tesla). And it didn't even require, relate to or is connected with some bullshit social network.
I'm also reminded of Steve Yegge's OSCON talk  from some months back. The computer power we have available now is stunning. used for the right purposes it could fundamentally change humanity for the good, whether that be in bioinformatics or whatever, is hard to overstate.
Yet we're using all this power and the brightest minds on the planet... to send cat pictures. It's actually reached the point that when I get unsolicited recruitment email or read about some new startup on HN that I tune out as soon as I see the word "social".
There's something astoundingly depressing about all this.
EDIt: I should add that my issue isn't that the founders and investors sought wealth. I don't begrudge them that at all. Not by any means am I anti-capitalist. Bill Gates, as one example, is doing huge amounts of good with his accrued wealth.
The issue is more on what society values.
This case actually sounds like a fairly mild one. Instagram didn't have many employees, so only a few people were diverted from curing cancer to sending cat pictures.
Pre-acquisition, sure. But how many people will see the instagram acquisition and decide to give up on curing cancer to help people send cat pictures instead?
Cancer research is a gamble: You spend years of your life pipetting liquids in the hope that you'll discover something new that improves upon the current standard methods of treating cancer. The equivalent in CS is, well, CS research: You spend years of your life poring over journals in the hope that you'll discover something that dramatically improves the standards of computing.
Like a lot of research, these are highly worthwhile activities but they aren't big business. That's why, if you want to see more of them, the bottleneck isn't finding the talent: It's the funding, which generally comes from taxpayers. (I assure you from very personal experience that there is a large and consistent oversupply of people who would be willing to conduct cancer research, or any other kind of research, so long as the funding is there.)
Whereas sending cat pictures is not a gamble. It is an established business. It reliably, demonstrably, and very inexpensively improves the lives of tens of millions of average people, to the extent that it and similar businesses are consistently profitable ($355 million earned at Facebook on revenues of $1.2 billion, for example).
And cancer treatment - doing more of what we already know how to do to treat cancer - is likewise not a gamble but a business, which is presumably why it's a huge and growing sector of the economy that dwarfs Facebook and everything else that's fun – $128 billion per year in the USA alone:
For comparison: Global advertising revenue is estimated at around $420 billion per year:
So given that the USA is only 309 million people out of seven billion, we can guess with some confidence that the world spends more on cancer treatment than on advertising of any sort, let alone on the tiny percentage of ads that suffice to pay for all the cat pictures that any cat lover could want.
Your overall point about funding is correct, but typically the very best students and researchers don't have trouble finding funding. Thus the problem is how to attract the very best students away from Wall Street and cat picture startups, and stories like Instagram don't help with that.
The simpler explanation is that any programmer -- COBOL for bankers, CRUD apps, even "maintainer of Office installations for the IT department" -- commands a salary larger than that of a decently-paid Ivy League postdoctoral researcher. With minimal effort at steering one's career, the multiplier is two; according to rumors coming from the general direction of (e.g.) Google, if you've got talent and experience the number is a multiple of three.
You don't have to win the lottery. You start winning on the day of your first paycheck and you never lose, relative to research, because programming is a safer career than research.
Be careful about cherry-picking Wall Street and Instagram when choosing examples: Those are just the sensational ones. If Wall Street disappeared tomorrow, and venture funding with it, plumbers would still make more money than the average researcher. (Remember: A lot of research work is done by grad students, whose salaries make postdocs look pampered.)
"The very best students and researchers don't have trouble finding funding" - this is like saying "talented farmers have no trouble growing food". First, you're selecting a group of winners and then looking for evidence of winning. Lo, you found some! The second problem is that this statement doesn't account for effort: Farmers work hard and take risks for the money, and researchers do as well. As a researcher who wants to succeed you must have grants in the front of your mind one third of the time, and in the back your your mind most of the rest of the time, because success is measured in grants: Your pay, promotion, rate of progress, and reputation are directly contingent on the amount of grant money you can raise. Unless you're Einstein, maybe, but see above under "winning the lottery".
Face it, society doesn't value research as highly as going concerns. When you think about it, why should that surprise anyone? Businesses are a sure thing by comparison. You turn the crank, profits fall out. Often, happiness and human health fall out, too. Nursing, for example, saves lives. It saves them one at a time, but they get saved, and it's a sure thing: You don't need to make a bet against long odds. Change a bedpan, make someone considerably happier; notice that the patient has stopped breathing, save a life. Turn the crank. Turn the wheel the world has given you.
Not kidding at all.
I also do not know how to get off the street in part because I have been healthier sleeping in a tent these past few months. I do not wish to remain homeless but I also do not want to rent a typical American apartment ever again. I do not know how to go from homeless to homeowner, which is probably the only hope I have for arranging a housing situation which does not contribute to my health issues.
You are more than welcome to email me. I just have no idea how it would help.
Edit: Though I do have a non-internet business idea I am toying with. And concerned that it will go nowhere because a) I can't get a business loan in my current circumstance b) I won't qualify for a business loan if I successfully declare bankruptcy and c) I don't know if I can successfully run an IRL business given my health issues.
How about if someone offered to take over the project(s) from you? In effect equivalent to the above, but non-fungible.
But thank you for asking.
I do not know what the answer is but at the moment I see no reason to be idealistically trying to preserve the information for the benefit of other people and I find it incredibly offensive that people are suggesting I should given that I am homeless. Either give me money, help me effectively monetize it, or say goodbye to it. If it has value, it should be worth something to people. If it is not worth something to people, then bleeding a homeless person for sympathy seems pretty freaking sick.
It sounds like you are not making money, so either A) fix something so it makes money or B) toss it.
Just because something is useful does not mean it is profitable. As with all things in business, you have to find someone that values your service enough to pay for it (in some capacity).
I wanted to write software for academic biologists because I'm an ex-biologist...but they don't want to pay for it. Doesn't matter how useful it is if no one is willing to pay.
So, shut it down. Kill it with fire and move on.
At the moment, $1700 in donations (edit: and a few links/promos generating traffic) would convince me to keep it up for another year. That would not get me off the street but it would pay my taxes, pay the webhosting and domain name and help me and my kids eat properly for the next two weeks. In other words, it would alleviate some serious immediate stressors. But no one will blog about it and announce it to the world and tell people to support it or open their own wallet up. So I think I will try the e-book idea and then move on to other projects with an eye towards making money first and foremost.
If someone out there thinks your information is valuable, they can pay $15-25 bucks for it; at least then you don't have to keep paying/updating your site and you might put a few bucks in your pocket.
Instagram founders can probably afford to fund some medical research or establish a chair or even a medical center like many wealthy business people end up doing. There are many ways to help the world if you find a good way to make money.
Add "bitter" to my list of descriptors.
I have to be reminded of this every time I get judgmental about how people spend their time simply because it isn't the way I choose to spend my time. I don't watch or follow sports, and try to avoid religious activities to the best of my ability. But after many years I finally was able to respect in the end that those things are important to others.
Back in the day you know, people were always critical about the time I spent "playing with computers" and of all things, photography. Funny how things change.
The real test though, in this system, is what Instagram or any successful startup does next (or are they so used to pivoting towards profitability that nobody tackles hard, virtuous problems).
I can't count how many times I've seen this debate. I think last week there was a thread debating the triviality of web apps and similarly mentioned Musk.
Elon Musk may very well have developed a cat picture social network to gain the wealth required to fund his companies, but he instead worked on X.com/PayPal. Do you really believe Musk would be where he is today if he didn't gain considerable wealth from that venture? He'd likely be drawing rockets in a sketchbook while working as VP of Advertising at Google.
The Instagram founders are only wealthy enough at this point to have great credit, who knows what great investments they could make post-close?
I'm a fan of taking the simplest, reasonable route to wealth, then investing in something of greater importance, something that critics would agree improves humanity.
I'm a fan of taking the simplest, reasonable route to wealth, then investing in something of greater importance, something that critics would agree improves humanity.
The canonical examples are Elon Musk and Bill Gates, but of course there must be thousands of examples where the risk doesn't pay off, and the deferred altruist ends up unable to contribute much at all.
Perhaps I'm just finding a way of justifying being miserly now, but I certainly intend to pay it back in cash if I'm successful, or in time if I'm not.
How do you know how long you're going to live, such that you can switch from miserly to altruistic halfway through?
Couldn't have said this better myself. Thank you :)
Right now, there's a lot of low-hanging fruit in the ability of technological innovators to positively affect the everyday lives of normal people in lots of small but personally significant ways.
If you consider that goal bullshit, then yes, I imagine the current economic environment is astoundingly depressing.
Yes, there are many amazing opportunities higher up the tree, and yeah, it seems like there aren't enough multibillionaires to take the risks to chase them, and counterbalance all the "easy stuff" people are chasing.
My point is this gold-rush-like era will pass. California got started that way, after all. I bet people were pretty frickin' sick of all the n00bs and posers moving to the West Coast with crazy/stupid dreams of getting rich. It probably seemed depressing to have every single week bring more idiots panning creeks.
But three generations later, California was manufacturing a command module to put men on the moon. The expansion that started in the gold rush led to agriculture, movies and technology.
And now things are cycling around in some ways. But if you're serious about progress, you have to be patient at times.
I am, however, encouraged by the recent rise of impact entrepreneurship, where for-profit ventures tackle large societal problems. It's something we certainly need to see more of.
My opinion is that Internet advertising has done an inordinate amount of good for the world.
Advertising has allowed the creation of amazing services that are free to use. Let's imagine a world where search or GMail might otherwise cost you $20/month (completely made up number) to use. You could afford that right? Even if you could you may not pay for it (people are remarkably fickle when it comes to paid services). That's not a lot of money.
But what about to the poor or those in developing countries to whom $20/month is a significant amount of money? They get the same service you do because of advertising.
Consider that the next time a text ad at the top of Google otherwise offends your (and I'm talking the general "you" rather than you specifically) aesthetic sensibilities.
Well they're not paying for the service directly, but surely the advertisers want something for their money. And inflated material desires with excessive spending can certainly keep the poor poor, in a way that a fixed $n/month expense can't.
That said, advertising which directs your expenditures to more appropriate places is morally fine by me. If I search for "buy a basketball" and some start-up is able to expose me to a better, cheaper basketball than that seems useful. However, if that same query returns ads for Nike shoes, Kobe Bryant jerseys, and the All-NBA-All-The-Time cable channel, then that's bad for society, I think.
The canonical example I use for myself is grocery store coupons. I purposely ignore them. While intuitively it seems I could save money by redirecting my purchases to things that are on sale, I use my meta-intuition to know that more than likely it will convince me to buy some category or brand of good (now or on a future trip) that I wouldn't have otherwise purchased. Consequently, I see coupons as net money-losers.
I see ads in the same way. While it may get me this service for free, I imagine it planting seeds of desire in my mind for various other goods/services, such that I end up paying more over the course of my life than I would have if I just paid for the service in the first place and didn't see the ads.
Frankly, I personally have no interest in learning how to cure cancer. I have no interest for biology or formalized scientific research. I do have a passion for creating technology for people to enjoy. Does that mean my values are wrong? Should all people be pursuing what society deems the "noblest goal"?
If it was seen as a quick way to build wealth and fame, I'm sure more people would be passionate about curing cancer.
"Yet we're using all this power and the brightest minds on the planet... to send cat pictures."
So you're suggesting we have a problem because intelligent people don't always find the "right" ways to contribute to society? I think you should be directing your anger at those who spend their time sending cat pictures, rather than those who enable millions of people to do so simultaneously.
You can see Instagram as sending "cat pictures" or pure gossip(^)... or as improving our "theory of mind" (a window into people's mind, their beliefs & desire). http://en.wikipedia.org/wiki/Theory_of_mind
Oddly, I think the most influential path to curing cancer is making a lot of money, gaining lots of power, and having more control to allocate societal resources.
The taxes paid by people sending cat pictures funds the infrastructure that enables SpaceX to exist.
Instagram also stood on the shoulders of giants.
-much of the computing power mentioned above to change humanity for good comes from infrastructure designed to sell twilight novels and, yes, send cat pictures...
the invisible hand at work...
Now before you downvote me, I'm not suggesting what these guys did was wrong, or that FB's money is dirty, or even that anyone directly suffered as a result of this transaction.
But capital is like a liquid, it ebbs and flows. The fact that so much of it can flow in such a small amount of time toward such a small group of people bothers me. Especially when you consider the impact that investment could have made in other places.
Ok now you can downvote me.
Feel any better?
Unfortunately, the policies you advocate are the cause of poverty in this society... and when they do something like create the housing bubble -- you turn around and blame the victims, rather than the perpetrators. (The housing bubble was created by clinton administration regulations requiring banks to loan money to people who couldn't repay- after it burst the obama administration effectively nationalized the banking system, moving the country closer to fascism.)
Your "how quickly they forget" tells me that you view the world thru the lens of propaganda, not reality, and thus it was heartening to see once again that the source of this support for evil is simply jealousy.
>Your "how quickly they forget" tells me that you view the world thru the lens of propaganda, not reality.
Take a step back and consider that judgement. Is that a sound judgement based on my comment? Is it possible that maybe I'm well read, educated, centrist who doesn't see the world in black and white? Is it possible you're actually viewing me through a distorted lens and seeing a stereotype created by another form of 'propoganda'?
>support for evil is simply jealousy
I don't even know what to say to that. Hilarious.
Finance is where the pervasive ebbs and flows are more obvious, imo. Once you have flows that are gigantic, it becomes more profitable to try to skim a little tiny percentage off the top of them than to do lots of other kinds of work. You could spend your whole life building up a $5m small business (a perfectly respectable, successful thing to do!) and make less money at it than finding a way to skim 0.001% off a $10 billion transaction a few times in your career. So if you're motivated mainly by money, rather than figuring out how to build up that business, it might be better to start boning up on how to maneuver yourself into a position to take tiny percentages from large flows. There are lots of opportunities in the dense web of management fees, M&A deals, etc.
It's not like they bought a consumable that's used up, and thus can't buy other necessary consumables.
And a lot of that Facebook value only exists because the universe of owners (and potential owners) believe that Facebook will keep preserving and growing that value by doing these sorts of things.
If that same 'investment' could have had a better 'impact' for the Facebook owners elsewhere, they'd do it.
If you mean some other sort of 'impact', for the good of people other than the Facebook owners, then essentially, no, that investment value can't be alternatively deployed that way. The value exists because of the faith it will be used in self-propagating ways. The equity value would simply evaporate once the confidence in it is broken: it's not transferred anywhere, it just disappears.
And if you engineered a world where this sort of 'wrong' bonanza can't happen, by design, then the big stacks of value either on the Facebook side ($1B), or on the Instagram investors' side ($250K), would never have condensed in the first place. Their existence was conjured up from previous bonanzas, or the expectation of potential bonanzas. Eliminate the potential for such bonanzas and you don't free up value for impactful redeployment elsewhere: the value never even exists.
Wrong. The Instagram acquisition was largely defensive, due to Instagram dominating a space (mobile photos) in a way that would've eventually hurt Facebook. Facebook snatched them up early to prevent a huge competitor, and $1B was the price they had to pay. Nobody can argue that the team or technology was worth $1B, and Facebook will not see a big return on their investment - at least not anytime soon. Instagram doesn't even have an established revenue model.
Even if the purchase was 'defensive' – preventing s competitor from using Instagram to chisel away at Facebook's monopoly – they expect the result of the deal, versus the alternative, to be worth even more to them than the $1B they gave up. (This is essentially tautological, unless you think Zuckerberg is irrational.)
My guess is that the "something more valuable to them" is protecting their $100 billion valuation. It all makes perfect sense if you are prepared to suspend reality and accept that $100 billion is what Facebook is worth.
I wouldn't propose a system in which investments couldn't propagate future opportunities. I think they should at the very least be regulated. But my concern goes deeper into the underlying system and culture in which all of this takes place.
Facebook and Instagram didn't do anything wrong within the context which they operate. But I believe there is something wrong with the context.
But are the risks that high? If you took an average sample of investments at $250k would you expect the rate of failure to be 311 for every 312 investments?
How will the $78,000,000 be invested?
What should Facebook have bought instead with their stock?
What investments should should Facebook's investors have made instead of Facebook?
What investments should Facebook's investors' clients have made instead?
What about a world where 30 million people can have the ability to express the mundane quotidian and interesting occasional aspects of their lives with a little bit of personal flair?
For some users, Instagram is the equivalent of a Kodak(tm) moment.
 Mad Men, "The Carousel" http://www.youtube.com/watch?v=suRDUFpsHus
I think it's a complex argument, that goes to the heart of how we value things in a capitalist society.
We then go off and invest $250k in 200 startups each.
After 12 months we find out that all my investments failed and I lost all my $50m and luckily enough for you, one of your investments succeeds giving you a ROI of $78m.
Now, your fund is up $28m and you look like a titan of the industry, whereas for me, well no one knows about me because I'm the loser, and losers don't get press coverage.
Is it fair to focus on the single winning investment you made and cry foul? Is it fair for me to be upset that you earned a whooping $78m from just one lowly $250k investment?
I don't think so. If you look at the total of all investments that occurred, $100m, having a single return of $78m seems quite reasonable -- hell it's not really that great in this example.
So now think about all the money that's invested in startups, across all the VCs, across all Angel investors, across all founders using their life savings. Isn't that a really huge number?
Well if it makes you feel any better that new wealth will end up in the hands of car dealers, real estate, all sorts of tradesman, and other places in the economy as well as I'm sure, more startups.
It was a long shot hit but don't short change how something like that will help the entire startup economy. The world of news and investors want to hear about blockbusters.
So there will be significant impact from the entire Instagram win.
It sounds like you're referring to supply side economics, or 'trickle down' which has never had a a proven effect on wider wages.
>Ok now you can downvote me.
Okay. I'm addressing the community at large when I say this.
Stop doing this now. It's not constructive. Say your piece or don't say it. Don't couch it in these empty defensive posturings.
The original comment has received a ridiculous number of downvotes. I understand people having a different opinion, but shouldn't we be voting on whether a comment is constructive or properly articulated?
Edit: For the record, I agree with the actual content of your post in principle, but I think realistically I'd rather the money be in the hands of Systrom and Krieger for future investment than stay with institutional investors who don't know their arses from a hole in the proverbial ground.
Further, much of that $78M will be recycled through the economy, some of it re-invested in the hopes of making similar returns.
The idea that because some prosper, others suffer, is a consequence of one of the most dangerous human emotions: jealousy. I agree that institutions should promote long term distribution of wealth through taxation and incentives. However windfalls for big thinkers and executers are extraordinary incentives for big thinking and executing, from which we all benefit.
This is very interesting. Is this common practice among VCs? PG has said that they don't reject YC aspirants simply because they're building something that competes directly with another YC company: The way we deal with it is that when two startups are working on related stuff, we don't talk to one about what the other's doing.
For some reason, I assumed this practice extended to VCs as well.
For instance, SV Angel (Ron Conway's fund) has an explicit policy much like YC's: they will invest in competing companies, but that they won't reveal one company's private information to another (and they don't really get involved in the management of their portfolio companies). Both SV and YC are making a lot of small, early-stage investments, so this makes sense for them.
A traditional VC, though, is very hands-on (usually a partner takes a board seat after an investment) and thus often has a policy of not investing in competing companies--it would just be too hard to not share information, at least implicitly, when you are sitting on the board and actively helping manage the company. Andreessen-Horowitz is a VC firm, and this seems to be their approach as well. It makes sense when you're making fewer, larger, later-stage investments.
It is not possible to unlearn the information. If you are acting as a strategic advisor, the information has to weigh in your mind and you implicitly will end up revealing information, practically subconsciously. A simple case would be where one company explains an experiment they ran (perhaps testing a feature with a small part of their customer group) and the result of the experiment. If the competitive company comes in and says they are thinking of running a similar experiment and explicitly asks the advisors what they think—what is the response given?
I have a hard time understanding how this type of accumulated information could not enter into future judgments the advisors are making. As a management consultant who faces this type of challenge frequently (and overcomes it by avoiding competitive clients and never sharing my work) I am honestly curious how one elevates themselves above this type of subconscious thinking.
I don't think either side is complaining, and I doubt Andreessen's LPs are either.
Can we put this matter to bed now?
1- If he's able to assign a precise value to the investment outcome, that implies that Facebook assigned an explicit value to their stock involved in the transaction. I don't know if that had to be the case or not, maybe it did. But what it makes me curious about is...what valuation did they use? The current second market valuation? Something else? The $100 billion bandied about isn't an official valuation is it?
2- What Facebook bought was an open social graph, as opposed to their current private one. Now that makes a lot of sense as something worth a lot of money, specifically to Facebook that otherwise has no way to make their private graph public, at least not in any way that doesn't piss off their users. Of course, now they have some verrrrrry tricky waters to navigate.
2. I doubt Facebook bought Instagram for the "social graph" . Facebook has always been laser focused on user engagement. One of the core features on Facebook that keeps users engaged is photo sharing with their friends. Instagram was an up and coming challenger in the sharing photos with your friends arena and that is the primary reason Facebook bought them.
Maybe that still looks high, but it's certainly not as outrageous as a billion dollars. The bit that makes it look crazy is Facebook's valuation at nearly $100 per active user.
I would have thought that suggesting that Dalton and Kevin join forces would have been one of the options.
Dalton later pivoted out of PicPlz and is now building an exciting new service called App.Net.
If the App.Net concept was on the alternative idea list (likely considering the generalist nature of the entrepreneur [music, photos, whatever app.net does]), maybe the pivot would have happened sooner.
It would be easy to take the opposite position if you were to consider that an investment is usually (or supposedly) a product of the investor's passion for your particular business, not necessarily the field it belongs to. It can be seen as the investor saying "we're with you on this, and we'll fight your competition by your side". It's a matter of perspective, and in this case, it is easy to see things from both sides.
All this being said, I love Dalton's honesty, and Ben's post. A ton of ink was used to cover this matter, but the fact is, everyone's happy here.
If you want resources spent on more serious stuff, you'll have to start by getting the general public to spend their time more seriously, because that's the root problem.
Instagram or something like that would be a neat way to accomplish that.
Turing completeness and all...
This is not to say anything about Andreesen Horowitz -- but recognize that this is a savvy piece of marketing, just as the Valve employee manual "leak" is a savvy piece of hiring material.
Very well done.
1. If people can make up money, then it lowers the value of money for everyone.
2. If people can make up money, then it destroys any semblance of fairness in the system. Why are we working every day when some people can just invent tens of millions of dollars for themselves?
This isn't how markets are supposed to work. An asset isn't worth one billion dollars just because someone you know has a billion dollars to spend. The last thing I expected to see was a blog post bragging about it.
Actually that's nearly the definition of what something is worth: how much someone is willing to pay for it.
There are quite a number of people involved. The seed round people apparently had about 15% of the company. If I had to guess, the A and B round had 20-35%. The non-founder employees, could have another 10% or so. Leaving 40-55% for the founders.
If you're trying to funnel money to somebody in specific, this is terribly inefficient; 80% of the money would go to other people.
Also, Facebook is about to IPO, and this is a very high-profile deal. It's the worst time and the worst way to do something fishy.