Why Silicon Valley Is Out Of Touch
Be it juicers which aren’t juicers that cost $400, female Steve Jobs wannabes with scam blood test, a company called Hello that said goodbye very fast or something that raised 25 million called Clinkle, Silicon Valley for every innovation and wonder had probably 30 real companies that just didn’t appeal to regular people or any people. Companies that get hype behind them where investors, developers and everyone else in the valley began partying like it was Burning Man over them and they crash like a 20 year old after night one at Coachella. It’s just this very weird thing that happens and most of the time there’s just one really big thing Silicon Valley was missing. That thing is just a simple thing known as reality.
Focusing in on Silicon Valley and what the out of touch problem is, let’s just run through four prime failures before discuss what I’d determine the three causes are.
Failure happens. Some failures bigger than others. Losing a billion dollars in fraud, leading to 800 people hired and fired and getting a movie made about the founder starring Jennifer Lawrence probably takes the cake for Silicon Valley epic fails. This one falls under great idea, but not really enough questions. While the pitch was wonderful, founder Elizabeth Holmes didn’t really get much scrutiny from investors before getting millions that turned into billions. The vetting wasn’t there and this fell into a common problem with Silicon Valley and that’s trust by association. Holmes started with investor Tim Draper as the first endorsement. That became other investors which became Walgreens and that lead itself to the Waltons, the Devos family and Rupert Murdoch. One good name being sold poorly turned to a thousand good names trusting. This impact and effect of association is what drove Holmes and Theranos to a very very sketchy boom with a sad and scary bust to follow.
Commenting on this one is more of a confusion over anything else. 130 million dollars raised to make a juicer that wasn’t actually a juicer. An idea around asking people to spend $400 to buy a machine that’d only work on WiFi, only work if people bought expensive $10 juice packs and all it’d do was just squeeze the pack. No weird mix of flavors for people to choose and make. Extremely uneconomical options that made no sense. Finally just the question of why on any universe a single person would buy this. A question not needed to be answered, because no one ended up buying it.
Handling all of that though, it still created hype, raised money and flopped about as hard as anyone can imagine. For this one, essays could be written on it, but I’ll just say it failed for the simple reason of investors not looking that hard at what they invest in. A good resume is spit at them promising high numbers and a chance to dominate an old product and reality slips.
This one is the story of Mark Cuban and the story of Meredith Perry. Meredith is the founder of a Ubeam a company that for five years has been promising to make wireless electricity possible using ultrasound. A concept that despite tens of millions raised, celebrity investors and another charismatic CEO like Elizabeth Holmes has delivered basically no results and probably never will. When I met Perry in 2013, she gave an extremely charismatic talk on a panel I was listening to which got a room filled with cheers. That presentation talked about an entire field against her, but her prepared to launch her prototype to the public in January 2014. I write this in July 2018 and still really no prototype released to the public an actual third party group has been able to touch. Where Mark Cuban falls in is just to sum up a flaw of Silicon Valley in one line.
“I’ve never asked to see a working prototype and I don’t care.”
With that, Silicon Valley.
Closing the brief list of failures, this was just a simple one. A company made in SF with the clever name of Clinkle randomly showed up doing the biggest angel round in history raising 25 million dollars out of nowhere. They closed the round burning fake $100 bills with Richard Branson which was supposed to be a metaphor for online payments, but became a metaphor to what happened to the investors money instead.
This one is hard to judge, because it was never actually clear what the idea even was supposed to be. However, to make a point of how Silicon Valley worked, there was rumors some of the investors didn’t actually know the concept either and just went by team. With that, Clinkle went from 25m in funding to maybe a quarter in a can to clinke around.
Listing all those failed companies out, we have now three reasons they failed that can summarize some basic problems in Silicon Valley. So with that, here’s the top three reasons Silicon Valley is just sort of out of touch.
Reason Three-Retail Entrepreneurs
This is just a fact I’ve seen from over half a decade bouncing back and forth of SF and knowing a lot of people who’ve had successes and failures. This is just the fact a lot of entrepreneurs make a startup purely based on what raised money or succeeded yesterday. When I started out, everyone wanted to make a social media platform. As I continued, it was everyone doing a groupon clone. After that, the sharing economy and Uber clones. Next we had VR which got quickly followed with AR and the rise of Pokémon Go. Now, it’s just blockchain blockchain blockchain. Next year, it’ll be something else.
The fact is when a Mark Cuban or a Sam Altman say an industry is gonna rise, a series of investors get interested and a bunch of retail entrepreneurs in a matter of days have a completed pitch deck, brand name planned and cold call to a VC hit. This model does lead to some clear hits, but at the same time it leads to a ton of failures. Being an entrepreneur should come from a real demand people want addressed. It shouldn’t come from a demand VC’s randomly have and the desire to ride life on an angel round.
Reason Two-Most Entrepreneurs Grew Up Fairly Wealthy
Just opening this article up, I’ll say I label myself as an entrepreneur. I’ve started businesses that are currently profitable and businesses currently worthless. I grew up with a Dad who was a successful doctor who had a practice of over 100 people and would do casual vacations to the Caribbean when we were tired of our house on a nice lake. This type of background isn’t really that uncommon in Silicon Valley and it makes us well… Bad at addressing real people.
When the market demands cheaper goods, we tend to produce high margin premium goods that regular people just don’t care about. We don’t really figure out ways to make clothing cheaper, but launch clothing lines with $300 bras. It’s just how a lot of us think sadly and it makes us out of touch.
Reason One-How Venture Capital Works
This is probably the most technical part of this article and probably the one which is gonna make the most sense to people. It’s how VC works.
Say a person raises $500,000 for 10% from an angel investment firm as his/her first round. Now say two years later, they do a series A at 5m for 10% again. Congrats to that investor, he just on paper did a 1000% return on his investment in 24 months. This in a nutshell is the single biggest problem of the Valley. Investors tend to less about the business itself and more about the ladder of venture rounds in a company bumping the value up until a hopeful buyout or IPO to exit on. This makes it so a massive return can happen fast and one customer doesn’t have to happen as long as all the other investors come. It’s a pyramid scheme type model in away and while not a scam or even intentionally a bad thing, there just is a fact a lot of early investors are more concerned about later stage investors over customers.
After that, we just point out what an investment means to a startup and a person. Raising $500,000 or more is just cool. It’s a validation much easier and much better looking to do over making a business with $500,000 in revenue. It’s this sexy path where overnight a team, an easy source of income and validation just magically come. It’s awesome. However, the model just doesn’t always fit and the VC culture of the valley is its biggest out of touch feature.
Closing this up, I’ll just say Silicon Valley is still absolutely awesome. It’s a place that has brought the world the 21st century and will still continue doing so. However, like all things it can just do a lot better. So with that, this is some history of the valley, some logic behind why the flops happened and hope everyone reading learned something.