- Steve Blank, a legendary Silicon Valley entrepreneur who appeared on the podcast 20VC earlier this week, said that the startup ecosystem is on the verge of turning into a Ponzi scheme that offloads destructive or valueless products on the next generations.
- He said that while some founders are looking to disrupt industries, improve lives, and change the world, investors are “looking for a liquidity event.”
- VCs, who are hoping to see sky-high returns, are investing in things like social media, as opposed to technologies that the world actually needs.
- And one of the consequences of this laissez-faire approach to investing could be the destruction of democracy, Blank said.
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Before the age of social media, the pioneering venture capitalists invested heavily in hardware, computers, therapeutics, and the life sciences, which ushered in an era of breakthroughs in technology, including the Apple computer and new drugs manufactured through bioengineering.
But Steve Blank, the serial entrepreneur who launched his legendary career in Silicon Valley in 1978, said that the current startup ecosystem is on the verge of turning into a Ponzi Scheme. It wasn’t a literal comparison, but Blank is suggesting that entrepreneurs often aren’t delivering the best value to the next generations to come.
Blank, who appeared on the podcast 20VC, which is hosted by Harry Stebbings, said that startup founders and venture capitalists do not share the same interests, and this discordance has led to a slew of startups that fail to create the technologies that our society actually needs, including better medical equipment. Blank’s words echo those of another notable investor, Marc Andreessen, who has recently called on founders to help the US rebuild its healthcare, housing, and education systems.
It’s not that Blank believes that the entire startup ecosystem is a sham (he said he was being half facetious when he called it a Ponzi scheme). Instead, the Silicon Valley pioneer said that the system could benefit from some oversight, though not necessarily in the form of government regulation.
As it stands, the system is almost entirely “laissez-faire,” a French phrase that describes the type of government that abstains from interfering with the free market. While some founders want to change the world, disrupt stagnation, and improve people’s lives, investors want to “make the most money without any rules,” Blank said.
“They’re looking for a liquidity event,” Blank said of venture capitalists’ ultimate goal.
And so it seems that venture capitalism, which paved the way for the technological innovations of the late twentieth century, has lost it moral compass, Blank added.
These days, venture capitalists are pouring billions into social media apps and entertainment platforms in hopes of funding the next TikTok or Netflix, and the technologies that we actually need are woefully underfunded or overlooked, in Blank’s view.
This approach, Blank said, has led to the creation of startups with no social consciousness and no national interest.
Throughout the last decade, and especially in recent years, it has become clear that VC-backed social media platforms such as Facebook, Twitter, and TikTok could help topple governments as well as lead to the spread of misinformation that bamboozles voters.
Blank doesn’t believe that founders set out to become evil, but he said that “out of all the things that are probably going to destroy democracy,” it’s probably Facebook, which has seen a flurry of companies boycotting the platform following controversies over misleading political advertising.
As an example of what could go wrong, Blank said that we need to look no further than contemporary China, where tech has turned aspects of Chinese society into “a dystopian nightmare.” Some experts say that the coronavirus pandemic could accelerate the development of China’s “dystopian surveillance system,” Business Insider’s Alexandra Ma has previously reported.
The current startup ecosystem has led to chaos and opened up countries like the US to manipulation from outside players like Russia, Blank said. And social media, which was supposed to bring people closer together, has only torn the US further apart, he said.
While Blank’s outlook is rather gloomy, it doesn’t capture the full picture.
Many VCs have been betting that startups in sectors like healthcare, biotech, and fintech will improve the country’s broken systems. And one of those startups might be the one that bails us out of our ongoing shelter-in-place orders by developing a vaccine to the coronavirus.
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