Trouble in Silicon Valley or Sound and Fury Signifying Nothing?
The full version of Alex Lazovsky’s recent Forbes article debunking the hype in recent headlines about Silicon Valley VC.
Storm clouds are gathering on Silicon Valley’s placid horizon. From the east comes new antitrust legislation aimed at tech’s giants. New, critical bureaucrats are promising bothersome new rules. From the west (i.e. the “Far East,” which, of course, is west of Silicon Valley), the Chinese government is hounding their tech champions, like Tencent and Alibaba. Perhaps most alarming of all is the escalating hostility between Menlo Park and Cupertino. This is not even Silicon Valley’s horizon; it’s our living room.
How can and should Silicon Valley VCs react to such dire portents? Chill. Relax. None of this is all that threatening or unexpected. Rhetoric of “crackdowns,” “fights,” and “showdowns” is a little melodramatic. Let’s consider these tempests and put them back into their teapots.
1. Legislation and regulators
The two developments in Washington DC troubling tech right now are promised new legislation and new regulators. Neither is cause for alarm.
The promised legislation is directed at tech’s behemoths: Facebook, Alphabet, Amazon, etc. First, can you blame the FTC? Google has >92% of the global market share for search engines, and its nearest competitor languishes below 3%. The disparity is already a cliché. Amazon has 44% of the US e-commerce market — 11 times the volume of its nearest rival. Anyone charged with restricting monopolies must target these companies. How else would antitrust regulators justify their existence?
And from a VC perspective, antitrust legislation is not a big deal because the companies being targeted are all public anyway. Sure, VCs whose portfolios focus on late-stage investments are looking for unicorns that could become decacorns or more. The companies attracting FTC attention are a decade and a 100x multiple beyond our concern.
The worst case scenario is that these behemoths can no longer acquire as many startups, which might shrink one exit opportunity a bit.
As for the regulators, think about whom the new administration has hired. Tim Wu, who’s been tapped to advise the new administration on technology and competition, is a law professor at Columbia, he’s purported to have coined the term net neutrality, he’s researched tech regulation for over two decades, and he has experience in government. Lina Khan, slated to become the new FTC commissioner, is also a legal scholar at Columbia, and she’s published on tech platforms and commercial competition.
While regulation always irritates business, these are actually the best kind of regulator because they know what they’re talking about. Silicon Valley can disagree with them, but at least we can be confident that we’ll be speaking the same language, not arguing over a series of tubes.
2. Legislation and regulation à la Chinoise
Yes, China’s tech sector has been thriving over the last decade or two, and venture capital has played an important part in that growth. Had Ant Group’s IPO gone through, it would have been the biggest in history, with $3 trillion in domestic demand for its shares. Tencent is in the same league as Facebook and three times the size of Netflix.
A “crackdown” sounds dreadful. “China crackdown cuts Big Tech down to size” sounds bad — like, globally bad for anyone in tech.
But let’s try reframing that headline. How about: Authoritarian Communist Party curtails billion-dollar companies? Is it just me, or does that sound more like a foregone conclusion? Like something that was bound to happen and … eventually … just … did? After all, one of the brightest, most visionary VCs in the business noted a year ago that “… 72% of Chinese unicorns are sensitive to changing policy priorities, and 83% are sensitive to regulatory uncertainty.”
Like oceans, regional VC markets each have their own particularities, but they’re all interconnected too. Thanks to global flows of capital, talent, technology, and sentiment, a shock in China will make waves all the way across the Pacific and soak some feet in Silicon Valley. The point, however, is that the Chinese government’s authoritarian behavior should hardly come as a shock.
3. Data is the new oil — an unwittingly perfect metaphor
Data has been the new oil for 15 years. The comparison highlights data’s value, how it can be transformed into other valuables, that it needs to be refined, and its status as fuel for a consumer-based digital economy. The metaphor fits beautifully.
However, the most interesting part of the metaphor is its unintended, but equally appropriate, implications. Just as oil dependence has inspired the climate movement and green tech, data dependence has fed the privacy movement. It just so happens that Apple read the encryption on the wall first, and they have less to lose than their rivals, so Apple conveniently decided to champion privacy. Sort of.
It’s simply a matter of action and reaction. Rely on collecting data, and you’ll create a niche for those offering privacy.
VCs have little cause to fret. We look for niches and companies filling them fast. We can short Facebook by investing in ProtonMail and short ProtonMail by investing in ByteDance. There might be a VC or two who built their portfolios around the eternal success of Big Data business models, but a bet without a hedge is more religion than strategy.
Privacy versus data is just business. As usual.
So why all the fuss?
If these harbingers of doom are just mundane chatter — or even interesting opportunities — , why all the doomsaying?
We all share the experience of playing peekaboo. We share it because it’s universal. It’s universal because everybody loves the simulated fear (“Oh no! Where did granny go?! I’m all alone in the world!”) and the surprise (“Ah, there she is! That granny’s such a card!”). Peekaboo purges the initial fear with the relief of emotional redemption; it’s catharsis for infants.
In Silicon Valley, where really smart people come together to build and finance the tech that shapes our reality, we like to think that we’re immune to infantile impulses. We’re too sharp, too quick, too worldly to fall for something as silly as peekaboo.
But we love dark prophecies. It makes defying them that much more daring, heroic, and triumphant.
Behind every dark prophecy is a bright opportunity, and we VCs can feed our own hunger for catharsis by taking advantage and becoming the triumphant heroes. Remain steadfast, hedge, and don’t panic.
We will not from the helm to sit and weep,
But keep our course, though the rough wind say no,
From shelves and rocks that threaten us with wreck.
As good to chide the waves as speak them fair. …
Why, courage then! what cannot be avoided
‘Twere childish weakness to lament or fear.