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“I think it’s the beginning of the end of the valley as we know it. Silicon Valley historically would invest in science, and technology, and, you know, actual silicon. If you were a good VC you could make $100 million. Now there’s a new pattern created by two big ideas. First, for the first time ever, you have computer devices, mobile and tablet especially, in the hands of billions of people. Second is that we are moving all the social needs that we used to do face-to-face onto a computer.”
Blank’s premise is that the social media phenomenon is so uniquely big, so attractive and so lucrative that it’s now where all the money goes. He teaches students who are trying to develop and commercialize a myriad of really hard stuff. To help them do this, venture capitalists in the past would invest for the long grind it took to succeed with some of these great ideas and hopefully make money from some of them.
Today, why would venture investors fund a life sciences company developing a blockbuster cancer drug that is really complicated and will produce no revenue for at least 10 years? Why not invest in another Insta gram that will rocket from zero to a billion-dollar exit in three years instead? And in terms of relative complexity it’s much easier.
You can’t blame venture investors for chasing the billions on their smartphones. After all, their job is to simply generate the best returns for their investors. However, the more important question is what does this do for the economic health of not just Silicon Valley, but all other regions that are trying to build an innovation and commercialization economy based on saving the planet and solving the world’s problems.
Like British Columbia.
More than $500 million a year in taxpayers’ money goes into university-based research in this province.
We whip thousands of post-secondary science and engineering students into a frenzy to come up with the next great idea to grow B.C.’s technology sector. We talk endlessly about creating new high-value technology jobs to keep our brightest youth here building the future.
But Professor Blank would have us think that, except for British Columbia’s entrants in the social media game, the remaining technology sectors in B.C. will wither away from a lack of future venture capital.
So what can be done about this?
First, this is a serious public policy issue that deserves a fresh, serious debate now. If our society thinks it is valuable to develop a broader technology-based local economy, perhaps new ways of financing it in B.C. will need to be explored other than the 50-year-old American venture capital model.
A powerful argument for why governments should care about venture capital was made by•Venture capital has strong positive effects on innovation, wealth creation, economic growth and employment;
•The financing of technology startups can create economic return for the whole economy superior to the financial return for venture capital funds, suggesting that venture investing is not fully optimized; and
•The building of a sustainable technology startup ecosystem is the result of a virtuous circle with cumulative effects (positive returns). Therefore, there is a case for government intervention to “start the wheel.”
Lerner then looks at which policies aimed at promoting entrepreneurship and venture capital work and which don’t, so that the mistakes of earlier government efforts – as referenced in his title – are not repeated.
At the moment, we can be very thankful for the massive public investment that drives our university-based research, the federal scientific research and experimental development tax credit programs, the
But these programs alone aren’t enough to unlock anywhere near the “optimal” economic growth that Lerner points to. British Columbia needs a fresh look at how it can fully fund the venture investments needed by the province’s best and brightest entrepreneurs. •
