10 ms·

Peter Thiel & Max Levchin: "Silicon Valley Lacks Radical Innovation"

61 points by gatsby 16y ago

misterbwong 16y ago
Max Levchin: Groupon is probably under-valued. The fastest growing company ever. I came across a startup recently that had a Powerpoint and no engineers, no product and it had a $16 million valuation. That's an over-valued company. Interesting how different his opinion of Groupon's valuation is from the prevailing sentiment.
- loire280 16y ago
  Groupon has had pretty huge revenue growth and is currently bringing in some hundreds of millions of dollars a year in revenue. Skepticism about the ability to maintain that growth rate, and the suspicion of many (especially here) that they're burning bridges with the companies they work with put a high valuation in doubt, but that's a matter of opinion at this point. Evidence that Groupon is having any trouble finding partners to offer coupons is so far anecdotal. I never thought there'd be this much money in coupons, but so far it looks like it's a great business model. It wouldn't shock me if those valuations were true.
dreamux 16y ago
I think one of the big reasons you don't see startups changing the world anymore is that the name of the game has changed from 'go public' to 'get acquired'. Many game changing technologies that big companies have released in the past 10 years (since the dot-com crash) have been through acquisition. With the IPO market now completely stagnant, its nearly impossible to aim for a public offering... and your investors want an exit. Its not about changes in innovation, its about changes in exit strategy.
- jonny_eh 16y ago
  Is this a problem just in the US? Why don't we see more tech IPOs in other countries such as Canada?
  - yummyfajitas 16y ago
    Canada lacks the startup ecosystem (so few homegrown IPOs), and changing countries is tricky. Moving your flag while keeping your offices in the US is even trickier - you run into risks like double taxation (e.g., paying taxes on profits in Canada, then paying taxes in the US when you move the money from Canada to the US). Also, the benefits of being traded on TMX are not as large as the benefits of being traded on NASDAQ. Lower liquidity, the "huh?" factor, etc. That could change if many companies move to TMX, but there is a Chicken&Egg problem here.
- juiceandjuice 16y ago
  I'm not one to bash software, but software only goes so far in radical innovation. I think the reason you don't have the radical innovation is because everything has tipped heavily towards web and consumer/convenience oriented innovation. This isn't a bad thing, the costs for writing code are much smaller than R&D costs for most anything else, and it puts people to work and solves problems. There are still some companies like Tesla/SolarCity in the valley (or technically, on the East bay) changing the name of the game, but even Tesla is valued less than Groupon, for instance.
  - pnathan 16y ago
    I think this is one of the key factors: most of the buzz today is orienting on what amounts to entertainment for the moneyed. Since the moneyed, well, have money, they buy it, and thus the company does well. What makes my life 1% more fun does nothing for someone in a third-world country. This is compared to, say, 50 years ago, where something that made my life better, e.g., an advance in refrigeration tech, could be distributed out to the third world better. I'm pulling examples out of a hat here, and I'm sure that other and better examples could be found. There are a ton of more fundamental projects done by companies, people, and universities out there. But they don't get the buzz right now, generally speaking.
panarky 16y ago
Money quote: "Too many companies are featurettes."
gamble 16y ago
1950-2000 was one of those rare moments in history when industries (whole states, countries even) could coast on regular, incremental improvements to a single world-changing technology. SV was in the right place at the right time, and never totally lost it's edge. But the semiconductor and software industries are mature now, and spread much more widely than thirty years ago. SV still retains many advantages, but you can't get blood from a stone. The radical, disruptive stage of digital technology is over.
edw519 16y ago
A lot of what our parents generation did: building interstate highways, Manhattan Project, etc, could not be done today. Being the only remaining superpower (and having little global military competition) really takes the wind out of government's sails of achievement. Interstate highways, the Manhattan project, the space program, national infrastructure, aerospace, much medical technology, and even computers were all borne out of military necessity. With so many bad guys around the globe, only a traitor could vote against these things. Our parents built the stuff needed to save the world. We're building better ways to instantly share our bowel habits. I don't know whether to laugh or to cry.
- kenjackson 16y ago
  I'd love to find links to old newspaper articles talking about building interstate highways and such. Doing nearly anything today seems like it is near impossible. The costs, the time, and the political divisiveness (at even the city local level) makes doing a monorail or adding a line seem like Roe v Wade.
  - narrator 16y ago
    The health care debate in the U.S is a microcosm of all this. The only thing that people argue about is how much more money we're going to spend on it, and we already spend far more, as a percentage of GDP, on health care than any other nation. Any solution that has to do with process innovation, technology innovation or any sort of thing that would otherwise upset the status quo besides more money is largely ignored. There are so many vested interest involved that the only thing they can all support is even more money being poured down the same old rathole.
- shakeshake 16y ago
  Blah Blah Blah. Social networking was crucial for a country of highly oppressed people to overthrow their tyrannical government. Doctors can identify diseases from their phone in a way that would have taken days, we can de-salt water in way that is practical. New times, new problems. Our generation is pushing innovation at a speed that is unparalleled, don't confuse the 47 fart apps in the app store as a complete misappropriation of focus.
danenania 16y ago
How does "valuations are all over the map" jive with "there is no bubble in tech"? If a lot of tech companies are being systematically overvalued, isn't that the definition of a tech bubble? It's also no secret that monetary policy is as loose as ever, so it doesn't take a lot of dot-connecting to see which forces are driving these valuations, especially with Fed bedfellows like Goldman are getting involved. Would people be so willing to throw their cash behind 10-100x PE companies if they had to obtain that cash at market rates and without implicit government backstopping of losses? I'm sure no one involved in tech investing wants to recognize this situation for what it is, but come on now, anyone can see that something's fishy.
- kenjackson 16y ago
  I think a tech bubble generally means that nearly everyone is overvalued.
  - danenania 16y ago
    A sector being overvalued as a whole isn't enough? Perhaps the bubble is really focused on particular segments within what is generally known as 'tech', but it still seems like the most appropriate label.
    - kenjackson 16y ago
      I didn't realize they said the sector was overvalued as a whole. That is sufficient. I just caught the part that valuations were all over the map, which to me means that some companies are overvalued and others undervalued, but no significant trend one way or the other.
- deleted 16y ago
  [deleted]
vannevar 16y ago
They're right. Silicon Valley has become enamored with the overnight success, which is usually attributable to fashion rather than innovation. Real innovation often takes a long time to catch on, since by definition it goes against conventional wisdom. VCs don't want to get rich slowly, and entrepreneurs are following their lead in chasing hockey-stick growth curves, which are a lot easier to come by in fashion than they are in technology.
inthewoods 16y ago
Peter Thiel: "Everything is short-term focused no one is looking into the future, 15 to 20 years like they used to in our parents' generation. A lot of what our parents generation did: building interstate highways, Manhattan Project, etc, could not be done today." This from a huge libertarian?
- mindcrime 16y ago
  This from a huge libertarian? Being a libertarian doesn't conflict with wanting to be forward looking, or with wanting to do ambitious projects. And a "small 'l' libertarian" might even be OK with the State managing the construction of something like the Interstate highway system. A "Big 'L' Libertarian" would oppose funding such a project through coercive, involuntary taxation, but wouldn't necessarily oppose the idea in itself. They would just argue that a means of funding should be found that doesn't involve coercion. That said, I don't know Peter Thiel and I don't know how deeply his libertarian roots run, or how much of an ideologue he is. There are a lot of people who call themselves libertarians that I wouldn't necessarily call libertarians myself. <shrug />
  - jbooth 16y ago
    Libertarian has been diluted to meaningless. These days, if you go by majority vote, it generally means "doctrinaire conservative who decided deficits were really important on January 20th, 2009".
    - yummyfajitas 16y ago
      Here are some articles by libertarians criticizing deficits as early as 2004. http://www.cato.org/pubs/briefs/bp87.pdf http://www.cato.org/pubs/briefs/bp87.pdf http://reason.com/archives/2005/02/13/revive-gramm-rudmann http://reason.com/archives/2005/02/13/revive-gramm-rudmann http://reason.com/archives/2007/02/12/the-beltway-cut http://reason.com/archives/2007/02/12/the-beltway-cut
      - jbooth 16y ago
hendler 16y ago
Fundamental research isn't cheap or fast. Private investors aren't usually going to to take the long road until they can afford it.
jrk 16y ago
ML: There is not enough radical innovation in Silicon Valley. Focus is too narrow. Too many companies that are featurettes. Companies…like Slide?
- seiji 16y ago
  Maybe that's how he formed his opinion? He spent years catering to the whims of 14 year old girls. It failed.
freshfey 16y ago
You can't expect radical innovation every day. It takes time, just like it took time to build streets, cars, airplanes and mobile phones (50-100 years). We could however hope that the intervals between radical innovations are shorter, now that we have a more efficient way to use technology. IMO Google brought radical innovation and it is only what, 10-12 years old? The next big thing is probably in works, but we can't foresee the future so we'll know that is radical, when it's here.
hoag 16y ago
That was a great event, and that discussion sparked quite a bit of debate between my two friends and me over dinner afterwards. (Actually, you can see the three of us sitting in the front-right-most seats in the photo!) In my opinion, the notion of "radical innovation" depends on one's point of view: one could argue that, although the spectacular innovation during the space race, e.g, like landing a man on the moon, was indeed remarkable, it was, for all practical intents and purposes, little more than a political publicity stunt to the average individual, i.e., it did not have a profound effect on a personal level. In contrast, the developments of the past 20 years -- internet, cell phone, facebook -- have profoundly changed individuals around the planet. I don't think the question should be whether a thing is more or less innovative than another thing, but rather what effect the thing has had on a group of people on an individual level.

61 points by gatsby 16y ago

Max Levchin: Groupon is probably under-valued. The fastest growing company ever. I came across a startup recently that had a Powerpoint and no engineers, no product and it had a $16 million valuation. That's an over-valued company. Interesting how different his opinion of Groupon's valuation is from the prevailing sentiment.

loire280 16y ago
Groupon has had pretty huge revenue growth and is currently bringing in some hundreds of millions of dollars a year in revenue. Skepticism about the ability to maintain that growth rate, and the suspicion of many (especially here) that they're burning bridges with the companies they work with put a high valuation in doubt, but that's a matter of opinion at this point. Evidence that Groupon is having any trouble finding partners to offer coupons is so far anecdotal. I never thought there'd be this much money in coupons, but so far it looks like it's a great business model. It wouldn't shock me if those valuations were true.

dreamux 16y ago

I think one of the big reasons you don't see startups changing the world anymore is that the name of the game has changed from 'go public' to 'get acquired'. Many game changing technologies that big companies have released in the past 10 years (since the dot-com crash) have been through acquisition. With the IPO market now completely stagnant, its nearly impossible to aim for a public offering... and your investors want an exit. Its not about changes in innovation, its about changes in exit strategy.

jonny_eh 16y ago
Is this a problem just in the US? Why don't we see more tech IPOs in other countries such as Canada?
- yummyfajitas 16y ago
  Canada lacks the startup ecosystem (so few homegrown IPOs), and changing countries is tricky. Moving your flag while keeping your offices in the US is even trickier - you run into risks like double taxation (e.g., paying taxes on profits in Canada, then paying taxes in the US when you move the money from Canada to the US). Also, the benefits of being traded on TMX are not as large as the benefits of being traded on NASDAQ. Lower liquidity, the "huh?" factor, etc. That could change if many companies move to TMX, but there is a Chicken&Egg problem here.
juiceandjuice 16y ago
I'm not one to bash software, but software only goes so far in radical innovation. I think the reason you don't have the radical innovation is because everything has tipped heavily towards web and consumer/convenience oriented innovation. This isn't a bad thing, the costs for writing code are much smaller than R&D costs for most anything else, and it puts people to work and solves problems. There are still some companies like Tesla/SolarCity in the valley (or technically, on the East bay) changing the name of the game, but even Tesla is valued less than Groupon, for instance.
- pnathan 16y ago
  I think this is one of the key factors: most of the buzz today is orienting on what amounts to entertainment for the moneyed. Since the moneyed, well, have money, they buy it, and thus the company does well. What makes my life 1% more fun does nothing for someone in a third-world country. This is compared to, say, 50 years ago, where something that made my life better, e.g., an advance in refrigeration tech, could be distributed out to the third world better. I'm pulling examples out of a hat here, and I'm sure that other and better examples could be found. There are a ton of more fundamental projects done by companies, people, and universities out there. But they don't get the buzz right now, generally speaking.

panarky 16y ago

Money quote: "Too many companies are featurettes."

gamble 16y ago

1950-2000 was one of those rare moments in history when industries (whole states, countries even) could coast on regular, incremental improvements to a single world-changing technology. SV was in the right place at the right time, and never totally lost it's edge. But the semiconductor and software industries are mature now, and spread much more widely than thirty years ago. SV still retains many advantages, but you can't get blood from a stone. The radical, disruptive stage of digital technology is over.

edw519 16y ago

A lot of what our parents generation did: building interstate highways, Manhattan Project, etc, could not be done today. Being the only remaining superpower (and having little global military competition) really takes the wind out of government's sails of achievement. Interstate highways, the Manhattan project, the space program, national infrastructure, aerospace, much medical technology, and even computers were all borne out of military necessity. With so many bad guys around the globe, only a traitor could vote against these things. Our parents built the stuff needed to save the world. We're building better ways to instantly share our bowel habits. I don't know whether to laugh or to cry.

kenjackson 16y ago
I'd love to find links to old newspaper articles talking about building interstate highways and such. Doing nearly anything today seems like it is near impossible. The costs, the time, and the political divisiveness (at even the city local level) makes doing a monorail or adding a line seem like Roe v Wade.
- narrator 16y ago
  The health care debate in the U.S is a microcosm of all this. The only thing that people argue about is how much more money we're going to spend on it, and we already spend far more, as a percentage of GDP, on health care than any other nation. Any solution that has to do with process innovation, technology innovation or any sort of thing that would otherwise upset the status quo besides more money is largely ignored. There are so many vested interest involved that the only thing they can all support is even more money being poured down the same old rathole.
shakeshake 16y ago
Blah Blah Blah. Social networking was crucial for a country of highly oppressed people to overthrow their tyrannical government. Doctors can identify diseases from their phone in a way that would have taken days, we can de-salt water in way that is practical. New times, new problems. Our generation is pushing innovation at a speed that is unparalleled, don't confuse the 47 fart apps in the app store as a complete misappropriation of focus.

danenania 16y ago

How does "valuations are all over the map" jive with "there is no bubble in tech"? If a lot of tech companies are being systematically overvalued, isn't that the definition of a tech bubble? It's also no secret that monetary policy is as loose as ever, so it doesn't take a lot of dot-connecting to see which forces are driving these valuations, especially with Fed bedfellows like Goldman are getting involved. Would people be so willing to throw their cash behind 10-100x PE companies if they had to obtain that cash at market rates and without implicit government backstopping of losses? I'm sure no one involved in tech investing wants to recognize this situation for what it is, but come on now, anyone can see that something's fishy.

kenjackson 16y ago
I think a tech bubble generally means that nearly everyone is overvalued.
- danenania 16y ago
  A sector being overvalued as a whole isn't enough? Perhaps the bubble is really focused on particular segments within what is generally known as 'tech', but it still seems like the most appropriate label.
  - kenjackson 16y ago
    I didn't realize they said the sector was overvalued as a whole. That is sufficient. I just caught the part that valuations were all over the map, which to me means that some companies are overvalued and others undervalued, but no significant trend one way or the other.
deleted 16y ago
[deleted]

vannevar 16y ago

They're right. Silicon Valley has become enamored with the overnight success, which is usually attributable to fashion rather than innovation. Real innovation often takes a long time to catch on, since by definition it goes against conventional wisdom. VCs don't want to get rich slowly, and entrepreneurs are following their lead in chasing hockey-stick growth curves, which are a lot easier to come by in fashion than they are in technology.

inthewoods 16y ago

Peter Thiel: "Everything is short-term focused no one is looking into the future, 15 to 20 years like they used to in our parents' generation. A lot of what our parents generation did: building interstate highways, Manhattan Project, etc, could not be done today." This from a huge libertarian?

mindcrime 16y ago
This from a huge libertarian? Being a libertarian doesn't conflict with wanting to be forward looking, or with wanting to do ambitious projects. And a "small 'l' libertarian" might even be OK with the State managing the construction of something like the Interstate highway system. A "Big 'L' Libertarian" would oppose funding such a project through coercive, involuntary taxation, but wouldn't necessarily oppose the idea in itself. They would just argue that a means of funding should be found that doesn't involve coercion. That said, I don't know Peter Thiel and I don't know how deeply his libertarian roots run, or how much of an ideologue he is. There are a lot of people who call themselves libertarians that I wouldn't necessarily call libertarians myself. <shrug />
- jbooth 16y ago
  Libertarian has been diluted to meaningless. These days, if you go by majority vote, it generally means "doctrinaire conservative who decided deficits were really important on January 20th, 2009".
  - yummyfajitas 16y ago
    Here are some articles by libertarians criticizing deficits as early as 2004. http://www.cato.org/pubs/briefs/bp87.pdf http://www.cato.org/pubs/briefs/bp87.pdf http://reason.com/archives/2005/02/13/revive-gramm-rudmann http://reason.com/archives/2005/02/13/revive-gramm-rudmann http://reason.com/archives/2007/02/12/the-beltway-cut http://reason.com/archives/2007/02/12/the-beltway-cut
    - jbooth 16y ago

hendler 16y ago

Fundamental research isn't cheap or fast. Private investors aren't usually going to to take the long road until they can afford it.

jrk 16y ago

ML: There is not enough radical innovation in Silicon Valley. Focus is too narrow. Too many companies that are featurettes. Companies…like Slide?

seiji 16y ago
Maybe that's how he formed his opinion? He spent years catering to the whims of 14 year old girls. It failed.

freshfey 16y ago

You can't expect radical innovation every day. It takes time, just like it took time to build streets, cars, airplanes and mobile phones (50-100 years). We could however hope that the intervals between radical innovations are shorter, now that we have a more efficient way to use technology. IMO Google brought radical innovation and it is only what, 10-12 years old? The next big thing is probably in works, but we can't foresee the future so we'll know that is radical, when it's here.

hoag 16y ago

That was a great event, and that discussion sparked quite a bit of debate between my two friends and me over dinner afterwards. (Actually, you can see the three of us sitting in the front-right-most seats in the photo!) In my opinion, the notion of "radical innovation" depends on one's point of view: one could argue that, although the spectacular innovation during the space race, e.g, like landing a man on the moon, was indeed remarkable, it was, for all practical intents and purposes, little more than a political publicity stunt to the average individual, i.e., it did not have a profound effect on a personal level. In contrast, the developments of the past 20 years -- internet, cell phone, facebook -- have profoundly changed individuals around the planet. I don't think the question should be whether a thing is more or less innovative than another thing, but rather what effect the thing has had on a group of people on an individual level.