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Why Silicon Valley funds Instagrams, not Hyperloops

123 points by thejerz 13y ago

dclowd9901 13y ago
While I agree with OP on the frustration of SV not aiming its efforts at Big Problems, I'm differing on the why (which is the standard allotment of "it's not economically viable in the short term). I think there simply isn't the talent or guts to take on these projects. It's one thing to "disrupt" easy targets like paying for something or getting a ride from here to there. They're heavily regulated industries, full of bullshit, and ripe for the taking. All the "innovators" did was ignore the laws that made those industries suck. It seems to be a winning strategy. But to actually build something huge. To try to churn it through a state's government. Get funding. Get permits. Hire competent engineers that won't kill people. Deal with suppliers and construction. These are massive, massive undertakings. Indeed, building the proverbial hyperloop is not a "startup" endeavor. It's not something spry, spanky groups of new college graduates can jump into with reckless abandon. The reason investors don't invest in a hyperloop is because there isn't a competent body heading the effort. If Musk were to say, "I, Elon Musk, am going to create the first hyperloop, with my new company Hyperloop Inc." he would get so much funding, he could stuff it in his ass and fly to the moon. Same with Boeing, Airbus or Lockheed Martin. The common denominator is the capability. But I have a feeling even Musk himself is too afraid of the kind of effort it takes to build a transport between 350 miles of California.
- gte910h 13y ago
  I honestly think for someone like him, getting to mars would be easier than >the kind of effort it takes to build a transport between 350 miles of California And I'd far prefer him to do that too (the mars)
pdq 13y ago
It's quite simple, actually: - The capital investment required for Instagram is well under a million dollars - The capital investment required for Hyperloop is well over a billion dollars (R&D, Materials/Prototypes, Insurance, Land, Construction) The best-case returns are: - 1 billion for Instagram - 20 billion for Hyperloop Thus, the best-case ROI for both are: - 1000x for Instagram - 20x for Hyperloop The timelines to get to production are: - less than 1 year for Instagram - minimum 5 years for Hyperloop The only way Hyperloop will happen is if there is a way to incrementally get there. In other words, if you can make a 1/1000-size scaled-down prototype, iterate and improve upon the design, and then scale up to a full-sized model.
- epoxyhockey 13y ago
  Your argument is spot on, however, Hyperloop is just a different game altogether. It is an infrastructure project and those projects are usually bankrolled by governments (local + federal funds). Even SapceX seems to be largely supported by NASA contracts. The only large SV project I've heard about in recent time is Planetary Resources, the company that wants to mine asteroids. But, the returns for that expensive project would approach the 1000x that SV firms wish for.
  - jessaustin 13y ago
    Admittedly both of these projects are quite ambitious, but I have to think that delivering equipment to asteroids, maintaining that equipment while it works, and then returning the output of that work to Earth, seems much more involved than building and operating a 300-mile evacuated pipe on the Earth's surface.
- andrewljohnson 13y ago
  The investment capital for Instagram was about $57.5M, not $1M: http://www.crunchbase.com/company/instagram http://www.crunchbase.com/company/instagram Otherwise, this is the Occam's Razor answer to me, and I agree. Private industry is just now beginning to fund things like Hyperloops and space ships - this was the role of nation-states in the past, because making trains and going to space was more costly and un-risk-manageable than any real business. The government doesn't have to build the trains, but they incentive the building. Direct government construction of infrastructure is evolving, and in the coming decades, private industry will be more involved in the investment end of it too, because the price of production and the amount of public knowledge is increasing. I don't think our modern day robber barons have that much more real capital than their forefathers (comparing like people like Rockefeller to Gates), but it's cheaper to build a railroad, and there's the whole open internet and body of academic knowledge to consult.
- richardjordan 13y ago
  This is wrong on many levels. Firstly funding over a billion dollars is not remotely intimidating to the large VC funds who understand about capital intensive businesses and managing the investment lifecycle. When you put together very large sums of investment you don't have a 100x expectation for return. The institutionals which will take on later stages of this financing just want to outperform the other investment options they have for that amount of casH (not that many). Your 20Bn upside for Hyperloop is very low. If done to scale and over the long haul it's a very big opportunity. Even then I know of no investors - ZERO - who wouldn't take a 20x return on a billion dollar placement. Finally. Instagram. Really? An outlier like that is what you're going to base your idea of investment on. Look at VC returns. They take a portfolio strategy for a reason. It's a common misunderstanding that VCs want to put small amounts of money to work for huge returns. They'd much rather put much bigger amounts of money to work. It's how they're structured. Do they want the odd moonshot Instagram in their? Sure. They'll take it. But they'd take 1billion -> 20billion over 1million -> 1billion every day.
the_watcher 13y ago
The reason is simple: cost + risk. It's easier to come up with the much smaller amount required to fund Instagram than to come up with enough to fund the Hyperloop. Less money is at risk. It's that simple. There may be other factors at play, but this is by far the most important.
- deleted 13y ago
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- aardvark 13y ago
  This. And related to risk: When a website fails, it doesn't hurt anyone; if this tube were built, and then found to have a fatal design flaw, the liability would be enormous.
mcphilip 13y ago
For a counterargument, see http://greatergreaterwashington.org/post/19848/musks-hyperloop-math-doesnt-add-up/ http://greatergreaterwashington.org/post/19848/musks-hyperlo... I'm all for innovation and pursuing alternate forms of transportation, but I don't pretend Musk's claims are above criticism. As for the jerrygangi.com article, it grossly misrepresents Warrent Buffet's investment strategy: >Here’s a piece of news: real investors don’t care what industry they invest in. Warren Buffet has invested in railroads, furniture companies, insurance companies, and hundreds more. This is in direct opposition to what Buffet has actually said about investing [1]: "Never invest in a business you cannot understand." Using Buffet's actual statements and not some misrepresentation of his ideas, it seems clear that Buffet would require a great deal of due diligence to validate Musk's ideas before considering any investment. [1]http://www.socialphy.com/posts/off-topic/9789/Warren-Buffett-Quotes-On-Investing.html http://www.socialphy.com/posts/off-topic/9789/Warren-Buffett...
- k-mcgrady 13y ago
  >> "This is in direct opposition to what Buffet has actually said about investing [1]" I disagree. Buffet probably knows quite a lot about those industries. You don't need to be an expert you just need to spend some time getting to understand them well enough to make a balanced decision.
  - mcphilip 13y ago
    I never argued that Buffet doesn't understand railroads, furniture companies, etc. My point is that there isn't enough information about hyperloop, yet, to truly understand the risks involved in investing in it.
    - k-mcgrady 13y ago
      I thought you were speaking more generally about investing not specifically about Hyperloop. My mistake.
  - adventured 13y ago
    The issue is this: "real investors don’t care what industry they invest in" That's a drastically bogus statement. First of all, it attempts a rather lame argument from authority ("real investors"). Second, Warren Buffett has, for about five decades, been exceptionally clear about his investing philosophy. He has written magnitudes on it. You can read it in the lines of his annual letters, and watch him explain it on countless CNBC clips. He absolutely cares what industry he invests into. One simple example: he said in the 1990s that he wouldn't invest into Microsoft, despite having become friends with Bill Gates, because he couldn't understand the tech sector well enough to pick winners. He famously stayed away from all tech stocks during the roaring '90s, with the explanation that he didn't understand any of the segments.
fnayr 13y ago
The post is obnoxious to read. You get like 4 lines at a time on a 15" display. I know the design is for supposed readability, but if that were the main goal, then why have the gigantic annoying ad banner at the top that you can't close.
richardjordan 13y ago
Silicon Valley funds Instagrams not Hyperloops because it funds things where it can manage risk in a predictable way through capital. Contrary to other comments it's not down to scale of investment. There's a lot of investment cash out there and it's actually VERY hard to find big investment deals - if you have an opportunity to put a ton of cash to work it's appealing. Hyperloop will be absolutely bogged down in political dealing, backhanders, corrupt politicians, labor unions, incumbent industries so inefficient they'd rather spend money on lobbying and gaming the political system than doing something about their fading competitive position. This is just not something that allows financial backers to have any kind of forward visibility, even modeled, into their investment. Silicon Valley isn't TechCrunch. That's just the noise and that kind of startup is just what you see and hear the most. There's not a lack of thinking big or looking outside the consumer internet software space. Look at how Silicon Valley bet heavily on Cleantech and got its ass handed to it. That wasn't lack of vision. Or lack of capital. It was venturing into investment arenas where success factors became more political than economic; more corrupt back room dealings than efficient execution and management skills.
TheBiv 13y ago
The page was nearly unusable on mobile...here is a web cache link http://webcache.googleusercontent.com/search?q=cache:http://jerzygangi.com/why-silicon-valley-funds-instagrams-not-hyperloops/ http://webcache.googleusercontent.com/search?q=cache:http://...
cinquemb 13y ago
I ultimately think it comes down to that people don't think they need these things because they have options now (however poor they may be compared to the option that could be built in the future). "The stock market used to be a place where entrepreneurs went and raised money for their companies. That’s what the stock market used to be. Today the stock market is a place where hedge fund managers and quant traders are shaving fractions of a penny off benign movements in price and volume. One of the byproducts of going from an entrepreneurial stock market to a hyper-traded stock market is that new companies can’t survive unless they have a market cap of at least $10 billion dollars. Don’t even bother going public with less than that. It’s not worth the time, or the money, or the effort." I think because of the above, that sites like kickstarter and indigogo have become sort of like the new IPO market where would be entrepreneurs and hobbyists can raise funds to make things people want, without the huge burden of the legal liabilities associated with typical investments. (aside: I wonder how people could build on top of this to become sort of the quants of these new platforms?) To be honest, I don't think people are really craving a faster way to get to their (shitty) jobs, and would much rather a better socioeconomic situation… what does the hyperloop for that look like that would render the current reality obsolete and undesirable comparatively?
rayiner 13y ago
Silicon Valley doesn't have the money to fund hyperloops. Its designed around throwing relatively small amounts here and there, not $10 billion investments the returns from which could take a couple of decades to materialize. $10 billion is close to all the SV VC investment in a year, and realistically, hyperloop is not happening for less than some multiple of that.
tptacek 13y ago
Why isn't this as simple as "the world's largest VC firms don't manage enough money to put a dent in a Hyperloop-scale concept, and need liquidity long before even the most optimistic projections for Hyperloop construction would suggest a payout"? Venture capital isn't a public service. It's small teams of investment bankers making bets with endowments and pension funds. The investments have to fit the model, not the other way around.
- tomkarlo 13y ago
  Also, VCs don't fund public utilities / infrastructure, which are (at best) generally capital-intense, low-risk but low-return projects. If a project like the Hyperloop had to depend on private funding, it would need to return hundreds of billions in value, and that's just not going to happen. To get things like eminent domain, it has to be built as a public good, which means it at the very least has to be affordable for the average citizen (in some form.) That's why projects like high speed trains should be funded out of the public coffer and are generally unsuitable for private investors. Now, building a company to develop Hyperloop tech / high-speed train technology? I'm sure that's something private investment could do, but I don't think it's really SV's forte - there are other places that would be better suited to that kind of engineering.
workhere-io 13y ago
In doing some research online I found out that other American inventors have had similar designs and proposals for a decade Wikipedia mentions an American who proposed something like this as early as 1867, and British scientists had played with the idea even before that. http://en.wikipedia.org/wiki/Pneumatic_tube#In_public_transportation http://en.wikipedia.org/wiki/Pneumatic_tube#In_public_transp...
ericabiz 13y ago
I think the author is on to something with the small bets, investors being wimps, etc. And I'd add to that: The pressure with these small bets is for a startup to produce something fast. The whole culture is designed around "What can you do in a weekend, prove a market exists, and then scale manually until your dev team can catch up?" Hence why every 3rd startup out of YC seems to be "Uber for [laundry, house cleaning, menial tasks, etc.]" It's an easy model to prove and scale. A lot of ideas take longer than a few months and a few hundred thousand dollars to prove, but investors don't want to take the risk and founders see it as easier to build a laundry service and get paying customers in a week than to come up with a really big idea and potentially waste millions getting it to the point where it would be a failure or a success. I don't think it's Instagram we need to worry about--I think it's the myriad of startups that are getting funded to the tune of a few million in a seed or a Series A that really aren't doing much of anything past scaling an "old-school" business, and the investor/accelerator culture that forces these startups to build a business in a week or two. (I say this as someone who's running a funded startup and currently going through a top accelerator, so at least I have a first-hand perspective.)
- tptacek 13y ago
  It's not simply that investors don't want to take certain risks. It's that some kinds of risks are outside their parameters. VCs are built up in our minds as towering financial authorities, but really they're just small teams of MBAs who are themselves raising money from foundations and pension funds, and the fraction of that capital that they get to work with is very small; a large pension fund wants some exposure to the market dynamics of "venture capital", but no pension fund wants to bet the farm on a Hyperloop. When you grok how venture capital actually works, it gets easier to see how much less important they are to the economy than they seem. Startups like Instagram emerge from the parameters of VC, not from the whims or me-tooiness of the VC partners.
  - crapshoot101 13y ago
    Again, this is a standard trope at HN,but is wrong - they are not primarily financial it goes like hedge fund or PE guys. Most top tier firms are made up of former entrepreneur types. And the idea that they all don't invest in groundbreaking technology is because quite frankly a perception issue here - is the average YC company a groundbreaking tech or closer to an Instagram? A lot of the clean tech investing was disastrous, but that is an example where a lot of interesting tech was backed, some of which has hit the market. Jut because it doesn't reach the front page here does not mean it doesn't happen.
chrisgd 13y ago
That is why it is imperative we have a government that can make investments into future energy and infrastructure needs even if it potentially destroys existing companies in the long run.
pg 13y ago
If the author wanted to be fair, the title should be "Why Silicon Valley funds SpaceXes and Teslas, and not Hyperloops." And then it would be clear that the answer is simply that Elon is working on SpaceX and Tesla, and not on the Hyperloop.
- tptacek 13y ago
  Tesla's A round was just 7MM, and it's B less than 15MM.
  - phil 13y ago
    Yeah -- but what are the chances SpaceX would exist if Musk hadn't personally invested the first $100m? And Tesla might have been cheaper at first, but Musk led the A round and participated in every funding until the F round (!). Without a deep pocketed founder willing to absorb years of losses, what are the chances Tesla ever makes it to market? Even so they nearly died before they shipped the roadster.
    - tptacek 13y ago
      Yes, that's my point; the VCs didn't really enable these companies, Musk did.
      - phil 13y ago
        My mistake. I thought your point was, "Tesla was much cheaper to start than people think, well within normal parameters for early venture rounds."
      - jfoster 13y ago
        If Musk put down his money, isn't he a VC by definition?
        bradleyland 13y ago
        He funded his own idea. The definition of "VC funding" isn't a concrete thing. What's important is the distinction between the way companies like Tesla and SpaceX came to where they are today when compared with companies like Instagram and Facebook.
nabnob 13y ago
So, how can we fix this? I like the idea of crowdsourcing funding, as with the Ubuntu Edge (http://www.indiegogo.com/projects/ubuntu-edge http://www.indiegogo.com/projects/ubuntu-edge). They aren't asking for funding quite on the same scale as the Hyperloop, but it's definitely larger than the ~ $1 million required for another phone app.
deleted 13y ago
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aardvark 13y ago
>Furthermore, the stock market isn’t influenced by value today like it was thirty years ago. This simply isn't true. It was nearly 30 years ago that Warren Buffett published his article "The Superinvestors of Graham-and-Doddsville" arguing that the market didn't accurately value many companies, and that anyone could become rich by taking the time to find market inefficiencies. And in the article he described the approach he had already been using for nearly three decades. There have always been discrepancies between stock prices and companies' true values.
VintageCool 13y ago
> In short, Silicon Valley has killed major innovation. That's being somewhat extremist. I don't think that major innovation stopped after the Facebook IPO. I doubt that it has even slowed down that much.
coldtea 13y ago
One reason is that what an enterpreneur will work on also depends on the prevailing ethics and idea about his role in society of the time. In a post-yuppie, money-grubbing enterprenerial climate, they are more likely to invest and work on make-money-quick BS schemes, like social websites and mobile trivialities ("like Instagram, but for goat milk drinkers"). An era which respected industry, infrastructure, and succesful industrialists, etc, produced different results. Musk (and Jobs) were like that -- but 90% of enterpreneurs out there today would model themeselves after Zuckenberg or Systrom instead of them.
bitwize 13y ago
It's the same reason why the music industry funds Justin Biebers, not Bob Dylans. They're looking for an extremely high profit to innovation ratio, the one piece of shit among many similar pieces of shit that "catches on" and turns into a money press. That said, Hyperloop looks cool on paper but when I see all this geek excitement over it before the engineering research has been done to make it cost-effective I hear in the subtext a chant of "Monorail! Monorail! Monorail!"
nightski 13y ago
This article is so annoying I don't even know where to begin. I have a hard time believing this is on the front page of Hacker News. If you are going to reduce the revolution of the information age to Instagram well then yes you might have a point. Let's ignore the most important innovations our society has seen that have come about in the last few decades. But the truth is, is Hyperloop even the right solution? Would it really make our lives that much better? Do you need to travel nearly as much as you used to? I actually actively avoid travel, communicating remotely if possible. If Hyperloop was a UPS style service, then I could potentially see the use for it. Get your package in hours. But as a consumer transport? I don't think it is nearly as innovative or revolutionary as most people seem. But I am just a software engineer, who am I to discuss these things.
rayiner 13y ago
There is also the basic economic argument that much of the value of transit cannot be captured by a private investor because of externalities. The value of a transit line isn't just to people who ride it. This is obvious: compare commercial real estate leases near a subway stop versus ones far away. Governments can capture those positive externalities through general increases in tax revenue or things like tax increment districts. Private operators are stuck trying to recoup all their investment solely from riders.
DennisP 13y ago
Counterexamples: General Fusion and Tri-Alpha are two companies attempting to build commercial fusion reactors that are well-financed by investors. General Fusion got $40 million plus another round recently, and Tri-Alpha was up to $140 million before a recent investment from someone in Russia. But both were funded early on by billionaires, Paul Allen for Tri-Alpha and Jeff Bezos for General Fusion. On the other hand, the focus fusion guys are putting up better numbers than Tri-Alpha and they're still running on a shoestring.
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- cnlwsu 13y ago
  There are limits though. I don't care how nice the camera is on my iPad, I still want to visit my family for thanksgiving. I don't think the author deemed wikipedia, google and coursera worthless. Its asking the question of why a pitch like "facebook for horses" is more likely to get funding then a revolutionary mass transit system.
abalone 13y ago
This is a sad statement on the complete utter lack of awareness of how the system of tech development works in the United States. The simple reason Silicon Valley doesn't fund Hyperloops is because they cost BILLIONS to develop over DECADES, with highly uncertain outcomes. This scale of large-scale, long-term, technology investment risk is borne by..... drumroll..... TAXPAYERS. The guv'ment. Uncle Sam. The Internet. Computers. NASA (hello SpaceX). Airplanes. Even frickin Siri was funded by the public. The way it works is it's done under the banner of military applications. DARPA is a key agency in core development, but a very large part is government procurement. Then whatever works out given away pretty much for free to private hands. Silicon Valley specializes in investing in the "last mile" of commercial development. It's still risky, but orders of magnitude less than something like developing Hyperloop from scratch.
jotm 13y ago
It seems to me that these days, entrepreneurs are in for the short term - they want to blow up fast, then sell off their company for the highest price possible. Few are in for the long term, and I don't understand why.
dmragone 13y ago
You have 10 reasons. Your numbered list has 7 twice. Also, the reason is very simple: there's no money to be made in building a Hyperloop. There's a good reason Musk didn't (and won't) work on it.

123 points by thejerz 13y ago

While I agree with OP on the frustration of SV not aiming its efforts at Big Problems, I'm differing on the why (which is the standard allotment of "it's not economically viable in the short term). I think there simply isn't the talent or guts to take on these projects. It's one thing to "disrupt" easy targets like paying for something or getting a ride from here to there. They're heavily regulated industries, full of bullshit, and ripe for the taking. All the "innovators" did was ignore the laws that made those industries suck. It seems to be a winning strategy. But to actually build something huge. To try to churn it through a state's government. Get funding. Get permits. Hire competent engineers that won't kill people. Deal with suppliers and construction. These are massive, massive undertakings. Indeed, building the proverbial hyperloop is not a "startup" endeavor. It's not something spry, spanky groups of new college graduates can jump into with reckless abandon. The reason investors don't invest in a hyperloop is because there isn't a competent body heading the effort. If Musk were to say, "I, Elon Musk, am going to create the first hyperloop, with my new company Hyperloop Inc." he would get so much funding, he could stuff it in his ass and fly to the moon. Same with Boeing, Airbus or Lockheed Martin. The common denominator is the capability. But I have a feeling even Musk himself is too afraid of the kind of effort it takes to build a transport between 350 miles of California.

gte910h 13y ago
I honestly think for someone like him, getting to mars would be easier than >the kind of effort it takes to build a transport between 350 miles of California And I'd far prefer him to do that too (the mars)

pdq 13y ago

It's quite simple, actually: - The capital investment required for Instagram is well under a million dollars - The capital investment required for Hyperloop is well over a billion dollars (R&D, Materials/Prototypes, Insurance, Land, Construction) The best-case returns are: - 1 billion for Instagram - 20 billion for Hyperloop Thus, the best-case ROI for both are: - 1000x for Instagram - 20x for Hyperloop The timelines to get to production are: - less than 1 year for Instagram - minimum 5 years for Hyperloop The only way Hyperloop will happen is if there is a way to incrementally get there. In other words, if you can make a 1/1000-size scaled-down prototype, iterate and improve upon the design, and then scale up to a full-sized model.

epoxyhockey 13y ago
Your argument is spot on, however, Hyperloop is just a different game altogether. It is an infrastructure project and those projects are usually bankrolled by governments (local + federal funds). Even SapceX seems to be largely supported by NASA contracts. The only large SV project I've heard about in recent time is Planetary Resources, the company that wants to mine asteroids. But, the returns for that expensive project would approach the 1000x that SV firms wish for.
- jessaustin 13y ago
  Admittedly both of these projects are quite ambitious, but I have to think that delivering equipment to asteroids, maintaining that equipment while it works, and then returning the output of that work to Earth, seems much more involved than building and operating a 300-mile evacuated pipe on the Earth's surface.
andrewljohnson 13y ago
The investment capital for Instagram was about $57.5M, not $1M: http://www.crunchbase.com/company/instagram http://www.crunchbase.com/company/instagram Otherwise, this is the Occam's Razor answer to me, and I agree. Private industry is just now beginning to fund things like Hyperloops and space ships - this was the role of nation-states in the past, because making trains and going to space was more costly and un-risk-manageable than any real business. The government doesn't have to build the trains, but they incentive the building. Direct government construction of infrastructure is evolving, and in the coming decades, private industry will be more involved in the investment end of it too, because the price of production and the amount of public knowledge is increasing. I don't think our modern day robber barons have that much more real capital than their forefathers (comparing like people like Rockefeller to Gates), but it's cheaper to build a railroad, and there's the whole open internet and body of academic knowledge to consult.
richardjordan 13y ago
This is wrong on many levels. Firstly funding over a billion dollars is not remotely intimidating to the large VC funds who understand about capital intensive businesses and managing the investment lifecycle. When you put together very large sums of investment you don't have a 100x expectation for return. The institutionals which will take on later stages of this financing just want to outperform the other investment options they have for that amount of casH (not that many). Your 20Bn upside for Hyperloop is very low. If done to scale and over the long haul it's a very big opportunity. Even then I know of no investors - ZERO - who wouldn't take a 20x return on a billion dollar placement. Finally. Instagram. Really? An outlier like that is what you're going to base your idea of investment on. Look at VC returns. They take a portfolio strategy for a reason. It's a common misunderstanding that VCs want to put small amounts of money to work for huge returns. They'd much rather put much bigger amounts of money to work. It's how they're structured. Do they want the odd moonshot Instagram in their? Sure. They'll take it. But they'd take 1billion -> 20billion over 1million -> 1billion every day.

the_watcher 13y ago

The reason is simple: cost + risk. It's easier to come up with the much smaller amount required to fund Instagram than to come up with enough to fund the Hyperloop. Less money is at risk. It's that simple. There may be other factors at play, but this is by far the most important.

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aardvark 13y ago
This. And related to risk: When a website fails, it doesn't hurt anyone; if this tube were built, and then found to have a fatal design flaw, the liability would be enormous.

mcphilip 13y ago

For a counterargument, see http://greatergreaterwashington.org/post/19848/musks-hyperloop-math-doesnt-add-up/ http://greatergreaterwashington.org/post/19848/musks-hyperlo... I'm all for innovation and pursuing alternate forms of transportation, but I don't pretend Musk's claims are above criticism. As for the jerrygangi.com article, it grossly misrepresents Warrent Buffet's investment strategy: >Here’s a piece of news: real investors don’t care what industry they invest in. Warren Buffet has invested in railroads, furniture companies, insurance companies, and hundreds more. This is in direct opposition to what Buffet has actually said about investing [1]: "Never invest in a business you cannot understand." Using Buffet's actual statements and not some misrepresentation of his ideas, it seems clear that Buffet would require a great deal of due diligence to validate Musk's ideas before considering any investment. [1]http://www.socialphy.com/posts/off-topic/9789/Warren-Buffett-Quotes-On-Investing.html http://www.socialphy.com/posts/off-topic/9789/Warren-Buffett...

k-mcgrady 13y ago
>> "This is in direct opposition to what Buffet has actually said about investing [1]" I disagree. Buffet probably knows quite a lot about those industries. You don't need to be an expert you just need to spend some time getting to understand them well enough to make a balanced decision.
- mcphilip 13y ago
  I never argued that Buffet doesn't understand railroads, furniture companies, etc. My point is that there isn't enough information about hyperloop, yet, to truly understand the risks involved in investing in it.
  - k-mcgrady 13y ago
    I thought you were speaking more generally about investing not specifically about Hyperloop. My mistake.
- adventured 13y ago
  The issue is this: "real investors don’t care what industry they invest in" That's a drastically bogus statement. First of all, it attempts a rather lame argument from authority ("real investors"). Second, Warren Buffett has, for about five decades, been exceptionally clear about his investing philosophy. He has written magnitudes on it. You can read it in the lines of his annual letters, and watch him explain it on countless CNBC clips. He absolutely cares what industry he invests into. One simple example: he said in the 1990s that he wouldn't invest into Microsoft, despite having become friends with Bill Gates, because he couldn't understand the tech sector well enough to pick winners. He famously stayed away from all tech stocks during the roaring '90s, with the explanation that he didn't understand any of the segments.

fnayr 13y ago

The post is obnoxious to read. You get like 4 lines at a time on a 15" display. I know the design is for supposed readability, but if that were the main goal, then why have the gigantic annoying ad banner at the top that you can't close.

richardjordan 13y ago

Silicon Valley funds Instagrams not Hyperloops because it funds things where it can manage risk in a predictable way through capital. Contrary to other comments it's not down to scale of investment. There's a lot of investment cash out there and it's actually VERY hard to find big investment deals - if you have an opportunity to put a ton of cash to work it's appealing. Hyperloop will be absolutely bogged down in political dealing, backhanders, corrupt politicians, labor unions, incumbent industries so inefficient they'd rather spend money on lobbying and gaming the political system than doing something about their fading competitive position. This is just not something that allows financial backers to have any kind of forward visibility, even modeled, into their investment. Silicon Valley isn't TechCrunch. That's just the noise and that kind of startup is just what you see and hear the most. There's not a lack of thinking big or looking outside the consumer internet software space. Look at how Silicon Valley bet heavily on Cleantech and got its ass handed to it. That wasn't lack of vision. Or lack of capital. It was venturing into investment arenas where success factors became more political than economic; more corrupt back room dealings than efficient execution and management skills.

TheBiv 13y ago

The page was nearly unusable on mobile...here is a web cache link http://webcache.googleusercontent.com/search?q=cache:http://jerzygangi.com/why-silicon-valley-funds-instagrams-not-hyperloops/ http://webcache.googleusercontent.com/search?q=cache:http://...

cinquemb 13y ago

I ultimately think it comes down to that people don't think they need these things because they have options now (however poor they may be compared to the option that could be built in the future). "The stock market used to be a place where entrepreneurs went and raised money for their companies. That’s what the stock market used to be. Today the stock market is a place where hedge fund managers and quant traders are shaving fractions of a penny off benign movements in price and volume. One of the byproducts of going from an entrepreneurial stock market to a hyper-traded stock market is that new companies can’t survive unless they have a market cap of at least $10 billion dollars. Don’t even bother going public with less than that. It’s not worth the time, or the money, or the effort." I think because of the above, that sites like kickstarter and indigogo have become sort of like the new IPO market where would be entrepreneurs and hobbyists can raise funds to make things people want, without the huge burden of the legal liabilities associated with typical investments. (aside: I wonder how people could build on top of this to become sort of the quants of these new platforms?) To be honest, I don't think people are really craving a faster way to get to their (shitty) jobs, and would much rather a better socioeconomic situation… what does the hyperloop for that look like that would render the current reality obsolete and undesirable comparatively?

rayiner 13y ago

Silicon Valley doesn't have the money to fund hyperloops. Its designed around throwing relatively small amounts here and there, not $10 billion investments the returns from which could take a couple of decades to materialize. $10 billion is close to all the SV VC investment in a year, and realistically, hyperloop is not happening for less than some multiple of that.

tptacek 13y ago

Why isn't this as simple as "the world's largest VC firms don't manage enough money to put a dent in a Hyperloop-scale concept, and need liquidity long before even the most optimistic projections for Hyperloop construction would suggest a payout"? Venture capital isn't a public service. It's small teams of investment bankers making bets with endowments and pension funds. The investments have to fit the model, not the other way around.

tomkarlo 13y ago
Also, VCs don't fund public utilities / infrastructure, which are (at best) generally capital-intense, low-risk but low-return projects. If a project like the Hyperloop had to depend on private funding, it would need to return hundreds of billions in value, and that's just not going to happen. To get things like eminent domain, it has to be built as a public good, which means it at the very least has to be affordable for the average citizen (in some form.) That's why projects like high speed trains should be funded out of the public coffer and are generally unsuitable for private investors. Now, building a company to develop Hyperloop tech / high-speed train technology? I'm sure that's something private investment could do, but I don't think it's really SV's forte - there are other places that would be better suited to that kind of engineering.

workhere-io 13y ago

In doing some research online I found out that other American inventors have had similar designs and proposals for a decade Wikipedia mentions an American who proposed something like this as early as 1867, and British scientists had played with the idea even before that. http://en.wikipedia.org/wiki/Pneumatic_tube#In_public_transportation http://en.wikipedia.org/wiki/Pneumatic_tube#In_public_transp...

ericabiz 13y ago

I think the author is on to something with the small bets, investors being wimps, etc. And I'd add to that: The pressure with these small bets is for a startup to produce something fast. The whole culture is designed around "What can you do in a weekend, prove a market exists, and then scale manually until your dev team can catch up?" Hence why every 3rd startup out of YC seems to be "Uber for [laundry, house cleaning, menial tasks, etc.]" It's an easy model to prove and scale. A lot of ideas take longer than a few months and a few hundred thousand dollars to prove, but investors don't want to take the risk and founders see it as easier to build a laundry service and get paying customers in a week than to come up with a really big idea and potentially waste millions getting it to the point where it would be a failure or a success. I don't think it's Instagram we need to worry about--I think it's the myriad of startups that are getting funded to the tune of a few million in a seed or a Series A that really aren't doing much of anything past scaling an "old-school" business, and the investor/accelerator culture that forces these startups to build a business in a week or two. (I say this as someone who's running a funded startup and currently going through a top accelerator, so at least I have a first-hand perspective.)

tptacek 13y ago
It's not simply that investors don't want to take certain risks. It's that some kinds of risks are outside their parameters. VCs are built up in our minds as towering financial authorities, but really they're just small teams of MBAs who are themselves raising money from foundations and pension funds, and the fraction of that capital that they get to work with is very small; a large pension fund wants some exposure to the market dynamics of "venture capital", but no pension fund wants to bet the farm on a Hyperloop. When you grok how venture capital actually works, it gets easier to see how much less important they are to the economy than they seem. Startups like Instagram emerge from the parameters of VC, not from the whims or me-tooiness of the VC partners.
- crapshoot101 13y ago
  Again, this is a standard trope at HN,but is wrong - they are not primarily financial it goes like hedge fund or PE guys. Most top tier firms are made up of former entrepreneur types. And the idea that they all don't invest in groundbreaking technology is because quite frankly a perception issue here - is the average YC company a groundbreaking tech or closer to an Instagram? A lot of the clean tech investing was disastrous, but that is an example where a lot of interesting tech was backed, some of which has hit the market. Jut because it doesn't reach the front page here does not mean it doesn't happen.

chrisgd 13y ago

That is why it is imperative we have a government that can make investments into future energy and infrastructure needs even if it potentially destroys existing companies in the long run.

pg 13y ago

If the author wanted to be fair, the title should be "Why Silicon Valley funds SpaceXes and Teslas, and not Hyperloops." And then it would be clear that the answer is simply that Elon is working on SpaceX and Tesla, and not on the Hyperloop.

tptacek 13y ago
Tesla's A round was just 7MM, and it's B less than 15MM.
- phil 13y ago
  Yeah -- but what are the chances SpaceX would exist if Musk hadn't personally invested the first $100m? And Tesla might have been cheaper at first, but Musk led the A round and participated in every funding until the F round (!). Without a deep pocketed founder willing to absorb years of losses, what are the chances Tesla ever makes it to market? Even so they nearly died before they shipped the roadster.
  - tptacek 13y ago
    Yes, that's my point; the VCs didn't really enable these companies, Musk did.
    - phil 13y ago
      My mistake. I thought your point was, "Tesla was much cheaper to start than people think, well within normal parameters for early venture rounds."
    - jfoster 13y ago
      If Musk put down his money, isn't he a VC by definition?
      - bradleyland 13y ago
        He funded his own idea. The definition of "VC funding" isn't a concrete thing. What's important is the distinction between the way companies like Tesla and SpaceX came to where they are today when compared with companies like Instagram and Facebook.

nabnob 13y ago

So, how can we fix this? I like the idea of crowdsourcing funding, as with the Ubuntu Edge (http://www.indiegogo.com/projects/ubuntu-edge http://www.indiegogo.com/projects/ubuntu-edge). They aren't asking for funding quite on the same scale as the Hyperloop, but it's definitely larger than the ~ $1 million required for another phone app.

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aardvark 13y ago

>Furthermore, the stock market isn’t influenced by value today like it was thirty years ago. This simply isn't true. It was nearly 30 years ago that Warren Buffett published his article "The Superinvestors of Graham-and-Doddsville" arguing that the market didn't accurately value many companies, and that anyone could become rich by taking the time to find market inefficiencies. And in the article he described the approach he had already been using for nearly three decades. There have always been discrepancies between stock prices and companies' true values.

VintageCool 13y ago

> In short, Silicon Valley has killed major innovation. That's being somewhat extremist. I don't think that major innovation stopped after the Facebook IPO. I doubt that it has even slowed down that much.

coldtea 13y ago

One reason is that what an enterpreneur will work on also depends on the prevailing ethics and idea about his role in society of the time. In a post-yuppie, money-grubbing enterprenerial climate, they are more likely to invest and work on make-money-quick BS schemes, like social websites and mobile trivialities ("like Instagram, but for goat milk drinkers"). An era which respected industry, infrastructure, and succesful industrialists, etc, produced different results. Musk (and Jobs) were like that -- but 90% of enterpreneurs out there today would model themeselves after Zuckenberg or Systrom instead of them.

bitwize 13y ago

It's the same reason why the music industry funds Justin Biebers, not Bob Dylans. They're looking for an extremely high profit to innovation ratio, the one piece of shit among many similar pieces of shit that "catches on" and turns into a money press. That said, Hyperloop looks cool on paper but when I see all this geek excitement over it before the engineering research has been done to make it cost-effective I hear in the subtext a chant of "Monorail! Monorail! Monorail!"

nightski 13y ago

This article is so annoying I don't even know where to begin. I have a hard time believing this is on the front page of Hacker News. If you are going to reduce the revolution of the information age to Instagram well then yes you might have a point. Let's ignore the most important innovations our society has seen that have come about in the last few decades. But the truth is, is Hyperloop even the right solution? Would it really make our lives that much better? Do you need to travel nearly as much as you used to? I actually actively avoid travel, communicating remotely if possible. If Hyperloop was a UPS style service, then I could potentially see the use for it. Get your package in hours. But as a consumer transport? I don't think it is nearly as innovative or revolutionary as most people seem. But I am just a software engineer, who am I to discuss these things.

rayiner 13y ago

There is also the basic economic argument that much of the value of transit cannot be captured by a private investor because of externalities. The value of a transit line isn't just to people who ride it. This is obvious: compare commercial real estate leases near a subway stop versus ones far away. Governments can capture those positive externalities through general increases in tax revenue or things like tax increment districts. Private operators are stuck trying to recoup all their investment solely from riders.

DennisP 13y ago

Counterexamples: General Fusion and Tri-Alpha are two companies attempting to build commercial fusion reactors that are well-financed by investors. General Fusion got $40 million plus another round recently, and Tri-Alpha was up to $140 million before a recent investment from someone in Russia. But both were funded early on by billionaires, Paul Allen for Tri-Alpha and Jeff Bezos for General Fusion. On the other hand, the focus fusion guys are putting up better numbers than Tri-Alpha and they're still running on a shoestring.

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cnlwsu 13y ago
There are limits though. I don't care how nice the camera is on my iPad, I still want to visit my family for thanksgiving. I don't think the author deemed wikipedia, google and coursera worthless. Its asking the question of why a pitch like "facebook for horses" is more likely to get funding then a revolutionary mass transit system.

abalone 13y ago

This is a sad statement on the complete utter lack of awareness of how the system of tech development works in the United States. The simple reason Silicon Valley doesn't fund Hyperloops is because they cost BILLIONS to develop over DECADES, with highly uncertain outcomes. This scale of large-scale, long-term, technology investment risk is borne by..... drumroll..... TAXPAYERS. The guv'ment. Uncle Sam. The Internet. Computers. NASA (hello SpaceX). Airplanes. Even frickin Siri was funded by the public. The way it works is it's done under the banner of military applications. DARPA is a key agency in core development, but a very large part is government procurement. Then whatever works out given away pretty much for free to private hands. Silicon Valley specializes in investing in the "last mile" of commercial development. It's still risky, but orders of magnitude less than something like developing Hyperloop from scratch.

jotm 13y ago

It seems to me that these days, entrepreneurs are in for the short term - they want to blow up fast, then sell off their company for the highest price possible. Few are in for the long term, and I don't understand why.

dmragone 13y ago

You have 10 reasons. Your numbered list has 7 twice. Also, the reason is very simple: there's no money to be made in building a Hyperloop. There's a good reason Musk didn't (and won't) work on it.