Steve Blank seems disgusted with the state of Silicon Valley’s startup and venture capital scene today.
The Silicon Valley veteran and startup guru sees too much funding going to too many frivolous and copycat ideas, and not enough going toward solving big problems.
“In the 20th century, entrepreneurship and VC kind of aligned with national needs,” he told Business Insider.
“The rapacious returns VCs got kind of paid for major advancements that were great for everybody and moved the ball forward. One could argue that fart apps and sharing [apps] don’t fit that criteria, but in the age of the bubble, you can make shitloads of money if you’re an investor. Therefore you get investors trying to rationalize how this is great for us.”
He adds, a little half-heartedly, “I’m not suggesting it’s bad, I’m just observing it is.”
Blank has been working in the valley since 1978, where he founded several startups — a mix of hits and misses — and eventually retired to find his true calling teaching entrepreneurship to college students at Stanford, UC Berkeley, and other universities. He was an early champion of the “lean startup” — the idea that startups should start small and test their ideas with real customers, always searching for product-market fit, before trying to grow too big too fast.
“I don’t mean to sound like the grumpy old guy, damn these kids get off my lawn,” he continues. “But when I think about when we were inventing silicon and computers, now watching Elon Musk and others who are making major changes….I align with Peter Thiel’s strategy, fund the guys who are building flying cars.”
The root of the problem, he believes, is that the United States has no national industrial policy.
Calling for the government to guide investment is considered heresy in much of the libertarian-leaning startup culture of Silicon Valley, but Blank believes that if the government doesn’t step in and provide a nudge toward the greater national interest, we’ll end up losing the big important races — like the future of energy, health, and information security — to countries with strong industrial policies like China.
“We’ve decided VC is our national industrial policy,” he says. “That’s a big scary fact.”
Blank is not advocating the kind of strong centralised planning China employs. But he does think the U.S. government could offer incentives toward certain types of investments by offering generous tax breaks, and VCs and founders would naturally follow right along.
For instance, the government could give investments in health care or cyber security startups a 20 year tax holiday on returns.
“Given capitalism has always been a rigged game, why not rig the game for the national interest?”
He’s also adamant that we’re in a tech bubble — which he said we were entering when I interviewed him four years ago.
“It’s unsustainable at later stage prices,” he said, talking about the growing number of unicorn startups with billion-dollar valuations that are 100x greater than their revenues. “A good number of these companies — in fact most of them — will not be able to match valuations with returns.”
But this time, when it pops, he doesn’t think it will affect the general economy. “Here, the greater fools are the later stage investors,” he says. “It will shut down a lot of frivolous things.”
He offered prediction on when that will happen, though.