The Problem With Silicon Valley Is Itself

As a Brit who gave up cheerleading the European tech scene to make the pilgrimage to Silicon Valley to live, eat and breath the world’s leading hub for technology startup innovation, I’ve been largely unimpressed and disappointed by the quality of startups here.

Living in San Francisco since January, I’ve interviewed around two hundred startups and there’s only two, out of two hundred, I think are game changers. Now, don’t get me wrong, Silicon Valley is an incredibly inspiring place to be. Everyone is doing something amazing and trying to change the world, but in reality much of the technology being built here is not changing the world at all, it’s short-sighted and designed for scalability, big exits and big profits.

Groupon clone after Groupon clone, yawn… yet another social media dashboard, a cloud-based enterprise solution or, worse still, another photo sharing app; I’ve heard pitch after pitch of the same technology and keep wondering why all these highly intelligent, well educated youngsters, many of whom have been educated in the best universities in the world (Stanford, Yale and Harvard) are not putting their brains to good use by solving real-world problems. Instead they’re building technology to solve trivial issues – like apps that show where to spot your nearest tofu cupcake and share it with your friends.

I’ve come to the conclusion that entrepreneurship in the Valley has become productized, as organizations like Y Combinator attempt to marginalize, commoditize or manufacture a process that is inherently risky. The YC model of startups gaining $150,000 upon entering the accelerator program means investor Yuri Milner and the rest of the Start Fund venture capitalists’ get a nice stake in every company that goes through the program. The problem is that it’s all about the money; it creates emphasis on Y Combinator startups to quickly exit or IPO.

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At a BBQ last week with a group of Y Combinator graduates, the conversation went predictably back and forth, sounding something like this: What batch were you in? How many times did you pivot? How much did you raise? From who? How many users have you got now? What’s your growth rate? Who’s going to acquire you? It’s never about the technology or impact it’s having, it’s about the game of entrepreneurship; getting users, funding and exiting as quickly as you can.

From an investor’s perspective, it’s a clever model; you put a group of extremely talented and hard working graduates together, give them seed funding, keep them lean and they pivot until they get you a hit and you make your return. But I wonder if the model is counter productive, producing risk averse entrepreneurs who, if they follow the right procedure, are almost guaranteed success in the form of a talent acquisition or exit. Should this be what entrepreneurship is about? What happened to irreverence, thinking outside the box, wanting to make a difference in the long run?

As much as I moan, Y Combinator is producing some game changers – Airbnb is one of them, not for what they are now but for founder Brian Chesky’s vision to become the eBay for traded goods. If it works it could put a halt on manufacturing new goods and put a stop to the raping of Earth’s limited resources.

Udemy is another favourite; they are democratizing education by cutting out the institution and helping people learn in a structured way that goes deeper than Googling a query, giving anyone with a smartphone access to a Stanford level of education.

But for every Airbnb and Udemy there are always more Netflix, Evernote and Spotify clones.

VC Brian Singerman, Principal at Founders Fund, confirmed my thoughts about the gold-rush mentality. ‘Many entrepreneurs are in it for the wrong reasons, they should be more focused on doing something big and good for the world and figuring where the money comes after that.’

We both agreed there was an abundance of trivial tech in the Valley, but also that there is innovation happening around health care related startups, so I rushed to show him a startup I interviewed recently – one of the few startups I thought had legs – only for him to tell me he’d just invested in the company, which led us into talking about the VC landscape where some VCs are buying a lottery ticket, investing in startups to get rich quick. It was refreshing to hear Brian share my thoughts and hear that he puts his fund to good use:

“I invest in anything involving a biology and technology that does not require clinical trials or hundreds of millions of capital,” he said, pointing to his Halcyon Molecular tee shirt – a DNA sequencing company that he’d recently invested in.

Not enough real-world problems

One of the reasons for lack of innovation in the Valley is that entrepreneurs are not exposed to enough real-world problems. It’s all relative of course, but the problems facing well-educated young people in San Francisco are certainly different from that of entrepreneurs in emerging markets. I can’t blame the entrepreneur too much though, I suppose it’s the traditional model of supply and demand; consumers in the USA clearly want to play Angry Birds, whereas in some African countries consumers are more likely to be searching for their nearest Malaria drugs clinic.

Every government in the world is trying to recreate what is going on in the Valley as they see it as a way out of the global recession and into job creation. Tech hubs are springing up all over the world in places you wouldn’t even imagine. Combine that with the fact that many entrepreneurs can’t get to the US because of visa issues (the Startup Visa Act could take another couple of years before it passes through both the House and the Senate) and you’ve got a recipe for startups that are solving real world-problems, outside of Silicon Valley.

There are also other incentives for entrepreneurs to build outside of the valley; Startup Chile is a government-backed organization that is encouraging entrepreneurs to build startups with the enticement of cheap developers – a scarcity in the Valley. Kundavi is building a community in Cabo, Mexico for startups, which not only has the promise of cheap cost of living for the bootstrapped entrepreneur, but is also geographically on a similar time zone (one hour later) with Silicon Valley, which makes phone calls with investors easy.

There is one thing though, that continues to set Silicon Valley apart from every other technology hub on the planet and that’s access to finance. The funding ecosystem here is unlike any other in the world. The European tech community has come a long way since I came onto the scene in 2008 with three or four tech events every night, but in terms of funding it does not even begin to compete with Silicon Valley. But the funding landscape is changing due to the cost of innovation decreasing rapidly which means anyone with a laptop and a WiFi connection can get an idea off the ground for dirt cheap.

Valley VCs are noticing this global trend and getting smart with it – angel investor Chris Sacca is investing in European startups; Dave McClure evangelizes his 500 Startups accelerator around the world with Geeks on a Plane, and Paul Bragiel’s i/O ventures is now one of the leading investors in East Africa. Journalist Sarah Lacy’s latest book reports on how entrepreneurs from emerging markets are taking local chaos and turmoil and turning it into opportunities, making millions and creating thousands of jobs – Valley entrepreneurs should take note of these self starters who through adversity are taking massive risks and succeeding.

If Silicon Valley wants to keep its number one spot as global startup innovator both entrepreneurs and VC’s need to get out of the bubble and go and see real problems in the world so they can start innovating and driving change. Obama needs to quickly pass the Startup Visa Act into US law, more media should cover tech outside the Valley, and this San Francisco fog better go away quickly – or I’m moving to Cabo.