I'd say that VC funding may be an inappropriate tool for that. VCs want you to either grow fast, or fail fast. Not necessarily to bring profit fast, but to visibly capture the market (see Uber). Move fast, break things, rework things every week, trigger that wave of sign-ups.
Agriculture is much slower, every iteration may be is a year, or (in tropical climates) half a year. Microelectronics is comparably slow, and even more unforgiving about making mistakes. Building robots does not scale ls easily as producing chips, let alone software.
These areas need a different model of investment, with a longer horizon, slower growth, less influence of fads, better understanding of fundamentals. In some areas, DARPA provided such investment, with a good rate of success.
It seems really unlikely so many elements of American society decided to prioritize returns simultaneously… but more like those who didn’t… eventually couldn’t compete anymore and left the market.
Leaving behind only those completely focused on returns.
I'd reframe that slightly. There is a vast foundation of stable, optimized businesses that are in commoditized/low-growth ares. They function as the underpinnings of the American economy.
When turning the spotlight to capital that is seeking returns, it is true that these areas may be mediocre places to deploy fresh capital, but it doesn't mean that these players aren't competing, and they will probably be cranking out sheet metal and port cargo logistics optimization well after 90% of the AI startups fold.
The caveat is of course Private Equity, which is about 10 trillion in assets. They can derive high returns from these areas, but it requires leverage.
Not only leverage, but also destabilizing those optimized businesses to harvest the capital assets from their balance sheets to pay for the leverage, while destroying the underlying business.
PE is arguably much worse than VC. VC's business model is well understood and by taking VC funding, you are committing to their expected returns.
PE is, usually, unsolicited and is designed to exploit what appears to be a "lazy" balance sheet, but which is actually a stable business producing output and providing a reasonable ROI.
PE played a part in manufacturing leaving the US. Often the buyouts were of sick companies, and it was just the optimum way to monetize their death. But without PE not all of them wouldnhave eventually died, and it would have given policy makers more time to react to what was happening.
It’s just natural that nobody wanted to pay for outdated machines and tooling in developed countries.
Labor costs, permits, fees, etc., means that buying used just doesn’t make sense unless it’s almost free.
Whereas developing countries were willing to pay a lot more, sometimes as much as 50 cents on the dollar compared to brand new equipment and they would send a team to rip it out too.
I’ve heard that applied to almost everything too heavy to move by forklift during the 80s, 90s, and 2000s.
They're very much yin and yang. PE's operating model is to take businesses that are operating inefficiently, squeeze all the inefficiencies out, sell off assets that would be more productive under other management, and basically strip the company bare. If it kills the company, that creates fertile ground for new startups funded by VC.
Think of PE as the decomposers of capitalism, and VC as its seeds. Most people don't like to think of it that way because they don't like to be reminded that death is a part of life. But if you view capitalism as a living ecosystem and your role within capitalism as someone to accelerate growth and then accelerate death so that new growth can take its place, it all makes sense. And you can probably profit pretty handsomely from it, because most people don't view capitalism like that and instead seek stability in the dying parts.
In the US there have been a few, i.e., apparently less than 20, universities with an applied math program up to date in and teaching optimization.
Sooooo, anyone at all seriously interested, long, for decades, would, could, should visit some of those math programs, meet some of the profs, get recommendations for their former students, call them, chat, and offer a job better than their current lawn mowing, fast food restaurant kitchen cleaning, or car washing. Instead of just the US, might also consider Waterloo in Canada. Actually the Chair of my Ph.D. orals committee specialized in optimization in logistics. After sending 1000+ beautifully written resume copies and hearing back nothing, can begin to conclude that optimization is not a hot field and for highly dedicated optimizers who want to sleep on a cot in a single room, forgo bathing, most days eat bread, other days peanut butter, have no children, wife, or family contact, don't own a car, and must get any needed medical care from some of the last resort special clinics. Ah, real optimization!
What country are you thinking when you say that? It doesn't sound like the US. Through the zero-interest rate era they've been absurdly tolerant of companies offering no- to little- returns on investment. They've basically been operating investor-led charities.
It is still unsettling seeing Uber turning a profit, but even with that they're not turning a net profit over the lifetime of the company yet and won't be for a few years. Hopefully no-one pops up to compete with them now the sector has profits in it.
Their sentiment and their phrasing ("it's almost as if... ") is a Reddit-level meme I see all the time on that site that's then blindly upvoted, so I don't think they're thinking of any country besides the US in particular when they say that.
It shouldn’t be that way though. Venture capital is only for SaaS? It should be for technology in general. But the IRR demands are too much so it concentrates to SaaS.
VC capital is like a detonator. It seeks explosives, and when it finds them, produces spectacular fireworks that illuminate the entire industry, or even the entire world. It also ends up with a lot of duds, but it's OK by them.
What VC capital is not interested in is regular fuel, which can burn steadily and expand gradually, without a shock wave. Such companies can be quite important. Say, GitHub was such a company for many years, before it took a large VC investment and got acquired MS. Investing in such companies requires much more diligence and foresight, maybe too much predictive power to work at mass scale.
VCs' math only works because a single 1000x hit easily pays for a hundred of duds. If ROI per hit is 2-3x, and research required is 10x more deep, the prospects likely start to seem too bleak for folks with billions seeking return.
People in this thread act like VC is the only way to raise capital. Ever heard of getting a business loan? Even a lot of companies in the Valley could probably get one more easily than they might think, if they're profitable. You don't have to give up equity either.
>how does one get a business loan, with real stuff at stake
Show them your finances and collateral to demonstrate that you'll be able to pay off the loan.
>I especially dislike the way VC funded startups use VC dollars to effectively be a “loss leaders” for years to choke out the rest of the market.
It's a fair point, but it's a point which does not apply to the industries we are discussing, which do not receive VC investment.
I actually really like your point about Masayoshi Son-style investments which are just an attempt to entrench a monopoly. I'm no socialist, but if socialists called for identifying and taxing such investments, I wouldn't object. The trick is to distinguish between the WeWorks of the world, and the Boom Supersonic type companies which genuinely need gobs of capital for breakthrough innovation.
Wouldn't being aggressive about antitrust chill auch investments in the first place? Uber wouldn't have been so eager to overcome lyft if it knew that it would mean getting broken up or fined into unprofitability.
That's another approach. However, I think it's worth distinguishing if a company acquires market dominance because of merit, vs because it got a big infusion of cash.
I somewhat dislike antitrust because it requires judgement calls on the part of regulators. I prefer simple, elegant rules. Just like in software development. Law should ideally be elegant, just like code.
Nobody will give you a regular business loan if you need the cash to R&D your (especially non-software) product in the first place. Even more so without personal liability or in the amounts to compete for engineers in VC-funded companies.
Early on, with a good technical background, I guessed that, of course, the key to success in technology was some good technology but soon discovered that VCs just want to make money, a lot of money, quickly, and otherwise will hear from the investors in their fund.
Just heard of Palmer Luckey. Hmm! Money? No big staff, not much equipment, essentially just one person?? $1B+, quickly? Example: Taylor Swift. Did she ever hear of Linux???
Agriculture is much slower, every iteration may be is a year, or (in tropical climates) half a year. Microelectronics is comparably slow, and even more unforgiving about making mistakes. Building robots does not scale ls easily as producing chips, let alone software.
These areas need a different model of investment, with a longer horizon, slower growth, less influence of fads, better understanding of fundamentals. In some areas, DARPA provided such investment, with a good rate of success.