The Wall Street Journal recently published an article entitled “Is Silicon Valley Funding the Wrong Stuff?” The piece suggests that VCs may be encouraging entrepreneurs to work only on silly ideas that seem appealing to young, techie denizens of the Bay Area rather than “the kind of basic research and development that transforms lives, in fields such as energy, medicine or food safety.”
Of course, when you use a word like “wrong,” you need to have a clear idea as to the basis for making that judgment. A temperance advocate might think that investing in Brown-Forman, maker of Jack Daniels and other spirits, is “wrong” — but an investor who thinks that the stock is undervalued might think such an investment is “right”. (Full disclosure: I’ve owned a few shares of Brown-Forman for over a decade. That’s a story for another post.) In this case, the article questions whether investors are making investments that are likely to offer strong financial returns. If investors are attracted to gimmicky, faddish products, they may incentivize entrepreneurs to create start-ups that are likely to fail — which will result in poor returns for those same investors.
As an investor, I certainly don’t want to invest in flash-in-the-pan junk. But, how much basic R&D do I want to fund? And, as an entrepreneur, just how “innovative do” I want to be? Am I the sort of person who wants to make a fundamental break-through, or the kind of person who wants to make an incremental improvement?
If building a business were a video game, would I want to beat the game in the easiest mode — or, would I play in the mode where you have only one life, the bad guys have weapons that kill you with a single shot, and there are no power-ups? Especially if I knew that winning the game in the hardest mode unlocks special bonus levels?