Where Have the Big Ideas Gone?
May 23rd 2012 3:53PM
Updated May 23rd 2012 3:58PM
A thin white rocket took off yesterday morning from Cape Canaveral, Fla., and reached orbit. The event was covered heavily and buried quickly, but over the long run this moment may become as crucial to the evolving story of American ambition as Kennedy's supremely ambitious -- and ultimately successful -- goal of sending men to the moon. This time, even strident anti-government crusaders have reason to cheer. On the side of the rising rocket, just under an image of the American flag, the vertical word "SpaceX" signaled that national governments now had private competition.
SpaceX's success is a triumph of big thinking over small, and it should be celebrated. Instead, the biggest story yesterday was Facebook's (NAS: FB) continued stock-price slide. The biggest stories in the world of high tech seem to involve a new paradigm that isn't or a transformation that's trivial. Google (NAS: GOOG) unveiled a prototype of heads-up display headwear last month that could radically reshape the way humans interact with their hardware. Parodies of the device gained more traction than news of its existence.
Google CEO Larry Page felt the need to reassure skittish investors last year that the company's skunkworks behind the device -- Google X to you -- would have a minimal effect on its finances. Why? Investors should be thrilled that such big ideas are on the table at all. The demise of the big idea would be the worst thing to happen to the American high-tech industry, and would seriously dent the long-term resilience of the American economy. But that's what seems to be happening.
Small ideas, big money
The flow of capital doesn't always ignore the big idea, but it certainly seems to prefer smaller ones, both on public markets and through venture funding. SpaceX began with Musk's $100 million personal investment and has since raised about $900 million more, mostly through a deal with NASA -- the company now has more than $4 billion worth of contracts with both governments and business, but only merits a $2.4 billion market cap according to private-company trading platform SharesPost. Facebook raised just more than $2.2 billion through private investments before going public at a $104 billion market capitalization, which has already shrunk by close to $20 billion as insiders and early investors rush for the exits.
Last year, three of the largest rounds of venture funding in the United States went to Groupon (NAS: GRPN) , which sells coupons on the Internet, Gilt Groupe, which sells coupons on the Internet, and Whale Shark Media... which sells coupons on the Internet. Dropbox, an online file storage locker, raised $250 million in a single funding round late last year. The single largest round of venture funding by far at this point in 2012 went to SquareTrade, which sells... extended warranties on the Internet. Bet you thought I was going to say coupons again, didn't you?
Even some down-to-earth ideas with big implications have trouble attracting attention. Kiva, maker of warehouse efficiency robots and now a part of Amazon, had to move out of Silicon Valley just to find seed funding. The company raised just $11.6 million before its buyout. Groupon raised about $1.8 billion between private transactions and its low-float IPO. It's certainly a huge oversimplification to compare a giant marketing company (not a true tech company) to a small, specialized robot maker. But keep in mind that Groupon is hardly alone -- two largely identical businesses had similarly massive rounds of funding last year, and LivingSocial (Hawkeye to Groupon's Iron Man) has raised more than $800 million in total funding as well. How many online coupon hawkers do we really need?
Life Technologies and Illumina (NAS: ILMN) , which may soon provide the greatest leap forward in medical understanding since the development of the X-ray by unlocking millions of genomes at low cost, are together worth just under $13 billion. Facebook and LinkedIn (NYS: LNKD) , which let you look at people's vacation pictures and then ask them for jobs, are together worth nearly $100 billion. The social media tandem also happen to have a far higher set of valuations than the biotech duo, even after Illumina got a bounce from a persistent buyout candidate.
Preaching to the choir
I'm not the only one commenting on these misplaced priorities. High-tech entrepreneur and Berkeley professor Steve Blank offered this memorable take on the issue in an interview with The Atlantic:
Facebook's success has the unintended consequence of leading to the demise of Silicon Valley as a place where investors take big risks on advanced science and tech that helps the world. The golden age of Silicon Valley is over and we're dancing on its grave. On the other hand, Facebook is a great company. I feel bittersweet.
Bruce Gibney of legendary venture capital firm Founders Fund also recently noted that venture capital's modern mediocrity is closely related to its increased focus on mediocre ideas:
We believe that the shift away from backing transformational technologies and toward more cynical, incrementalist investments broke venture capital. ... What venture backed changed and that is why returns changed as well.
A company can be great without advancing the progress of technology, and many are. Not every company needs to cure cancer or send men to Mars. At the same time, technology has to advance somehow, and when governments retreat from their role as researcher of last resort, it's up to the private sector's financial gatekeepers to take up the slack. Instead, many choose the path of greatest convenience. Does that mean it's up to the rare deep-pocketed visionaries like Elon Musk and Google's Sergey Brin to make mad science come to life?
The first rule of tech club
Few tech companies have the financial freedom or the wide-ranging vision to make bold bets like Google's Project Glass or its self-driving cars, and I've seen no real evidence that the array of latest gen tech companies have both the deep pockets and the big ideas. Facebook might have deep pockets, but it's yet to offer any indication that it can innovate beyond adding more ways to share your information with its existing online platform. Its peer group seems likewise stricken with tunnel vision.
So many brilliant minds and so many deep pockets are focused on offering solutions we don't really need to problems we never really had. Without government ambition, we must rely on private enterprise to push past the edge of knowledge, but without private ambition the middle may get rather crowded. We chose to go to the moon once, not because it was easy, but because it was hard. We might go even further if Elon Musk has anything to say about it. Let's hope his isn't a lonely voice.
At the time this article was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of LinkedIn, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of LinkedIn, Illumina, Amazon.com, and Google. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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