The real challenges technology companies face today are human, not technical.

And that’s a normal part of the cycle, not a failure of venture capital or innovation.

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From Founders Fund’s manifesto explaining their investment thesis, What Happened to the Future?

In the late 1990s, venture portfolios began to reflect a different sort of future. Some firms still supported transformational technologies (e.g., search, mobility), but venture investing shifted away from funding transformational companies and toward companies that solved incremental problems or even fake problems (e.g., having Kozmo.com messenger Kit-Kats to the office).

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. 

I would argue the shift in “what venture backed” and “why returns changed” is a natural part of the cycle, rather than an indictment of short-sighted or incrementalist venture capitalists. We’re still working on absorbing the big structural changes created by transformational technologies of the Internet and mobile telecommunications. Today’s small innovations, fake problems and trivial startups are a key part of the process to absorbing big technological changes: small innovations disseminate new ideas and create waves of little disruptions throughout a wider range of industries, cultures, niches and use-cases  (i.e. a dating site for every ethnicity, religion and country) until we reach cultural and economic saturation.

And at saturation (cultural and economic), the world of a million startups collapses into a thousand big companies as they hit the reality of a technological plateau like hitting the Death Star’s energy shield. And oddly, all those features and small business models that made no sense on their own suddenly make sense once they’re combined. That’s how innovation happens today.

And that’s when the next big technological innovation happens. If you are Founders Fund, that’s what you’re investing in.

But in the meantime, there are still lots of problems to solve. And they aren’t technological problems, but human problems.

Consider Airbnb.

Consider Airbnb. What happened to Airbnb is not a problem that can be solved simply by a better algorithm or better technology, because it’s a cultural problem.

The believers and early-adopters use Airbnb with a heightened understanding of the context of their impact on collaborative consumption; the late adopters use Airbnb because it’s cheaper than a hotel room. The ethos disseminates slower than the technology. And that’s natural, but it’s also why communities and social technologies struggle as they grow. Some work through their struggles and grow unchecked because their network effects and core product are so strong (i.e. Facebook), but many never make it through the cultural chasm (i.e. MySpace). Technology scaled faster than culture.

Consider the economic collapse of 2008.

Or consider the economic collapse of 2008. The problem of unchecked derivatives and subprime mortgages weren’t problems of not enough information, but too much information. Companies disclosed mountains of data on their derivative positions, but nobody could properly evaluate the positions and inherent risks. The data was there, but we ignored it because it wasn’t possible for us to process. We all assumed someone else was doing the analysis. Technology changed faster than government regulation.

Consider the debt ceiling debacle and the jobless recovery.

Think about the recent debt ceiling debacle and the range of analyses about the “jobless recovery”: the real cause is the rising concentration of income and power inequality in the US. What’s happened?

After a great technological revolution or a major economic transition, as when America changed from a nation of farmers to an urban industrial one, there is often a period of great concentration of wealth, and with it, a concentration of power in the wealthy. That’s what we saw in 1928, and that’s what we see today.

Still wonder why we’re stuck in a jobless recovery?  Or wonder why we’re debating about the future of the middle class?

Technology and government created a winner-take-all society. The problem of wealth and power inequality is a problem that was created because technology created deep structural changes in how business works that culture, government and legal systems haven’t caught up to yet. That’s what happens after periods of great technological revolution. Technology scaled faster than regulation, culture and our systems of governing.

The route forward

But the route forward isn’t simply to tackle bigger, harder, more complex technological challenges. It’s to tackle bigger, harder, more complex human infrastructural challenges with the technology at hand.

Once we do, and once the impact of the big innovations have disseminated throughout the slowest-to-change institutions, then we’ll be able to break through the technological plateau.

What’s left to change? Everything largely untouched by the last technological revolution. How we educate people. How we govern. How our legal system works. How we operate cities, build roads, manage infrastructures. And how we run and operate all systems that we created before the Internet came around. We have the technology at hand to solve these problems, we just need to apply it better.

I bet Founders Fund knows this, btw. Wonder why Peter Thiel (Managing Partner of Founders Fund) has been such an advocate of upending higher education?

Wild ideas, trivial startups and fake problems have an important role to play in the technology absorption process. Let’s just be intellectually honest about the role they play: they are a means to an end, not the end themselves.

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