Occupy Silicon Valley - Week 16

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Occupy Silicon Valley

Merrill Lynch, the wealth management division of Bank of America, issued a report called “Occupy Silicon Valley”. An investment forecast with the catchy title addresses the bank’s clients — traditional investors in the stock market. However, we can’t miss it because it summarizes recent events occurring in the tech community and describes a broader social phenomenon. Here’s why.

A decade ago, the tech industry in general, and Silicon Valley in particular, had an image of bold innovators advancing the entire world. Since early 2000s, they’ve been accused in creating too many meaningless mobile applications and social networks, and too few real breakthrough technologies. Today, the tech industry draws attention by public scandals, increased regulation, and taxation, all of which makes it vulnerable. Privacy breaches, institutionalized sexism, and jobs in jeopardy are only a few of the worries of common people. Venture capitalists are no longer knights in shining armor. Instead, they have become enablers. 

Merrill Lynch’s forecast of a backlash against the industry is based on the spicily valued tech giants whose market values surpass the gross domestic product of some major US cities. “Google is bigger than Chicago, Amazon is bigger than Washington,” wrote Michael Hartnett, chief investment strategist with Bank of America Merrill Lynch. Google and Apple have a combined market capitalization of $1.45 trillion, greater than the combined $1.31 trillion market value of euro zone and Japanese financial stocks.

Week 16 Occupy SV.png

All those negatives and increasingly concentrated wealth of Silicon Valley feeding the gap between tech capital and human capital may spark a backlash against the industry similar to that one against the banks of Wall Street. That’s why the report's title draws parallels to the 2011 "Occupy Wall Street" protest against the wealth of the largest US financial institutions that arose from the financial crisis. Because more and more people feel left behind, Silicon Valley is on the edge of becoming a new punching bag.

But it’s not only the common people who are unsatisfied with tech. It’s also politicians and regulators who have started taking actions against the tech frenzy. A new EU privacy law and digital advertising tax, tougher antitrust enforcement, the US Senate bill to form a new Commerce Department Committee to grapple with the impact of AI and automation of workers, or South Korea’s world's first "robot tax" to reduce automation incentives, let alone severe regulations against cryptocurrencies and tokens — are only a few measures currently being implemented by the world governments.

Altogether, it may slow down the growth of tech stocks, even though Merrill Lynch is still expecting it to continue rising in the near future. Nevertheless, it advises its investors to start adding out-of-favor sectors — such as gold, natural resources, and banks — to their portfolios.

So what does it all mean for venture investors and entrepreneurs? Besides potential redistribution of wealth and power, the current environment will definitely require updating the values of technology companies. People will want more jobs created, more taxes paid, and better working and living conditions offered in the geographies most exposed to the tech gold rush. For some companies, this will mean cutting the profits, for others it will open new opportunities. At the end of the day, current technologies can address all concerns of the unsatisfied.

In other news:

  • This is the time of lists. Forbes released its Midas List, and CBInsights updated their Top 100 Venture Capital Partners of 2018 list. Seeing new faces is very encouraging, while losing some regular actors — especially due to sexual harassment accusations — proves that one mistake can cost a career even in venture capital.
  • As we’ve reported, the US Securities and Exchange Commision is on a hunt for different players of the cryptocurrency sector: startup fundraising through ICOs, their marketers, and now, cryptocurrency exchanges. You know it’s getting serious when investors step in. Andreessen Horowitz, Union Square Ventures, and other venture-capital backers of digital-currency firms met with the SEC to argue that severe regulations can slow down innovation based on blockchain technology. Let's see how that goes. While, the crypto community showcases Switzerland as an example, which has issued guidelines for initial coin offerings (ICOs) where it classifies cryptocurrencies into three types: payment tokens like bitcoin, utility tokens that provide access to a service, and asset tokens that represent participation in hard assets, companies, or profit or capital flows. The guidelines also recognize hybrid coins that serve multiple purposes.

Recent Industry Reports And Studies (free instant access):

2018 Marijuana Trailblazers by CBInsights
2018 Global Startup Ecosystem Report by Startup Genome
2018-Q1 US PE Breakdown by Pitchbook

Reroute

How to make reasonable decisions reasonably quickly? How would you estimate the direct cost of some recent decisions in your companies? What about the opportunity costs of all that time/energy that could be spent elsewhere? Read here.