The Animal Spirits of Silicon Valley
By Ansaf Kareem
Earlier this month, Silicon Valley Bank, a core pillar that propelled the innovation economy crumbled under the weight of miscalculations while weathering the fastest bank run the US has seen stoked by the flames of social media. Much has been said during and now in the aftermath of this once seemingly cataclysmic episode, but as the dust settles, the blind spots of Silicon Valley beyond this moment have become evident.
WHO NEEDS GOVERNMENT?
Venture capitalists have the privileged opportunity to invest behind some of the most fearless and intelligent entrepreneurs working on problems and opportunities across the economy. This innovation ecosystem has undeniably proven to be one of the most productive economic machines over the past few decades. Today, 7 of the 10 largest companies in the world by market capitalization are venture backed companies. Since 2000, nearly half of all companies that have gone public have been venture backed¹. This ecosystem now serves as a critical factor of American sovereignty and progress as technology fuels not just the economy but also our national security and the global war for talent.
This is all great. What’s more challenging is the Valley has exuded an overconfident belief in the role of private enterprise above all else. Many voices have expounded the self-reliance views of Ayn Rand and a general belief in government being a hindrance — a bureaucratic, slow-moving machine that just ‘doesn’t get it’; a ball of red tape that goes against the mantra of ‘move fast and break things’. As Millenials, we grew up in a time when Bill Clinton spoke about the Third Way, when internet and mobile penetration was transforming our world, and when the bureaucracy of government more frequently brought us a sense of perceived hypocrisy, from the Iraq War to growing partisanship that has only expanded in magnitude. It’s not hard to believe why the narratives of ‘decentralized’ institutions and escapism via techno-optimism have captured the mind share of our generation (and likely a generation to follow who are learning about these events through the scrutinizing lens of the internet).
Yet, just three years ago, we sat at home as we faced a once in a century global pandemic. It was a stark reminder that, with all its potential faults, the government can be the only coordinating and effective mechanism against an elemental threat — that indeed a social contract that protects us from a Hobbesian ‘nasty, brutish, and short life’ lies primarily with our democratic government. America has of course always had a healthy tension in which American individualism, states’ rights, and freedoms come in conflict with what defines a common interest. But perhaps more than ever, the Covid-19 crisis illuminated to us that government is and must be part of a core defense against our largest existential threats. And for many in the technology ecosystem, the safety nets provided by the government to the economy ended up fueling a once a decade stock market and private company wealth generation event.
IS SILICON VALLEY WORTH SAVING?
Fast forward the low interest rate party and we faced yet another, though much more acute, existential crisis in the collapse of SIlicon Valley Bank. No one can deny the deep impact a failed bank without a backstop of deposit guarantees by the federal government would have caused in the ecosystem. Whatever could have or should have happened, it was a stark reminder for anyone in the ecosystem, regardless of political affiliations, that competent governance matters and open dialogue with government matters — not just in times of need.
And as many realized in this crisis, proactive government in many cases is the only line of defense against a more catastrophic outcome. Though this moment was in the context of a critical piece of the economy, for many Americans, such “backstops” and government support in moments of need are a necessary part of daily life (despite often being kicked around as political fodder on both sides of the aisle) from Medicare/Medicaid to Social Security to Universal Basic Income. Understanding this context when disavowing government, or certain policies, or waiting for a decentralized world to take over, only creates a strong image in the minds of Americans, and thus politicians, that Silicon Valley may not be worth saving — that it is full of an aloof elite.
BRIDGING SILICON VALLEY AND THE BELTWAY
In the wake of SVB’s collapse and aftermath, our ecosystem has an opportunity to think ahead of the next crisis which inevitably will arise. A few thoughts on how we can start to prepare now so that we are better positioned for the long-term:
1) First, we must be more self-aware of the image we project. Caring only when it matters to us is not a practice that will serve us well. Government buyers can’t just be a sales strategy for enterprise accounts, but a cultural ethic in Silicon Valley where we see each other not as a zero-sum interaction.
2) Second, we must remember that there is a role and purpose for government, which can healthily coexist with the role of innovation. In fact, the beauty of the entrepreneurial ecosystem is that most macro challenges are also opportunities. A global pandemic and accompanying vaccine is a spur for further biotech innovation. A climate crisis is an opportunity to reimagine the energy industry. An aging American population is an opportunity to create new products and services tailoring to a new consumer segment. An economy being restructured by AI creates opportunities to rethink the roles of a more efficient workforce and continuous learning — the list goes on. It’s critical to re-emphasise the opportunities that don’t just serve in furthering innovation in a vacuum but that propel our world forward, and would only be accelerated with government engagement.
3) Lastly, our ecosystem must learn to engage with the government more effectively, structurally, and consistently.. In the last few years, I’ve seen more ex-government/policy leaders join startups and VC firms, and individuals from the ecosystem join the government. That is a good start. As our ecosystem matures and develops, having better coordinated inroads and understanding into government will provide better channels of communication and listening back and forth.
THE FIRE NEXT TIME
In the private-sector, most companies and actors focus on the short-term — exceed quarterly earnings expectations, beat revenue plans for the year, invest in the latest trend. However, across business schools and boardrooms, the most sanctified principle is to have a ‘long-term view’. Some of the most celebrated business leaders of our time have been the rare breed who have actually practiced this maxim.
The fires of tomorrow will be devastating unless the government — national, state, and local — begins to take a long-term view. In our nation, the government is a reflection of its citizens, and in that we in Silicon Valley must also take a long-term view.
Our success has raised the profile of our ecosystem, and brought with it extra scrutiny. As the industry continues to mature, my call to peers in the ecosystem is to elevate the culture and values we are building in real time. As Andy Grove famously said, ‘Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” Let’s stay paranoid about what we stand for in Silicon Valley and how we can continue to push the world forward, together.
“Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits — a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” — John Maynard Keynes
- The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby
