What a pleasure to smile again with my favorite (HBO’s) Silicon Valley start-up heroes. Whereas in Season 3, they were the latest unicorn…
in season 4, a brand new story begins…
to build the next…
The start-up world is so fashionable that a few clouds should gather above it. The thing is not new. In the past, I mentioned Silicon Valley Fever. There was also the recent Disrupted – My Misadventure in the Start-Up Bubble by Dan Lyons But, more worrying, the criticisms are more numerous and more serious. For example, the article The evidence is piling up – Silicon Valley is being destroyed about the Juicero and Theranos scandals. Without forgetting the more fundamental transhumanist / apolitical fever …
Here is a new book, fun and serious…In French: Bienvenue dans le nouveau monde Comment j’ai survécu à la coolitude des startups (Welcome in the new world – How I survived the coolitude of startups) by Mathilde Ramadier. Mockery uses language. The “novlangue”, the “coolitude”. But this hides more unacceptable behaviors. Discounted wages, ridiculous working conditions. All this in the tone of humor, or more of chilling irony. Excessive? A little bit in the sense that not all start-ups act as the author describes, but revealing a reality that should not be underestimated … Here are some examples:
“We’re a start-up, so please bring your own laptop.” [Page 24]
“During the end-of-test interview, my CEO tells me that instead of the 1500 euros agreed upon at the start, I will finally be hired with a payroll three times lower. [… He] knows very well what he does and delivers a perfectly honed speech to sweep away my disappointment. […] So I refused a job paid 500 euros because I lacked motivation, belief and ambition. I did not deserve to participate in the adventure.” [Page 26-7] The CEO had previously added that “if I want to make a career, I will have to accept to bend down and give everything. Just like in “the Voice’.”
“But doen’t disruption also mean an acceleration imposed too suddenly on society? […] The sharing economy allows the connection of a client who has a need and a service provider (let’s say a small hand that needs money.)” [Page 28] And then she quotes Bernard Stiegler. How right she is!
“But this tendency, pushed to the extreme, has become the watchword of a despotic regime which does not admit ‘the weakest’, that is to say the refractory, and which relegates them to the bottom of the social pyramid. Because if everyone can, in theory, become a superstar, there is little talk of those for whom “siliconization” does not embody a dream… nor a sinecure.” [Page 36]
“As Orwell has taught us, the manipulation of language is the starting point of any totalitarian discourse. […] The disappearance of the ability to think for oneself can even be the core competence of a company.” [Pages 41-2]
“In many cases, these are bullshit jobs, these new ‘jobs’ in the service sector that pride themselves abotu contributing to the rational organization of the company, but which cannot be described easily because even the first concerned fail to explain clearly what they do neither can they find a real utility. […] Wages were evidently free from all egalitarian considerations and remained confidential.” [Pages 44-5]
“I’ve seen people say ‘never again’ and had to start over again. They had promised that they would not step back behind the counter of a bar after their first internships and still return, for lack of finding a job in their branch. I have seen young women and young men becoming financially dependent on their partner, sublet their car or room to live in their living room (since all aspects of life are now marketable), and knocking at the door of their parents at thirty. Pregnant women put money aside because their maternity leave did not allow them to live decently. These are the people I saw accept a precarious contract with a ridiculous paycheck in a startup because they were promised many things, and offered ‘evolution prospects’ if they agreed to ‘give everything’.” [Page 70]
The author also has interesting definitions. “One of the definitions of start-up might be this: it is a young company with high potential but still not profitable. The objective, from the beginning, is therefore rapid growth.” (Page 94) Mathilde Ramadier even has her own glossary (pages 151-5), often funny… For example:
Disruption: super-powerful innovation that breaks the codes of a whole market. An earthquake, the disruption puts everything flat and does not generally worry about the consequences of the chaos it induces.
Entrepreneur: courageous person with rare talent, who has an idea of genius before everyone, is working to achieve it and succeeds – or not.
Innovation: introduction of a new product or process on the market. A startup is necessarily innovative (for those who launch it anyway).
“During these four years in the startups, I was trapped in an infernal loop, tossed from one absurdity to another, finding here and there the same folklore … Paradoxically, we push the rational to the irrational, originality to conformism, thirst for the new to regression […] The solutions that the startupsphere promises us – to the crisis, unemployment, boredom, repetition of the same and even disuse, old age and ugliness, etc. – are also a deception: one can not pretend to live in the new world before having truly built it.” [Page 143]
Once again the Paris Innovation Review (formerly ParisTech Review) publishes a series of excellent articles, this time dedicated to start-ups. These are:
– Companies like others? A sociological survey of French startup. http://parisinnovationreview.com/2017/03/21/sociological-survey-french-startups/
– Startups Employees Perks & Incentives – 1 – Wages. http://parisinnovationreview.com/2017/03/23/startups-employees-perks-incentives-1-wages/
– Startups Employees Perks & Incentives – 2 – Equity. http://parisinnovationreview.com/2017/03/23/startups-employees-perks-incentives-2-equity/
The article about the sociology of start-ups shows (in fact confirms) interesting things. I will let you read and jump directly to some of their concluding points: “Some of these results can provide pause for thought for public policies aimed at fostering startup creations. The survival of these businesses seems relatively unpredictable, both for the people involved (entrepreneurs, employees, support bodies) and for analysts who observe them from the outside. We have interpreted this unpredictability as the result of two causes. The first is the selection operated by the support agencies, a selection that has largely guided ours, since a claim of technical innovation, which was our main criterion for inclusion in our survey, is generally associated with subsequent monitoring and aid by these agencies. One might think that a number of projects considered very unrealistic could have been excluded by these services, which in fact limits the variety of the companies we studied. The second, more fundamental cause is the very variety of factors that make or break businesses: outlets that emerge and disappear along with the flow of global economic changes, strategies of major industrial groups and initiatives by competitors, internal conflicts, resources which become abundant or scarce depending on the context, financial problems which are difficult to anticipate, etc. This may encourage governments and public agencies to foster a much greater number of projects and not merely be satisfied with those that they consider to be the most promising. Watering a whole field is often more efficient than dumping all the available water on but a few square meters… Securing solid support by authorities, companies that are deemed innovative are doing better than the others if one considers their survival rate. Perhaps it would not be absurd to offer an equivalent support to businesses in other economic circles.”
The incentive topic is one I have covered at length as you may see with my Slideshare link below. On the salary side, I fully agree with their claim: Be as objective as possible: this ensures fairness and acknowledges a basic truth: people talk. On the equity side, know the rules of vesting and cliffs, and build a granting mechanism based on experience of employees and layers of early and late comers, i.e. the same number of stock options could be granted per year (so more shares to early employees as there are more employees per year when the company grows. If it does not, stock options are probably worthless…)
The excellent Paris Innovation Review (formerly known as the ParisTech review) just published an interview of Jacques Lewiner (for the ones not knowing him, you may want to have a look at Jacques Lewiner about Innovation. This new article is entitled Research exploitation: catching up at a quick pace!
It begins with:“Academic research is not only a driver of scientific progress. It is a means to change the world. Many discoveries, including in areas related to basic research, can lead to new processes, products or services.”
Lewiner then explains the complexity of a successful exploitation and biases related to it. “The first [bias] is that, when we think about exploitation, we stick to patents. […] But sticking to patents means ignoring the essential, i.e. the entrepreneurial aspect of exploitation. […] Hence the importance of the entrepreneurial aspect: encouraging researchers to found startups and develop by themselves the economic potential of their discovery. The second bias comes [with …] a strong reluctance to admit that a researcher can make money, or even a fortune. […] A researcher’s brain is government property!”
Then Lewiner adresses the topic of licensing – More about it in How much Equity Universities take in Start-ups from IP Licensing? So here is what he says: “Nothing prevents the institution from taking shares in the company. 5% of shares, for example, is a reasonable figure, close to what most dynamic ecosystems offer. […] Holding golden shares would be equally counterproductive. […] In short, we need a whole new culture of investment.”
Lewiner indeed insists on an adequate culture: “Speed is a real challenge and on this sense, a well-equipped institution with some experience and good contacts […] can offer a real added value. Role models can also play an incentive role for researchers. […] All these ingredients of the “startup culture” require transmission.”
In the end, I only disagree with his final comment: “I dream of the day when French doctoral students will answer to the question of what they will do after their thesis with the same mindset as their counterparts in Stanford or Harvard: ‘I’m still trying to figure out in which of my thesis supervisor’s startups I want to work with.’ ” I think Lewiner is wrong. Ideally, they should do their own start-ups, just like they do at Stanford…
PS: thanks a lot to the colleague who mentioned this interview to me 🙂
It’s a question I was asked yesterday (May 21) and thought it would have between the 60’s and 80s, but had honestly no clue. So I did a little search, first through old books I had read and found this on Google books:
Silicon Valley Fever: Growth of High-Technology Culture, by Everett M. Rogers, Judith K. Larsen Basic Books, 1984.
but apparently I was quite far. It seems to be 1976 as I found the question answered on Quora: What is the origin of the term “startup”, and when did this word start to appear?
As cited in the OED (1989 edn) start-up, in the business sense, is first recorded in 1976:
1976 Forbes 15 Aug. 6/2 The?unfashionable business of investing in startups in the electronic data processing field.
Start-up company arrived a year later:
1977 Business Week (Industr. edn) 5 Sept. : An incubator for startup companies, especially in the fast-growth, high-technology fields.[…]
The term “start-up” meaning upstart dates back to 1550. Now, in the sense of “budding company”, it was first used by Forbes magazine in 1976:“The OED traces the origins of the term, used in its modern sense, back to a 1976 Forbes article, which uses the word as follows: “The … unfashionable business of investing in startups in the electronic data processing field.” A 1977 Business Week article includes the line, “An incubator for startup companies, especially in the fast-growth, high-technology fields.”
The issue is discussed in the June 2015 issue of Horizons, the research magazine of the Swiss National Science Foundation, to which I was asked to participate.
Dozens of startups are launched every year in Switzerland to commercialize the results scientific research funded in large part by the State. Should universities that have supported them become rich in case of commercial success?
Over the last twenty years, about a thousand companies, mostly small, contributed to the success of Switzerland. The majority of them are successful, although investors, inclined to take risks, are rare in Switzerland as compared for example to the United States. Most of the time the spin-offs are supported by taxpayer money, in terms of infrastructure, social networks, scholarships or coaching services. The objective of this kind of public investment is primarily to encourage employment and research.
With the support from public funds, these innovations generate through sales or patents significant benefits in the order of tens or hundreds of millions of francs. The public, as an investor, must be able to require a portion of those profits. Not to allow the State or the universities to get rich, but to reinvest these funds in fostering the next generation of researchers.
At a time when the Confederation and the cantons implement programs of savings due to exaggerated tax cuts, additional funds must be generated in this way and support young researchers in the economic development of their innovations.
“The public, as an investor, must be able to require a portion of the profit.” Jean-François Steiert
When the sale of patents is concerned, it is not a question of aiming for the maximum return, nor of making profits with a unique key. Universities need flexibility to optimize the return. On the one hand, we need the creation and management of start-ups to remain attractive. On the other, one must reinvest adequately in the next generation of researchers.
What is lacking today is transparency. If universities want to maintain the confidence of the taxpayer, they must declare how much money is generated by their successful startups. This information, they owe it to the taxpayer who, rightly, wants to know if her money is well invested in research, a key area for Switzerland.
Jean-François Steiert (PS) is a member of the National Council since 2007 and member of the Commission for Science, Education and Culture.
When Marc Andreessen launched Netscape in 1993, one of the first Web browsers, the 22-year old American chose to start from scratch rather than sign a license with the University of Illinois, the conditions of which he considered abusive. Instead, Stanford University had less tensed relations with the founders of Google, taking a modest 2% stake (which become $336 million six years later at the company IPO). The same university asked nothing to Yahoo! as it considered that the founders had developed the web ite on their spare time. A few years later, one of the founders of Yahoo! made a gift of $ 70 million to Stanford – whereas Andreessen does not want to hear anything about his alma mater.
These examples show how the relationships between universities and corporations can worsen when they do not share the same perception of the value of a knowledge transfer. The latter is often free when it comes to education; but when it comes to entrepreneurship, the overwhelming majority of people think it should not be. Nevertheless, an indirect return already exists: first in the form of taxes and, more importantly, through the hundreds of thousands of jobs created by start-ups. Their value is ultimately much higher than the tens of millions of dollars reported each year by the best American universities from their licenses.
“Abusive conditions can discourage the entrepreneur even before she starts.” Hervé Lebret
How then to define a fair retribution for universities? The subject is sensitive, but poorly understood, partly because of a lack of transparency from the different actors. In 2013, I published an analysis of the terms of public licenses from thirty startups . It shows that universities hold on average a 10% equity stake at the creation of the start-up, which is diluted to 1-2% after the first financing rounds.
It is impossible to know in advance the commercial potential of a technology. We must first ensure that it is not penalized by excessive license terms. Abusive conditions can discourage the entrepreneur even before she starts and discourage investors. And thus kill the goose in the bud.
Hervé Lebret is a member of the Vice President for Innovation and Technology Transfer at EPFL and manager of the Innogrants, an innovation fund from EPFL in Lausanne.
I am reading Thiel‘s Zero to One. And after a compilation of his class notes last year, here are a few more comments. His book is as good as his notes but some readers may be puzzled. It’s not a book about how to build start-ups. (For this read Horowitz or Blank) “This book offers no formula for success. The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.” [Page 2]
Thiel is a strong believer in exceptional achievements, in innovation just like in art or science. “The entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:
1. Make incremental advances
2. Stay lean and flexible
3. Improve on the competition
4. Focus on products, not sales.
These lessons have become dogma in the startup world. (…) And yet the opposite principles are probably more correct:
1. It is better to risk boldness than trivaility
2. A bad plan is better than no plan
3. Competitive markets destroy profits
4. Sales matters just as much as product.“
There is one point where I disagree with Thiel. Though I tend to be convinced by his argument that monopoly is good and competition is bad – read Thiel with care for the subtlety of his arguments – I do not think he is right when he writes [page 33]: “Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate”. I prefer Levine and Boldrin. Now I do believe that established players are displaced by new players – not competitors – who innovate when the champions who have become dinosaurs stop being creative.
Thiel does not believe in luck. “You are not a lottery ticket” and I agree that you can minimize uncertainty by carefully planning and probably by adapting too. He still quotes [page 59] Buffett who considers himself “a member of the lucky sperm club and a winner of the ovarian lottery”. He also quotes Bezos with his “incredible planetary alignment” (which has not much to do with luck either). According to Thiel. success is never accidental.
I also like his piece about founders: “Bad decisions made early on – if you choose the wrong partners or hire the wrong people, for example – are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody will even try to correct them. As a founder your first job is to get the first things right, because you cannot build a great company on a flawed foundation. When you start something, the first and most crucial decision you make is whom to start it with. Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce. Optimism abounds at the start of every relationship. It’s unromantic to think soberly about what could go wrong, so people don’t. But if the founders develop irreconcilable differences, the company becomes the victim.” [page 108]
I will finish for now with sales: “In engineering a solution either works or fails. [Sales is different]. This strikes engineers as trivial if not fundamentally dishonest. They know they own jobs are hard so when they look at salespeople laughing on the phone with a customer or going to two-hour lunches, they suspect that no real work is being done. If anything, people overestimate the relative difficulty of science and engineering, because the challenges of those fields are obvious. What nerds miss is that it takes hard work to makes sales look easy. Sales is hidden. All salesmen are actors: their priority is persuasion, not sincerity. That’s why the word “salesman” can be a slur and the used car dealer is our archetype of shadiness. But we react negatively to awkward, obvious salesmen – that is, the bad ones. There’s a wide range of sales ability: there are many gradations between novices, experts and masters. […] Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution – whether they’re in sales, marketing, or advertising – has a job title that has nothing to do with those things: account executive, bus. dev, but also investment banker, politician. There’s a reason for these re-descriptions: none of us wants to be reminded when we’re being sold. […] The engineer’s grail is a product great enough that “it sells itself”. But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself). […] It’s better to think of distribution as something essential to the design of your product. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business – no matter how good the product.” [Pages 128-130] And if you do not like it said this way, watch HBO’s Silicon Valley episode 15… I may come with more comments when I am finished with this great book.
There are tons and tons of courses and videos about high-tech entrepreneurship. In 2013, the star was probably Peter Thiel. In 2014, it seems to be Sam Altman, President of Ycombintor with his How to Start a Startup The first 2 lectures have been very good with a focus on the ingredients a start-up requires:
1- an idea,
2- a product,
3- a team,
4- an execution.
Altman added in a typical American manner that hopefully you do not execute the team in step 4. You can find the videos on the web site How to Start a Startup, and also the full text of the lectures here:
Lecture 1: How to Start a Startup by Sam Altman – Ft: Dustin Moskovitz. The slides anc content can be found on another nice web site: howtostartastartup.co
Altman’s slides: here.
Dustin Moskovitz ‘s slides: here.
More also here: howtostartastartup.co
I began my previous blog about Horowitz’ The Hard Thing About Hard Things by quoting the first page. I will begin here with his final page:
“Hard things are hard because there are no easy answers or recipes. They are hard because your emotions are at odds with your logic. They are hard because you don’t know the answer and you cannot ask for help without showing weakness. When I first became a CEO, I genuinely thought that I was the only one struggling. Whenever I spoke to other CEOs, they all seemed like they had everything under control. Their businesses were always going “fantastic” and their experience was inevitably “amazing”. But as I watched my peers’ fantastic, amazing businesses go bankrupt and sell for cheap, I realized I was probably not the only one struggling.” […] “Embrace your weirdness, your background, your instinct. If the keys are not there, they do not exist.”[Page 275]
Again the book is not an easy read. It is more advice about processes than anything else, so you may not enjoy the book if you do not need to apply it now. If you are not an ambitious entrepreneur who needs to scale his venture, reading the book may not be useful. Still it is a great book. Let me give you a couple of examples.
“Figuring out the right product is the innovator’s job, not the customer’s job. The customer only knows what she thinks she wants based on her experience with the current product. The innovator can take into account everything that’s possible, but often must go against what she knows to be true. As a result, innovation requires a combination of knowledge, skill, and courage. Sometimes only the founder has the courage to ignore the data.” [Page 50]
Funnily enough, Horowitz quotes Thiel. (By the way, quotes on the back page supporting Horowitz’s book are from Page, Zuckerberg, Costolo and Thiel…) “I don’t believe in statistics, I believe in calculus”. And his advice “when things fall apart” are
– Don’t put it all on your shoulders.
– This is not checkers, this is motherfuckin’ chess.
– Play long enough and you might get lucky.
– Don’t take it personally.
– Remember that this is what separates the women from the girls.
I summarize his advice from pages 64 to 93 as when things fall apart, face the truth and tell the truth. Tell the truth to your employees, tell the truth to your future ex-colleagues, tell the truth to your friends and more importantly, tell the truth to yourself.
I understand now why Andreessen-Horowitz is seen as a firm which has put in place tons of processes. Horowitz describes many tasks founders should be utmost careful about. Taking care of people, first. He also describes how you can do mistakes by trying to do good. Just one example: “our hockey stick [the shape of the revenue graph over the quarter] was so bad that one quarter we booked 90% of our new bookings on the last day of the quarter. […] I designed an incentive to closed deals in the first two months. […] As a result, the next quarter was more linear and slightly smaller… deals just moved from the third month to the first two months of the following quarter.”
Other interesting examples are about smart people and bad employees. “Sometimes, you will have a player that’s so good that you hold the bus for him, but only him.” And senior (old) people: “When the head of engineering gets promoted from within, she often succeeds. When the head of sales gets promoted from within, she almost always fails”. [Page 172] Horowitz explains also there is not one rule, it is company-dependent. Andreessen favors giving titles easily, Zuckerberg has opposite views.
“Perhaps the most important thing that I learnt as an entrepreneur was to focus on what I needed to get right and stop worrying about all the things that I did wrong or might go wrong.” [Page 200] Again focus on the strengths, not the weaknesses.
Ones and Twos
Horowitz quotes Collins’ “Good to Great”. “Internal candidates dramatically outperform external candidates.” And then adds that “Collins does not explain why internal candidates sometimes fail as well”. There are “two core skills for running an organization: First, knowing what to do. Second, getting the company to do what you know. While being a great CEO requires both skills, most CEOs tend to be more comfortable with one or the other. I call managers who are happier setting the direction of the company Ones and those who more enjoy making the company perform at the highest level Twos.” When they are not competent at both, “Ones end up in chaos and Twos fail to pivot when necessary.” [Pages 214, 216]
Horowitz shows that great CEOs need vision like Steve Jobs had, competence in implementing like Andy Grove had, and ambition like Bill Campbell. One of Horowitz favorites references is indeed Andy Grove and his “High output Management.” Horowitz shows how much respect is has for Jobs and Campbell, but the systematic processes remain his favorite, therefore Grove.
Horowitz also strongly believes that “life is struggle” (quoting Karl Marx) and that CEOs have to be ready to be both peacetime CEOs (when a company has a large advantage over competition in a growing market – Eric Schmid at Google until Page took over) and wartime CEOs (companies facing existential threats – Grove at Intel when they switched from memories to microprocessors or Jobs at Apple when he came back).
“Be aware that management books tend to be written by management consultants who study successful companies during their times of peace. As a result, the books describe the methods of peacetime CEOs. In fact, other than the books written by Andy Grove, I don’t know of any management books that teach you how to manage in wartime like Steve Jobs or Andy Grove.” [Page 228]
Horowitz hates the idea that founders should be replaced, that companies need professional CEOs who know how to scale companies or who “should be the number-one salesperson.” CEOs define the Strategy (“The story and the strategy are the same thing.”) and do Decision making (“with speed and quality”).
You may like the “Freaky Friday Management Technique” [Page 252] and “Should You Sell Your Company?” [Page 257] but let me finish with some of his final thoughts: “First technical founders are the best people to run technology companies”. […] “Second, it is incredibly difficult for technical founders to learn to become CEOs while building companies.” [Page 268] Which is why VCs should help these founders becoming CEOs, by helping them acquire the skill set as well as building a network.
Finally if you wonder why Andreessen-Horowitz web-site is www.a16z.com, you just have to count the number of letters in the name between the a and the z…
Again I have been very much impressed by the Entrepreneurial State but I also have some major doubts and even some disagreements. Maybe I have been brain-washed in the last 20 years of my life but my experience in Silicon Valley and venture capital and also my less than satisfying experience with planned innovation by the State convince me that entrepreneurship is crucial and maybe more important than the State role in the innovation part (not the research or even the R&D).
Now I fully agree that seed funding by the State of innovation through research and the taxes to be paid by companies are essential. I also agree that VC is less and less risk taking and that corporate R&D is just a D and the R has disappeared both in IT and pharma.
But let me finish with my notes on this excellent book. As a reminder, part 1 was about the innovation crisis, part 2 was about the respective role of the public and private sector in R&D and innovation, part 3 about the Apple iPhone, part 4 about the green revolution and risks and rewards.
Chapter 9 – Socialization of risks and privatization of rewards.
“Innovation has a tendency of allowing those with high skills to prosper and those with low skills to get left behind.” [See also her comment on the New and Old economy in part 4] “Are these the same type of economic actors who are able to appropriate returns form the innovation process if and when they appear? That is, who takes the risks and who gets the rewards? We argue that it is the collective, cumulative and uncertain characteristics of the innovation process that make this disconnect between risks and rewards possible.” […] “When certain actors are able to position themselves at the point – along the cumulative innovation curve – where the innovative enterprise generates financial returns, that is close to the final product or, in some cases, close to a financial market such as the stock market. These favoured actors then propound ideological arguments, typically with intellectual roots in the efficiency propositions of neoclassical economics (and the related theory of “shareholder value”) that justify the disproportionate shares of the gains from innovation that they have been able to appropriate. [Page 186]
This was long but very true.
Finding a way to realign risk taking with rewards is thus crucial not only for decreasing inequality but also for fostering more innovation. […] Put provocatively, had the State earned back just one percent from the investments it made in the Internet, there would be much more today to invest in green tech. Many argue that it is inappropriate to consider direct returns because the State already earns a return via the tax system. The reality is, however, that the tax system was not conceived to support innovation and the argument ignores the fact that tax avoidance and evasion are common. [Page 187]
Mazzucato suggests 3 concrete proposals:
– A Golden share of IPR and a national “Innovation fund” by extracting a royalty. The government should retain a share of the patents; making sure the owner of patents behaves cooperatively, licensing broadly and fairly after an initial period of protection.
– Income contingent loans and equity. “After Google made billions in profits, shouldn’t a small percentage have gone back to fund the public agency that funded the algorithm?”
– Development banks. IF/when the State institution is run by people who not only believe in the power of the State but also have expertise understanding the innovation process, then the results produce a high reward.
[Well isn’t this at least partially what the US do through the Bayh-Dole Act?]
“Rather than relying on the false dream that “markets” will run the world optimally for us “if we just let them alone” policymakers must better learn how to efficiently use the tools and means to shape and create markets – making things happen that otherwise would not. State can do this by leveraging massive national social network of knowledge and business acumen. The State should “stay foolish” as Jobs said, in its pursuit of technological development. It can do so on a scale and with tools not available to businesses. Apple’s success did not hinge on its ability to create novel technologies, it hinge on its organizational capabilities in integrating marketing and selling those low-hanging technologies.
What is needed today is a “systems” perspective, but one that is more realistic on the actual – rather than mythological – role of the individual actors, and the linkages between actors, within and along the risk landscape. It is, for example, unrealistic to think that the highly capital-intensive and high-risk areas in clean technology will be “led” by venture capital. The history of new sectors teaches us that private investment tend to wait for the early high-risk investments to be made first by the State. Yet the returns from these “revolutionary” state investments have been almost totally privatized. While this is especially obvious in the pharmaceutical industry, it is also true in other high-tech areas, with Apple, which have received major benefits from public funds, both direct and indirect, managing to avoid paying their taxes.
First, it is not enough to talk about the “entrepreneurial” State, one must build it, with long-term strategies. There is nothing in the DNA of the public sector that makes it less innovative than the private sector. It is a self-fulfilling prophecy that it is more exciting and fun to work at Goldman Sachs or Google, rather than a State investment bank or a ministry of innovation. The only way to rebalance this problem is to upgrade, not downgrade that status of government. Second a need for a return to cover the losses, beyond the taxes and supply of skilled staff. A direct return. Third, this will have the potential to better inform policies that are directed towards other actors in the “ecosystem” of innovation. (Except the world is global and this may make efforts at the national level not sufficient)
– Reduce State direct transfers such as tax relief,
– Spend money on new technologies and concentrate on firms that can spend on innovation
– Abandon patent box
– Review tax credits so that firms are accountable on innovation, not just R&D
– Reduce enterprise zones
– Return of successful investment in part to government
– Use saved money for massive spending à la Darpa
– Adopt a proactive approach to green technologies
– (Not sure I understood the argument on time investment held before tax exemptions)
– Short-termism is problematic.