Last week at Stanford, antitrust officials from the U.S. Department of Justice organized a day-long conference that engaged numerous venture capitalists in conversations about big tech. The DOJ wanted to hear from VCs about whether they believe there’s still an opportunity for startups to flourish alongside the likes of Facebook and Google and whether they can anticipate what — if anything — might disrupt the inexorable growth of these giants.
Most of the invited panelists acknowledged there is a problem, but they also said fairly uniformly that they doubted if more regulation was the solution.
Some of the speakers dismissed outright the idea that today’s tech incumbents can’t be outmaneuvered. Sequoia’s Michael Moritz talked about various companies that ruled the world across different decades and later receded into the background, suggesting that we merely need to wait and see which startups will eventually displace today’s giants.
He added that if there’s a real threat lurking anywhere, it isn’t in an overly powerful Google, but rather American high schools that are, according to Moritz, a poor match for their Chinese counterparts. “We’re killing ourselves; we’re killing the future technologists… we’re slowly killing the potential for home-brewed invention.”
Renowned angel investor Ram Shriram similarly downplayed the DOJ’s concerns, saying specifically he didn’t think that “search” as a category could never be again disrupted or that it doesn’t benefit from network effects. He observed that Google itself disrupted numerous search companies when it emerged on the scene in 1998.
Somewhat cynically, we would note that those companies — Lycos, Yahoo, Excite — had a roughly four-year lead over Google at the time, and Google has been massively dominant for nearly all of those 22 years since (because of, yes, its network effects).
Either way, Shriram — who wrote Google its first check and remains on its board of directors — then offered what he thinks could be the next big disruptor over the next decade: artificial intelligence. We would have loved hearing more about what Shriram is seeing out there, particularly given that Google is already among the most powerful AI companies on the planet with an ever-growing data set that’s virtually unmatchable at this point. But before we knew it, the conversation had moved on.
A number of speakers who were seemingly less conflicted had their own ideas about why the DOJ needn’t worry so much about whether startups can compete with the so-called FANG companies.
One of these, Nick Grossman, a partner with Union Square Ventures, said that USV has “always been extremely sensitive to platform risk,” which is why the firm is now very “excited about crytpo and blockchain space.” The widespread adoption of these decentralized technologies would mean a world of “uncontrolled platforms,” Grossman said, adding, “they can’t do everything [today’s] platforms do, but they can do a lot.”
Another speaker, Greg Back of Free Sky Capital, offered that the answer to who can disrupt Big Tech may well be a high school student somewhere who’s right now starting to work on a quantum-computing startup — the idea presumably being that their technology can do calculations at speeds that are inconceivable today. (Not said: That student’s idea could well wind up in the hands of the companies, all of which are aggressively hiring AI talent and very much focused on quantum computing already.)
Two other investors — Paul Arnold, founder of seed-stage firm Switch Ventures and Patricia Nakache of Trinity Ventures — were more a bit more pragmatic, acknowledging that there is a problem but saying in their own ways that VCs would probably prefer that the DOJ stay out of it and that while Big Tech has changed the landscape, there’s still room for innovation around the edges.
Arnold was the most strident about the impact of Big Tech, saying that when assessing a startup for investment, he always asks, “What will be the competitive response in the market to this. I do think there are kill zones,” he said, referring to areas where it doesn’t make sense for startups to compete with tech giants.
When choosing between a company that’s going to take on an incumbent or one “that has a very clear path to selling in insurance, it’s [an] easy choice,” said Arnold. “I mean, my job is fine. I have a choice,” said Arnold. “But the founders who want to disrupt [a company like LinkedIn], it’s a real uphill battle for them to get funded . . . and I’d say folks going after a space like that, I see them get funded at a far, far lower rate than people going into other industries.”
Nakache similarly suggested that it has grown harder to find that venture “nirvana,” which she defined as “an emerging large market with no competition.” She pointed to feverish investing in crypto and self-driving cars, saying that to some degree, both are the result of investors trying to fund the Next Big Thing. “It’s why you see these mini-gold rushes,” she said, noting that some of these technologies “are very early in their evolution,” yet getting “crazy-high valuations.”
Still, she said, forced to choose between investing around the big companies as VCs do today or operating within a more heavily regulated industry, she said investors would far prefer the former.
“I”m very nervous when we talk about putting friction into an important liquidity outlet for founders,” Nakache said. Her message seemed to be that however well-meaning the DOJ may be, the threat of “unintended consequences” that regulation could usher could, for all anyone knows, be worse.