You've definitely got a good point there, but I think you're being a bit unfair to the author also. SpaceXes and Teslas are by far the exception to the kind of companies SV is funding. They're probably only funded because it's Elon Musk behind them.

VC/Angel in SV has made enormous strides in working out how to reduce risk in entrepreneurship and is, to be honest, fairly incredible at selecting the companies that are going to work. YC is even better than most. The problem the author is talking about is that we (well, you) have become so good at selecting the winning companies that we're possibly throwing away the real risky bets that could be even bigger wins simply because an MVP and traction can't be found before lots of cash is on the table.

Of course, the exception to the author's point is, I believe, Planetary Resources.

"They're probably only funded because it's Elon Musk behind them."

And because of significant advantages and opportunities. Tesla, for example, benefits from the department of energy loan program as well as other tax incentives (like ZEV credits, which comprised most of their revenue thusfar)

Well, those opportunities were there for anyone to take, but Musk succeeded in both electric cars (vs Fisker, Nissan, Toyota, etc) AND in space (vs Virgin, Armadillo, Scaled Composites, etc). So at this point, I'd say that funding Musk is a safer bet than funding an opportunity.

The cost of the hyperloop is equivalent to the sum of every single VC investment (including life sciences, cleantech etc. not just software) made in the last quarter.

There's nowhere near enough money in the VC world to justify the kind of investment it would require. As it happens the biggest VC rounds in recent history have gone to transportation companies like Fisker and Better Place, but even those are in the hundreds of millions rather than the billions something like Hyperloop would require.

Also, unlike an auto company, hyperloop makes you effectively zero dollars until its fully built.

Also unlike an auto company, the hyperloop has not been demonstrated to work in principle.

I'm fairly confident the hyperloop business plan would include building a few miles of test track before betting the farm on building the whole thing.

Yes and no. Even if you're accelerating at 1 g (~10 m/s), which for a car is pretty darn fast, even if it's not test-pilot fast, you're still looking at 35 seconds to get up to Mach 1 (~350 m/s). That's going to be a distance of 1/2at^2 = ~6km/4mi as the minimum length of track for acceleration, and the same again for deceleration. Add in margins for overrun and you might be looking at 10 miles, which is not something you could just plop down in Mountain View. Admittedly if you didn't care about human comfort and were going for 3 g (which is apparently the force of the Gravitron thrill ride I remember from my youth) it would be a lot less (2km each way). It would be unpleasant, but not hazardous, and it would certainly show a margin of safety as the stresses of acceleration would be much greater than encountered in ordinary operation.

Why are you limiting your test runs to 1 g? You don't need to put people in the test vehicles. Just use dummies, and accelerate at whatever.

Tesla's A round was just 7MM, and it's B less than 15MM.

Yeah -- but what are the chances SpaceX would exist if Musk hadn't personally invested the first $100m?

And Tesla might have been cheaper at first, but Musk led the A round and participated in every funding until the F round (!).

Without a deep pocketed founder willing to absorb years of losses, what are the chances Tesla ever makes it to market? Even so they nearly died before they shipped the roadster.

Yes, that's my point; the VCs didn't really enable these companies, Musk did.

My mistake. I thought your point was, "Tesla was much cheaper to start than people think, well within normal parameters for early venture rounds."

If Musk put down his money, isn't he a VC by definition?

He funded his own idea. The definition of "VC funding" isn't a concrete thing. What's important is the distinction between the way companies like Tesla and SpaceX came to where they are today when compared with companies like Instagram and Facebook.

Do you have detailed knowledge of Tesla and SpaceX's funding history? It was my impression that these companies would never have happened if the initial investors didn't provide ~$100 million of capital themselves.

So it isn't fair to say that SV's venture capitalists were lining up to fund these types of companies, and it remains to be seen whether they will do so in the future.

If you look at the major private space companies though, Space X, Blue Origin, even Virgin Galactic, they all have one thing in common. A tech billionaire who decided he wanted to go to space.

It's probably because there's very little money in it from the short term... but there just isn't a whole lot of money going towards radical start ups trying to go to space or build a hyperloop.

Silicon Valley actually funded PayPal. Elon Musk made a boatload of cash from that, and used the mojo (part of it was his own cash, part of it was the reputation he built with PayPal which enabled him to raise more money) to jumpstart SpaceX and Tesla.

But anyway. I am going to say something VERY controversial. Think of it as Devil's Advocate, squared, on steroids. Here goes.

The article could be seen as a rebuke to the fundamental principles of capitalism. You could say capitalism doesn't scale - not to Hyperloop size anyway. Projects at this magnitude simply require that bigger powers get involved. E.g., the government. Sorry for using the G-word in such a refined milieu.

Quote from the article: "Unfortunately, the market does not reward cash flow because the market does not reward value and innovation. The market rewards exits." If that doesn't ring a bell, I don't know what does.

Another quote: "The next reason that we don’t have Hyperloop, but we do have Instagram, is that Fortune 100 companies have notoriously bad in-house R&D. Therefore, acquisitions are driving most of the innovation. " Again, this could be seen as further proof that profit-driven endeavors only innovate small-scale and short-term. Larger leaps are driven by different incentives (I could go on a ramble about the joy of making, but that would be preaching to the choir round these parts of town). And when it comes to truly fundamental research - well, that field is simply allergic to what they call "the industry" (a slightly derisive term, when used in this context); spend some time among theoretical physicists and you'll see what I mean.

When I was young, I've read an essay by a Russian scientist, who was arguing that the centrally planned economy allows for high-magnitude projects, precisely because large financial forces can be easily engaged at this scale. I can't say I entirely agreed with the article back then (a kid growing up in the Eastern Bloc, not really liking the system), and I would not support it indiscriminately now either.

But then there's the Hyperloop. Or any other large scale project like this. Does capitalism scale at this level? Seems like it doesn't - at least not the capitalism of the smartphone app ecosystem. Are there any built-in limits to capitalism? Looks like there are - the limits are the power and wealth of a single individual, whereas some things are too big for any given person (and yes, I am aware that multiple investors could get involved to fund this project, which merely makes the problem slightly less bad, but still leaves it laying in the gutter).

Bear in mind, as someone who grew up behind the Iron Curtain, I definitely do not advocate for the Five Year Plan economy. But I think these concerns are legitimate. And I don't have any answers. Maybe someone here does. Or someone "out there".

Anyway, that's all I had to say.

It feels odd to lift this to a problem with an "ism" and ignore the people behind it. The problem I have with the original article is that it seems to think that innovation and markets consist of investors, entrepreneurs and nasdaq/snp.

So here I have a "theory 10" -

THE PEOPLE go "meh" when faced with something like Hyperloop, but are excited to tell their 500 friends what they had for lunch at the push of a button. Hence the investors go "who cares?" and hence the "entrepreneurs" go "hmm, I better think about more efficient lunch sharing".

People need to be told something like "folks we're going to throw $60B of your tax money (an amount that would rid the hungry part of the planet for 2 years) at a transport system that you won't even be proud of, won't be that much faster or safer than air travel" to get a non-meh reaction to hyperloop. Even then, fast travel between SF and LA is, perhaps, a solved problem according to common folks - just fly already. Heck, you don't even have an interesting view during the trip according to the proposed designs.

On the other hand, post after post on HN talks about cool materials, 3D printing, maker culture, break through science, etc. So funded innovation is happening, it would seem. Just not in the main news very much perhaps.

And here is a "theory 11" - the common folk may actually <shock!> be satisfied with the status quo? Innovators often talk about a persistent dissatisfaction with the status quo as motivation for their work. On the "eastern" side of the planet, this dissatisfaction itself would seem to be the one that needs addressing .. i.e. being happy and contented is not the problem, but the lack of them is.

> an amount that would rid the hungry part of the planet for 2 years

I meant "rid the planet of hunger for 2 years"! What a typo!

Except that the premise is wrong - capitalism most definitely scales at that level. The railroads across America that were built in the 1800's were not a mandate by the federal government, they were private enterprises.

Am I crazy, or weren't the railroads heavily subsidized by the government? I think this heavy flow of public capital into a small number of hands created some of the "robber barons". In the long run it was probably the right call, as this kind of infrastructure spending and innovation doesn't happen without government involvement. Still, it's interesting to think how in the short-term it led to some pretty astounding income inequality. Maybe the issue is why didn't the government just build it themselves, sure it probably wouldn't have been built as efficiently as the worker level, but the overall cost might not having been much higher.

Yes, they were.

"From 1850-1871, the railroads received more than 175 million acres (71 million ha) of public land - an area more than one tenth of the whole United States and larger in area than Texas."

http://en.wikipedia.org/wiki/Pacific_Railroad_Acts

Yes, they were private enterprises... funded in large part by government bonds (e.g. Google "Pacific Railroad Act of 1862.")

Your example doesn't contradict the author's point, it supports it.

Railroads were publicly funded. See the Pacific Railroad Acts 1862 & 64. They issued bonds... lots o bonds

they were given land and all sorts of lease rights by the goverment to do so.

If you can't build a PayPal, what chance do you have of building a Tesla? It makes complete sense that only the already-proven entrepreneurs are the only ones being funded for the moonshots.

I would think those two examples are more about Elon Musk putting many millions of dollars of his own capital into the companies before any other VC's jumped on board.

I don't know if it is fair to say SV funded these companies because he put in $100m of his own money into SpaceX and a sizable amount into Tesla. Even with his name on these projects, it still seems like he needed to ante up way more than most successful entrepreneurs could ever hope to invest.

SpaceX is funded mostly by taxpayers. Half their direct funding came from NASA in the form of prepayments. And of course there is the 3 TRILLION dollars in NASA development that preceded it.

Silicon Valley is kicking in a few bucks at the end. (And guess who keeps all the profits.)