Steve Blank: Facebook is Ruining Silicon Valley

The circumstances related to Facebook’s (NASDAQ:FB) initial public offering has attracted a lot of censure from experts who think the starting stock price was inflated and too many shares were released for sale too early. At a starting price of $38 per share, Facebook was valued at over a $100 billion. Technology entrepreneur and commentator Steve Blank has taken a more severe view of the newly public company’s business style, arguing that Facebook and the “social media” craze are ruining Silicon Valley’s innovation machine.

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According the Blank, Facebook’s big valuation numbers will make venture capitalists greedy by raising expectations that all companies can be worth billions of dollars in a handful of years. Facebook reported pre-tax operating profits of $1.8 billion last year on revenues of $3.7 billion, making it the largest and most profitable of social media companies.

Blank argues that venture capitalists used to be much more patient, funding true technology companies that they knew would take 5 to 10 years to reach maturity. “In the past, if you were a great VC, you could make $100 million on an investment in 5-7 years,” Black writes. “Today, social media startups can return 100’s of millions or even billions in less than 3 years. Software is truly eating the world.”

Blanks adds that something that makes a lot of money may not be great for innovation, with a lot of disruptive startups of the last few years actually not being in the social media sphere. “Tesla Motors (NASDAQ:TSLA), SpaceX, Google (NASDAQ:GOOG) driverless cars, Google Glasses were the efforts of two individuals, Elon Musk, and Sebastian Thrun (with the backing of Google),” he writes. “The smartphone and tablet computer, the other two revolutionary products were created by one visionary in one extraordinary company,” he adds, referring to Apple (NASDAQ:AAPL).

However, he adds that this sort of investing fad may pass soon. “The common wisdom is that Silicon Valley has always gone through waves of innovation and each time it bounces back by reinventing itself,” he writes. Once this social-media obsession passes, Blank hopes venture capitalists will go back to funding a more ‘diverse’ set of companies and get back to being patient for profit.

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