Are There Too Many Startups?

That was a question put to Albert Wenger, Managing Partner at Union Square Ventures (USV), after his remarks last week at the BMW I Born Electric event. Might this be a fad – like doing a band in the 70s? No, no and no, says Wenger. We’re at the beginning of a transformation as big as the one from agriculture to industrial, he explained. We need a lot of experimentation. Even failures have social benefits in terms of the experience gained in taking risks, making decisions, etc. This can benefit both large and small companies.

And today’s startups have a higher potential for life expectancy. A lot of historical investing was binary, win-lose. Now a small team with low capital expenditures can keep on going even if the business is not really hitting.

A significant outcome of seeing startups from the long-term perspective of sweeping transformation is USV’s “thesis-driven investing” – putting more emphasis on the principles of large-scale change than on traditional investing criteria, like market size, competitive situation, etc. No. 1 among these principles is the insight that networks will replace old hierarchies, with the unbundling of traditional services – single purpose services replacing all-in-one traditional newspapers, for example. Classified ads went to Craig’s List. Commentary went to blogs. Breaking news went to Twitter. People can find the other pieces just one click away, with no need for a single source. All the companies in USVs investment portfolio exemplify this – among them, Lending Club, Pollenware and Edmodo, two in finance, one in education. But no sector will escape. Healthcare and government are just down the line..

In transportation, Wenger sees cars doing three things: delivering transportation on demand, self-expression and fun and alone time. Transportation, in turn, can mean delivering my body from point to point or solving an information problem. Startups like Buzz Car and GetAround are examples of early peer networks that make it unnecessary to control your own car or where it goes. Online shopping and delivery services can replace the need to get information by going to the grocery store.

Of course, as one audience member commented, industries under siege go to the government for help. The hotel industry is opposing Airnb’s travel guides to staying in people’s apartments with regulations against renting out spare rooms. The Taxi & Limousine Commission got a cease-and-desist against Uber, NYC’s on-demand car service. So then we have the inaugural peer network summit in San Francisco. The battle is engaged: yesterday vs. tomorrow!

First cousin to the notion of too many startups is the meme that social media are all frivolous. But social is also becoming the enabling glue for how ideas are shared and funded. Hierarchical research journals and funding processes (NIH) are beginning to lose ground to innovations like Mendeley, a peer-network blog for sharing scientific research, and Kickstarter and others, which are extending their scope to research. A huge flowering of research can be expected as a result