I was preparing an article just a few days ago on why “tech” hasn’t been concerned so much by challenging problems but rather by what I call pizza-delivery problems. Then the coronavirus hit us, and while I was regrouping with our customers and partners, I haven’t had the time to edit and publish this discussion. Here it is…

Last February, I tried to explain what tech companies are when we (innovators, investors, or founders) say « tech.» To summarize rapidly, tech mostly means network effects. This means monthly recurring revenues (MRR), critical mass, customers self-locking, and valuations on the turn-over, not the EBIDTA. Tech defined as such, is pure catnip for investors.

Add low-interest rates post-2008 crisis for more than 10 years, fear of missing out compounded by the echo chambers effect of the Silicon Valley, and you get a pivotal moment in time:

The evolution of the top publicly traded companies in the US before and after the 2008 crisis.

The largest companies on the planet are now all tech companies sitting on massive network effects, making them de facto monopolies. Here’s the rub, though: tech and network effects are dramatically biased to consumer markets.

Not that there aren’t network effects in business to business; they are just not as powerful. When there are 350M consumers in the US, there are only 6M companies — including about 3.6M with fewer than 5 employees. Network effects are an exponential function of the number of potential customers; there are exponent 50 more reasons to invest in B2C than B2B (50 = 350M / 6M).

Not only that, but B2C often involves just taking risks on the market part of the business. So if you detect a startup with an initial solid market-fit in B2C, pushing it further with deep investor pockets is relatively straightforward. Cue in as many examples you like of brands like Glossier, coming out of nowhere in 2014, snatching $100M investment from Sequoia Capital and now valued at more than $1.2B. And I’m not getting in the Uber, Airbnb, or other B2C behemoths.

All these companies solve pizza-delivery grade problems (sorry, for my customers and friends in the beauty, hospitality, or food industry). It’s not that I’m dismissive of these genuinely baffling and remarkable successes. It’s that you can’t find them with startups trying to solve challenging problems.

Startups in B2B or trying to solve challenging problems in the biotech and medical fields are much less sexy for investors. Network effects are weaker; there’s probably no MRR at the end of the story, which will maybe unfold 10 years from now — not 10 months! That’s a low investment strategy given a choice, don’t you think?

The only ones investing in hard problems end up being post-world war II companies of the old economy that depend on solving them to survive: energy providers, pharmaceutical companies, defense, and transportation businesses.

Then once in a blue moon, we have a socio-economic reality test such as the Covid-19.

This asks a simple question: can we afford not to invest in the long term on hard problems such as preventing pandemics and focus on rapidly leveraging private equity?

I’d say yes.

Yes, when and if the public sector can afford to do the financially shitty job of investing in the hard problems we need to solve as a society. But to do so, it becomes less and less acceptable to allow tax evasion because both US and EU fiscal codes are outdated, poorly enforced, and, in some cases, just give a free pass to companies like Amazon, Apple, or Facebook.

What’s the upside of a Jeff BEZOS pledging $10B to fight climate change when his company just started to pay minimal taxes last year? Should we celebrate Bill and Melinda GATES for funding malaria research? For what it’s worth, for a European, I’m quite the liberal one. But I can’t forget that these philanthropies are built on money owed to the public.

Or shall we force venture capitalists to invest half of their money in tough global issues? For $1 invested in pizza-delivery, invest $1 fighting Covid-19 or climate change?

Because right now this is the world we have built for ourselves: