Of God and Financial Markets

Steve Blank recently wrote a scathing piece on Silicon Valley’s demise: Why Facebook is Killing Silicon Valley.

I teach entrepreneurship for ~50 student teams a year from engineering schools at Stanford, Berkeley, and Columbia. For the National Science Foundation Innovation Corps this year I’ll also teach ~150 teams led by professors who want to commercialize their inventions. Our extended teaching team includes venture capitalists with decades of experience.

The irony is that as good as some of these nascent startups are in material science, sensors, robotics, medical devices, life sciences, etc., more and more frequently VCs whose firms would have looked at these deals or invested in these sectors, are now only interested in whether it runs on a smart phone or tablet. And who can blame them.

Of course, Steve was referring to the intense speculative flight of capital to social media and mobile apps, a trend that the recent WhatsApp acquisition by Facebook for $19 billion is going to take to its logical and illogical extreme.

Steve’s piece is excellent, pertinent, important. His concern is valid. Software is eating the world. And yet, there are many other problems the world faces that have nothing to do with software.

Financial markets are supposed to be extremely intelligent. They are, indeed, intelligent in driving capital into the most financially lucrative pockets. Currently, that pocket is social media, mobile apps, software in general.

Market purists tend to have immense faith in this phenomenon.

A close friend of mine, a serial entrepreneur of great repute and track-record, whose incisive and playful intellect often stirs up dinner parties, has a theory. He doesn’t believe in the existence of god. He believes that if there were a god, financial markets would have figured out a way to detect its presence, perhaps even to leverage it.

I have thought about his theory a fair bit. Reading Steve’s post made me think about it again.

Here is my observation: I don’t know whether there is a god or not. However, if there is a god, especially the kind of omnipotent, omniscient god that religions of the world would like to believe there is, then this god doesn’t understand financial markets. This god, I am persuaded to believe, is an incompetent god who is unable to allocate the finite resources of the world to maximize greater good.

And so, it is left to man, driven largely by the reptilian brain, propelled by the most basic of human instincts – namely greed – to allocate resources.

The financial markets, therefore, are driven by that same kind of reptilian greed instinct.

You call that intelligence?

I don’t.