- Marc Andreessen wrote an essay arguing that America’s failed response to the coronavirus pandemic is due to the country’s “widespread inability to build.”
- According to Andrew Yang, the former presidential candidate, Andreessen’s essay misses a key explanation for why people don’t build solutions for problems like housing, education, and healthcare.
- Venture capital rewards people for building solutions for large market opportunities to maximize profits, says Yang.
- “His broad set of points is correct — we have to start building things, solve the real problems and develop our capacity to deliver in times of crisis,” Yang told Business Insider on Andreessen’s essay. “The problem really lies in what incentives exist for different kinds of solutions.”
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Tech investor Marc Andreessen posted an essay over the weekend, saying that the only way to make us battle-ready for an event on the magnitude of the coronavirus pandemic is to build things in this country. It was effectively a call to arms to revolutionize industries.
“There are always outstanding people in even the most broken systems,” Andreessen wrote. “We need to get all the talent we can on the biggest problems we have, and on building the answers to those problems,” from housing to education to healthcare.
But Andreessen’s missive ignores a key explanation on why people don’t build in this country, according to Andrew Yang, an entrepreneur and former 2020 Democratic presidential candidate.
Yang reasons that there aren’t financial incentives in place for builders.
“His broad set of points is correct — we have to start building things, solve the real problems and develop our capacity to deliver in times of crisis,” Yang told Business Insider on Monday. “The problem really lies in what incentives exist for different kinds of solutions.”
“If I developed an app that made things more convenient for urban professionals, then there have been powerful incentives in place to get me the money I need,” Yang said. “But if I was developing emergency ventilators that would only be useful in a pandemic the incentives were absent unless the government was the buyer. It’s a similar problem with climate change, the automation of labor, and many aspects of education and healthcare. Our biggest problems generally don’t have market-based solutions and the true solutions often aren’t aligned with profit maximizing activities the way they are currently defined.” [bolded for emphasis]
In other words, the people who are likely to start companies are trained on finding large market opportunities because they present better returns for their investors. They may have an easier time raising funds, although market size is just one factor a VC considers.
The kinds of things that Andreessen wants to see built, like houses, schools, and hospitals, don’t necessarily represent large market opportunities.
The next generation of entrepreneurs may need to look beyond Silicon Valley for funding, according to Yang. The money is more likely to come from government or philanthropy, he said.
In the months since Yang ended his run for president, he started a nonprofit, Humanity Forward, as a way to move forward with some of the ideas from his campaign like universal basic income.
The entrepreneur said he “would be thrilled if VCs were to set up these kinds of incentives but they generally are not designed for it.” They raise money from their investors, like university endowments and family wealth offices, on the promise of outsize returns.
Yang said, “A related problem is that the time frame on many of these problems is more than most investors can tolerate so you need long-term, patient capital.”
“But if VCs were to invest in these solutions it would be great,” Yang told Business Insider. He thinks venture capitalists are more likely to invest out of their personal wealth because their own investors, or limited partners, “wouldn’t want their funds tied up.”
He’s not holding his breath.