Will was a web designer living in Los Angeles and supporting his wife, an aspiring actress. He couldn’t shake the idea that he, too, should pursue his passion. So he started a side business on a new digital platform, AllDone (a pseudonym), which connected skilled service providers with customers. Will created a profile to offer guitar lessons, quickly landed a couple of students, and signed up for a subscription that allowed him to respond to potential clients for a flat fee of $20 per month.

Will’s business grew, and he quit web design to teach full-time. A few months later, he got a call from a customer support agent at AllDone. She had bad news: The platform would no longer offer subscriptions. Will would now have to pay a fee to respond to each potential client—adding up to an unsustainable hundreds of dollars a month. Will panicked and pleaded with the customer service agent to let him keep his subscription. “You guys have shattered my dreams!” he cried, when she told him the decision came from management, and there was nothing she could do.

I learned about Will’s story when I was conducting sociological research inside AllDone, one of many Silicon Valley startups aiming to profit from “disrupting” existing industries and building a new, digitally backed gig economy. Like so many workers who rely on apps to make a living, Will had invested in his business under one set of rules only for them to be suddenly and unilaterally altered. Workers criticized—and organized against—platforms like Uber and Instacart in their early years, when they repeatedly experimented with employment policies and wages in similar fashion.

There has been no shortage of debate about the role of arrogant CEOs and harmful algorithms in defining technological innovation. But we typically hear less about the systemic forces that generate those problems. A key culprit is venture capital (VC), which provides early funding for entrepreneurs who want to transform neat ideas into billion-dollar companies. For a business to have any chance of “changing the world” with its technology, it must mold itself to meet the demands of these funders. VCs have become folk heroes in Silicon Valley, widely revered for delivering innovation. Often, they help create products that succeed in short-term disruption—with questionable or even dangerous long-term effects.

VC compels startups to engage in relentless experimentation to generate exponential growth, ratcheting up their expectations at every stage of a firm’s development. The goal is to increase a startup’s valuation so the investor can sell their stake for far more than they originally paid for it. When a startup succeeds, investors’ profits can be stunning. Sequoia Capital’s initial outlay of $585,000 to Airbnb was worth $4 billion after the company went public.

Many celebrate venture capital’s role in creating a marketplace that nurtures the most innovative ideas. But the ideas that are “best” for capital markets—and for enriching the most affluent among us—aren’t always those that are best for societies. When well-connected entrepreneurs, VCs, and the wealthy institutions and individuals whose money they invest achieve massive payouts, other stakeholders are frequently left behind. For example, following Uber’s IPO in 2019, a combined $27.1 billion—about 40% of the company’s valuation—was captured by just three investment funds and the company’s two co-founders. Longtime Uber drivers, on the other hand, received bonuses that averaged $273 per person, or the equivalent of just a few cents per ride.

Tech startups that succeed are not necessarily those that figure out how to create a stable business model that yields consistent profits. Instead, the winners are often the companies that have attracted more capital than their competitors by pursuing reckless growth. Consumers and stakeholders end up missing out on some of the best, most sustainable, and perhaps even the most innovative products and services—tethered instead to the ones able to meet investors’ ever-escalating benchmarks.

The VC business model is powerful. But it is also relatively new, fueled by policies enacted in the late 1970s that incentivized startup investors, including big cuts to the capital gains tax rate and a Department of Labor ruling that allowed pension fund managers to invest in riskier assets. Since then, a small cadre of funders, over a third of whom are based in the Bay Area, have seized an outsized voice in determining the distribution of the economic risks and rewards associated with innovation.

As a new wave of generative AI startups takes center stage in Silicon Valley, venture capital is once again setting the agenda, unleashing experimental technologies that expose us all to substantial risk. How can we come together to minimize the harms generated by new technologies, while sharing their benefits—and fueling sustainable innovation—more broadly?

It’s time to look for better ways to invest in our future—ways that reward new ideas not just for their ability to inflate a startup’s valuation, but also for the benefits they bring to society as a whole. A brief survey of the tech landscape reveals numerous examples of potential alternatives to the VC model. Craigslist is privately owned and has largely resisted outside investment. Instead of constantly experimenting with its platform to increase engagement, serve advertisements, or harvest user data, the company is free to balance the profit motive with a public-service ethos.

Nonprofit video-captioning and translation platform Amara pays higher wages than similar for-profit labor platforms. Up & Go, a platform that allows customers in New York City to order house-cleaning services, is co-operatively owned and operated by the workers themselves. Ninety-five percent of the revenue generated through the platform is paid out to workers, resulting in wages about $5 per hour above the local average.

What these models have in common is the ability to reduce entrepreneurs’ dependence on external funds, and thus external control. Other measures can loosen venture capital’s grip on our innovation ecosystem, too: federal grant and loan programs that require founders to cap prices or share profits, publicly owned investment vehicles, and eliminating tax dodges.

By promoting and investing in businesses with alternative ownership structures, consumers, workers, activists, and governments can challenge venture capital’s winner-take-all model, creating ecosystems of smaller, more localized and specialized platforms that are more responsive to the people who use them and to the communities in which they are embedded. Workers like Will could build more stable livelihoods doing what they love; consumers could have more choices, and their money could directly support their neighbors and local communities instead of serving investors’ interests. Technological breakthroughs could really make life better, which is what innovation should be about. Curbing VCs’ influence isn’t about stifling innovation—it’s about making room for the rest of us to have a say in our technological future.

The post Are Venture Capitalists Silicon Valley’s Biggest Villains? appeared first on Zócalo Public Square.

San Jose is the 10th largest city in the United States, the third most populous in the state of California—and No. 1 in disrespect. With more than 1 million people, it’s Northern California’s biggest municipality—but it’s constantly outshined by those 850,000 San Franciscans to its north.

The famous City by the Bay is our state’s spoiled little brother. Not only does San Francisco attract most of the cool kids and the international publicity, but it also throws punches at its big brother city, 50 miles south, whenever it can.

This is an old fact of life in California. The original state constitution of 1849 made San Jose the state’s capital, but it took just 18 months for the legislature—dominated by San Franciscans who complained that San Jose’s hotels and booze weren’t up to standards—to move the capital to Vallejo.

And the hits keep coming.

For years, San Jose planned to build a baseball stadium next to the central transit depot Diridon Station for the Oakland A’s, who were eager to move to San Jose, which has more than twice the population of their hometown. But the San Francisco Giants convinced the Major League Baseball commissioner that they owned the San Jose market. Last fall, San Jose, after losing its legal challenge to this San Francisco baseball colonization, abandoned the stadium idea, and the A’s renewed their lease in Oakland.

San Francisco can’t even let San Jose victories go. Last month, when the California High-Speed Rail Authority announced a new plan to start construction of its bullet train with a Central-Valley-to-San Jose leg, San Francisco immediately objected. San Francisco transit officials, in comments on the plan, said that the first phase should come all the way north to San Francisco’s new Transbay Transit Center instead of stopping at Diridon. For now, the plan remains at San Jose, but it’s possible that the first phase could go to San Francisco—along with $2 billion in additional money.

But the most grievous injury is how San Francisco has stolen the technological zeitgeist from its southern neighbor. San Jose might call itself the “Capital of Silicon Valley,” but San Francisco is now home to the hottest tech properties—Uber, Airbnb, Twitter. And many firms still headquartered in San Jose and other peninsula cities like Palo Alto are opening up San Francisco offices. The venture capital picture is even more skewed in favor of San Francisco. In 2014, $11 billion in venture investments went to San Francisco firms, while just $1.1 billion went to San Jose companies.

San Francisco, never shy about playing dirty, has used generous public subsidies to attract some companies. But San Jose’s struggles are also of its own making. The young engineers and programmers who drive the Bay Area economy prefer urban living, but San Jose remains suburban and residential.

As a result, San Jose doesn’t have enough businesses to produce economic activity and taxes, leaving the city with budget problems and a famously understaffed police force. Last year, the Mercury News found that San Jose had the lowest ratio of jobs to residents of any big American city. San Jose boasts just 87 jobs for every 100 employed residents, compared to 110 jobs per 100 employed residents in Los Angeles, and 138 jobs per 100 employed residents in San Francisco. The city is trying to turn more residential land into commercial development—but such a transformation could take decades.

To be fair, San Jose is hardly the only place in California to have been disrupted by San Francisco imperialism. Hollywood has lost power and dollars as Bay Area Internet firms consume time once devoted to TV and movies. Taxi companies and hoteliers across the state are struggling under the force of San Francisco “sharing economy” companies. San Francisco’s obscene wealth has spilled over the city’s borders, raising housing prices to unaffordable levels and displacing longtime residents across Northern California.

And, since power follows money, San Francisco has all but taken over state politics. San Francisco’s Kamala Harris is the favorite to go to Washington and join former San Francisco mayor Dianne Feinstein in representing California in the U.S. Senate. Another former San Francisco mayor, Gavin Newsom, is off to the fastest start in the contest to succeed that son of San Francisco, Jerry Brown, as our governor.

San Jose’s predicament is thus a warning sign and a call to action. Unless California wants to watch San Francisco siphon off dollars, political power, and respect from the rest of the state, San Jose must be built up as a bulwark against San Francisco.

As a start, California should nudge foreign and out-of-state firms seeking Bay Area locations in the direction of San Jose. In the near term, the state must do everything it can to make sure Diridon Station becomes a signature California hub, with high-speed rail, every conceivable transportation connection, and attractions nearby to draw people. More long-term, the state should build a new, much-needed University of California campus in San Jose, the only one of the state’s top four cities without one.

To keep San Francisco at bay, we’ll need to find a way to San Jose.

The post California’s Last Stand Against San Francisco Imperialism appeared first on Zócalo Public Square.