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The business strategy that will land Uber on the NYSE hinges on a key element: staggering sums of venture capital money. These investments let Uber and similar tech startups collect users by undercharging them. That’s great for well-off city-dwellers, who have benefitted from deep discounts on everything from pet-sitting to grocery shopping and laundry delivery to watermelon apportionment.
But beyond contributing to the VC hipster-subsidy complex, the Uber IPO reflects a larger problem besetting the US economy. Silicon Valley-led entrepreneurship is supposed to be the engine of American innovation and future prosperity. Instead, the VC industry and the cash-burning startups it favors waste money and human capital—resources the rest of America needs to grow.
Mind you, a few startups dominate their industry because they sell customers an entirely new service, as with Facebook and (arguably) Airbnb. Others’ success comes from an innovative breakthrough that lets them provide a service more efficiently than competitors—Netflix, for example.
Most of the current crop of tech startups, however, thrive only because Silicon Valley funding lets them undercut competitors. The market power bought by VC cash lets them thrust costs on local businesses, which must slash prices to compete, with workers forced to accept less money and more risk.
Why would VCs bet so much on startups without a sustainable competitive edge? Because there’s big money in selling people tales of the future according to Silicon Valley—thanks to the IPO.
Public listings are the ultimate way VC funds cash out, unloading (overpriced) shares on herd-following retail investors. A few quarters later, when the now-public company fails to report a profit (again), stock prices snap back to reality—sticking the little-guy investors with the losses.
When financial manias end, wealth vanishes. It’s not all bad, though. Throughout history, they have also left behind innovations that revolutionized the economy—America’s railway network, for instance, or the late 1990s fiber-optic cable network.
This bubble, too, shall pop. Surely, given the unprecedented scale of VC investment and Valley ingenuity, its bursting will reveal groundbreaking new technologies. Surely something more than how to feed, clothe, and transport urban hipsters. Surely. —Gwynn Guilford
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Global warming bodes well for Pinkerton. In the years ahead, sea-level rise and extreme weather will fuel escalations in crime, political unrest, and resource conflict around the world. That spells opportunity for Pinkerton, a provider of corporate security that benefits from surge pricing during disasters. For the New York Times Magazine, Noah Gallagher Shannon profiles an increasingly data-driven company ramping up for a world made more dangerous by climate change (paywall).
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Robots down on the farm. When it comes to harvesting wheat and corn, mechanization has long since replaced human pickers in modern farming. But that isn’t the case for collecting delicate fruit, a task often performed by immigrants. For the New Yorker, John Seabrook examines efforts, some close to fruition, to replace laborers with AI-powered robots. Some strawberry varieties, he notes, are now bred specifically to be easier for robots to pick.
Our best wishes for a relaxing but thought-filled weekend. Please send any news, comments, revealing paperwork, and discreet smart speakers to hi@qz.com. Join the next chapter of Quartz by downloading our app and becoming a member. Today’s Weekend Brief was edited by Steve Mollman and Holly Ojalvo.