Can we pick the right line?

Can we pick the right line?

In 1951, psychologist Solomon Asch conducted an experiment to investigate how individual beliefs and opinions were affected by social pressure from a majority group.

He set up groups of eight male college students. Each student viewed a card with a line on it, followed by another with three lines labeled A, B, and C.

One of these lines was the same as that on the first card, and the other two lines were clearly longer or shorter. The answer was always obvious.

Here's the twist: out of the eight participants, seven were paid actors, or "stooges", who were instructed to, sometimes, give the wrong answer unanimously.

The remaining participant, and the only real subject in the experiment, sat at the end of the row and gave his answer last without knowing the other seven were actors.

The result?

Nearly 75% of the participants in the conformity experiments went along with the rest of the "stooges" at least one time even when the answer was obviously wrong.

Asch demonstrated that people were willing to ignore reality and give an incorrect answer in order to conform to the rest of the group.

Yes, the right reaction is "oh, fuck" but why do I bring up a Polish-American psychologist?

The public narrative in European tech right now is things are Wonderful but in private conversations are different. And just like in the Asch Conformity Experiment, many of us – yes, me too – conform with the majority's narrative because the first seven "stooges" did it before.

God forbid we don't agitate our pompons enough or shine too much light on something, right?

Look, I get it. I really do. It makes sense to be a cheerleader.

Europe has been growing at an incredible pace in the past decade but it still has a looooong way to go. And when you are the underdog and have aspirations to not be one anymore, a healthy dose of touting is a necessary evil.

But this ego-inflation mechanism has a downside: we stop talking about problems. And not talking about problems is a problem. A big problem: you can't fix, improve or revert something you don't discuss.

I'm long European tech. But I'm also critical. So today we are going to discuss it. Ready to take off the rose-colored glasses?

Let's start with the fact that we are small. In the first half of the year, US companies raised a total of $69 billion in venture capital. That's double what European companies raised in all of 2019, and more than 3x the €18.5 billion raised up until June. Our local champions are an order of magnitude smaller than the US or China's, both in size and influence. Spotify is worth €45 billion, Amazon $1.6 trillion and Facebook €800 billion.

On top of that, early-stage company formation is suffering. Less companies are being financed than ever before: first-time rounds have declined steadily since 2014 and is pacing to be the lowest annual total since 2009.

Too much regulation isn't making things easier. And the pace isn't likely to slow down any time soon. In fact, we are driving straight into a senseless fourth internet where large US tech companies are the winners and self-imposed red tape prevents us from building our own competitors.

And frankly, diversity needs work. European tech is still a male dominated industry, and even though it's slowly getting better, we are still missing out on having people who solve problems most don’t understand and build companies that wouldn’t get built otherwise. And I’d like those companies to be built.

Plus, our options schemes for employee ownership is terrible at best. Things are changing thanks to funds like Index ventures and efforts like Not Optional but there's still a long way to go if we want to attract ambitious talent.

When you pair that with the fact that exits are slowing down with a total value in 2020 on track to be the lowest since 2012, you start to get into dangerous water because we still don't have a liquidity flywheel and the capacity to recycle capital at scale.

And finally, there's not enough private money along the entire stack, and what public money there is often going to the wrong places. Think about something: the biggest problems in the world require amounts of money that only governments have, but we are using most of it to fund SaaS companies  whose business model is providing marginal productivity increases to other SaaS companies. Why not moonshots? Why not new institutions?

That's just some of the stuff I'm seeing. I know others see and value things differently. But I hope you get my point. I don't know how to fix them (or at least not yet), but the first step for me is to put it out there.

I'm fortunate enough to have a not-insignificant audience so if this generates at least one conversation that fixes something, it's going to be worth it.

Let's pick the right line, even if the stooges don't.