Fast.ai Practical Data Ethics lesson 5.2 notes-Our Ecosystem, Venture Capital, & Hypergrowth
By: Risto Hinno
Tags: Venture Capital, Hypergrowth, Fastai, Social Media, Ethics

Lesson 5.2 materials are here. These are my notes and thus not complete and may contain mistakes.

Venture Capital, & Hypergrowth

Venture capital has some negative side-effects. It doesn’t mean that it having venture capital utterly negative thing but it isn’t a magic bullet (source):

Venture Capital often pushes what could’ve been a successful small business to over-expand and ultimately fail; prevents companies from focusing their priorities; distracts from finding a monetization plan; causes conflict due to the misalignment of incentives between VCs and founders; and is full of far too many unethical bullies and thugs. Hypergrowth is nearly impossible to manage and leads to communication failures, redundant work, burnout, and high employee attrition.

Even venture capitalists are saying that not every business should take venture capital:

Much of the venture capitalism is related to the following statements (source):

Premise: if company grows big enough and fast enough, profits will eventually follow

Blitzscaling: “prioritize speed of efficiency,” and risk “potentially disastrous defeat”

In reality quick growth might cause a lot of troubles. Those companies that get successful by blitzscaling might suffer from survivorship bias.

Speed/hypergrowth is directly related to data ethics:

Hockey-stick growth requires automation and reliance on metrics

Prioritizing speed above all else doesn’t leave time to reflect on ethics

Problems happen at a large scale

Investors anoint winners (as opposed to market forces)

Creates duopolies/monopolies

Incredibly difficult for new entrants

Loss of control of company

Spread yourself too thin

Tons of companies using this strategy fail.

Is venture capitalism business of financial instrument? Following graph shows how share of US IPOs which were with negative earnings per share. It has rose remarkably and is currently around 80%. They are all in hope that one day profits will follow.

Percent of US IPOs with negative earnings per share (EPS). Source

Venture capitalism might have opposite effect. “Silicon Valley venture capitalists want entrepreneurs to pursue exponential growth even if doing so costs more money and increases the chances that the business will fail.” (source)

(Social media) platform ecosystem

“[…] these platforms are structurally at war with themselves. The same characteristics that make outrageous and offensive content unacceptable are what make it go viral in the first place.” (source)

Algorithm-guardrail arbitrage: when a recommendation system encourages content that violates its community guidelines. Companies have a financial incentive to keep the gap wide. (source)

Social media recommender algorithms have all 3 qualities needed for high elasticity/high fragility (source):

Experimentation is affordable

Content producers get fast feedback

Impact of the recommendation system is high

This makes them particularly prone to gaming to get system work for your short-term goals. But we underestimate long-term effects. “Digital platforms allowed communities to gather and form in new ways, but they also dispersed existing communities […]” (source)

“Power always learns, and powerful tools always fall into its hands. This is a hard lesson of history but a solid one.” (source) Everything is changing and solutions that made good today might help creating chaos tomorrow.

Digital connectivity in Arab Spring. Source

Digital technologies go from empowering citizens to being used as tools of oppression and discord: