David Magerman first emerged on the scene, briefly, in 2017. He’d been working at a giant hedge fund, Renaissance Technologies, for more than 20 years, helping it develop trading algorithms that drove it to phenomenal success. Renaissance was said to have “solved the market.”
In 2017, Magerman listened to his conscience and gave an interview in which he spoke out against his boss, billionaire Robert Mercer, who was a vocal supporter of Donald Trump and an investor in Cambridge Analytica, which used Facebook to manipulate the American political system in favor of the right wing.
“His views show contempt for the social safety net that he doesn’t need, but many Americans do,” Magerman, then 48, told a Wall Street Journal reporter at the time. “Now he’s using the money I helped him make to implement his worldview” by supporting Mr. Trump and encouraging that “government be shrunk down to the size of a pinhead.”
Perhaps not surprisingly, Magerman lost his job after the interview. It wasn’t too hard an economic blow, because he’d made millions already. Then, he set off on a second career as an anti-big-tech/pro-privacy philanthropist – to good effect. He funded Freedom from Facebook, to pressure the government into changing the policies that were allowing Big Tech such reign over commerce and privacy in the United States. Through his support of the Center for Human Technology, he was one of the backers of Social Dilemma, the film that convinced a few of my friends to bow off Facebook.
Last week, we sat face to face, with a small table between us, in his office in his Main Line Philadelphia house. I wanted to get out of my house, because I’m sick of conducting interviews by phone and, worse, Zoom. He agreed despite the Jewish holidays, which were consuming a lot of his calendar.
His work as an activist and philanthropist led him to (almost) a brick wall. That, in turn, caused him to adapt.
An activist becomes a realist
The wall Magerman hit was human nature. “With Freedom from Facebook, the goal was to educate people,” he said. He and others succeeded in getting the word out about how big tech companies operate. But … he found that it didn’t really matter.
Now, “people know. They just don’t care.”
Americans are gifting their privacy to Big Tech like militiamen at Lexington passing red-bowed bayonets over to the British. But it’s easy, and convenient, so they do it.
Magerman, locking his gaze to mine, said he realized he wasn’t going to be able to change people’s behavior. Rather, he decided to take another tack, making a transition that will be familiar to many entrepreneurs. He learned what Buckminster Fuller preached 100 years ago, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
His adaptation: Rather than trying to get people to stop using big technology, he is finding and funding companies that use artificial intelligence in ways that keep human beings, rather than efficiency or profits, at the center.
In some cases, those companies are good alternatives to Big Tech, or the founders are “philosophically opposed to selling out,” he said. In other cases, the artificial intelligence technology they’re developing is fundamentally sound, he believes, often better than what dominates the current market.
Getting his hands dirty
Before Wall Street, Magerman, who has computer science degrees from the University of Pennsylvania and Stanford, worked at IBM. There, he authored an important paper on natural language processing back in the 1990s. The mathematics that led to today’s artificial intelligence technology came from another branch of thought, but still, he’d been part of the conversation.
After jousting with Big Tech, he wanted to get his hands dirty again, working closely with today’s engineers. Conversations here and in Israel helped him understand he would have more credibility with engineers if he invested in them.
Partnering with venture capitalist Nick Adams, formerly at Supernode.vc, he formed New York City-based Differential Ventures. They raised $20 million, $10 million of it Magerman’s money. The rest came from friends and colleagues on Wall Street, people who believed in Magerman’s instincts and who wanted to dip their toes in venture capital.
Companies in the portfolio include Knockri, an HR tech startup that has produced a video-based skills assessment tool committed to ethical AI and inclusivity.
Based on SEC filings, Magerman is raising a second, $60 million fund. He has raised nearly $30 million so far.
Many of his LPs are people who know him from Wall Street, he said.
Undertaking the hard challenge
“I had to find ways to encourage good versions of technology,” he said, remembering that he told himself: “Let me see if I can find companies that treat data with respect and can also be competitive.”
At first glance, that’s difficult.
The unfettered use of people’s data to persuade or manipulate them to consume more and in specific ways has created trillions of dollars of economic value. Facebook alone has a market capitalization of nearly $1 trillion. Google and Amazon have market caps that respectively top $1.7 and $1.8 trillion.
It’s hard to go up against those numbers, especially from within the tech world. Today’s dominant philosophy of technology is a never-sum game. Many founders coincidentally believe in the double-stranded idea that tech always iterates, and that the free market will ensure, eventually, that whatever they invent will benefit the greatest number of people in the long run. They hope for positive outcomes out of their work lives, but mostly absolve themselves of responsibility for making them happen.
The power of government regulation
But Magerman and his investors come from Wall Street, a financial system that has an older view of human nature and more experience with the unexpected power of government regulation: They both change, and often in ways that you cannot anticipate.
Magerman is still supporting efforts to lobby the government for greater regulation of technology. He hopes especially for anti-trust action from the government.
“The industry is really hurt by how early-stage technologies are swallowed up by big tech companies,” he said. (He discloses his efforts to the founders that Differential invests in).
His crusade against Deep Tech has evolved into an unexpected investment thesis. Much of today’s artificial intelligence technology, he said, is fundamentally lazy. Tech companies seeking the fastest path to profits are observing and using patterns without really understanding the words, meanings or outcomes underneath the patterns, he told me.
Humans are fundamentally changeable; and the ways they communicate and network are fundamentally changeable, too. Over time, companies that use artificial intelligence to understand people more fundamentally and keep humans’ benefit at the center of their work may be in a better position to adapt, he believes.
“The process by which technology is developing solutions is ignoring humanity,” he said.
“The Torah he said, is largely a business ethics book,” he said, suddenly shifting gears. It offers detailed advice on how to moderate capitalism and materialism, such as by forgiving personal loans every seven years.
That sense of moderation is guiding him now. “My father was a taxi driver,” Magerman said. Now, he wonders about the future: Will electronic cars make taxi driving obsolete, in the name of safety and efficiency?
“Do we need to make everything more efficient and safer?” he asked.
Not, he says, at the cost of our humanity.
This article was corrected on 9/30/21 to accurately reflect companies Differential Ventures is invested in.