The embarrassing investor meltdown surrounding Silicon Valley Bank should drive us to consider new models.
I’ll always have disdain for Wall Street types, but at least they generally don’t pretend to be the good guys. The venture capitalists are just as evil but somehow even more insufferable
VC culture is....cultish. Tim Draper just wrote an article about how sending Elizabeth Holmes (Theranos) to prison is bad for society.
There is a belief on wall street (which extends to VCs) that institutional investors are "smart" money and retail investors are "dumb" money. But VC money is usually just stupid.
There are countless examples of just dumb VC investments. Just two weeks ago, Kevin O'Leary was again defending his investment in FTX on the Daily Show. But just a smidge, a smidge, of due diligence would have shown how poorly run and crimey FTX was. But the VCs (including O'Leary) thought it was the next rocketship to the moon. Instead, its probably not even a useful case study of how not to run a company.
And some day (hopefully in the next few years) somebody is going to write a book on the largest VC fund in history (Softbank Vision fund) and how they incinerated investor money.
VC investors will tell you 1/10 investments succeed, and they hope the one that does is a Google or Facebook that puts them far into the black. But my belief is that you would be just as successful throwing darts and picking companies to invest in.
I'm not sure what can be done to fix this. Certainly greater scrutiny and regulation. Restrict who can invest (no public entities, no pension funds, etc). Require companies with over $10 million in revenue to undergo audits.
I hope you get the chance to tell every VC who criticized you "told you so".
A big part of the problem with Silicon Valley is that the traits that make you successful are some mix of ambition, hard work and amorality, but people THINK they're successful because they're smarter than everyone else. I think a big part of the turn against VCs are things like Musk on Twitter or these clowns making people realise that they're just not that bright.
(I'm not totally convinced on the whole VC thing being net-negative though. The US startup scene DOES invent a lot of genuinely impressive things and I think we'd want to make sure that keeps happening)
It's not just the investor class that strives to "privatize profits and socialize losses". Externalizing costs is rampant in the techno-greed cancers of our economy. Nowhere is that more true than digital asset spaces and commoditized, industrial agriculture. "Farmers Bank Of Santa Clara" sounds exactly like how the VC crypto-bro group will try to rebrand and white/green wash their image. Keep after them Molly!
Thank you for this interesting and useful newsletter. New models are needed. I don't know how they will be structured or function but exploration is happening. That's good.
Thank you for a fantastic piece. You make a compelling case for what so many people know in their gut. The super-rich are not smarter or more virtuous or hardworking—they’re just powerful because of their money. The quote from the Slate piece is spot on. Also this one: “Capitalism without bankruptcy is like Christianity without hell.”—Frank Borman
Another solid take. Well done and thank you!
Well said Molly! I’d also encourage everyone to check out the linked Slate article. If you don’t mind getting angry all over again :-)
As an All In Pod listener (and natural skeptic) I also read and appreciate your work. Great piece - thank you.
I wouldn't discount the possibility that the destabilization of SVB might be intentional. Purposed to make crypto look good. Look at the price of BTC vs two weeks ago.
You just got a shout out by the incomparable Cory Doctorow!
towards the end. Congrats!
One lesson from the tech VC world, seen throughout history: "Believe your own bullshit."
Being out of touch is far from an impediment to success. So many hucksters evince worldviews of such childlike simplicity, even after entering police custody.
Are you familiar with the Zebra movement, and the Zebras Unite cooperative? Worth taking a look at their approach and the arguments they've made over the last few years - it was always important, but it's becoming more and more imperative that alternative approaches are popularized.
Yep, and it's telling how centralized the whole thing is – venture capitalists all bank at the same bank! The Decentralized Web (pushed by Tim Berners Lee, Brendan Eich, Jack Dorsey, Vitalik Buterin, Matt Mullenweg and many others) was supposed to be an antidote. The open source gift economy creates a lot more value for the world than the silos that Silicon Valley VCs built. They prop up money-losing economics, to "reduce friction", then dump everything on the public in an IPO, and repeat. Still, this model is better than many Web3 ponzi schemes because at least the companies they fund produce useful products for humanity. Sadly, though, they build monopolies, and extract rents.
Molly, the problem is a lot bigger, and encompasses most of the for-profit capitalist industry. Mark Z was an open source bro, who rejected Microsoft's $1M in high school for Synapse and ended up giving it away. He was going to make Wirehog, a peer-to-peer decentralized file-sharing network, early on, but Sean Parker (who learned his lesson about the danger of gift economies when he messed with the music + movie industries) proudly says "we put a bullet in that thing". Can't have gift economies around VCs. (https://techcrunch.com/2010/05/26/wirehog/)
Peter Thiel, the first investor in Facebook, proudly says "competition is for losers, build a monopoly". These are the guys who turned Mark Z from an open source bro into a corporate golden boy who buys up competition (Instagram, WhatsApp, etc.) whose founders later leave in disgust, after their golden handcuffs are off. Peter Thiel, incidentally, started this bank run on the bank that served Silicon Valley for 30 years...
You can see a lot more here:
I heartily agree with the criticism of the specific VCs, and the broader VC culture. I'll push back on the broader characterization of venture capital, though. I haven't seen an alternate model for financing moonshots yet.
There are myriad flaws intrinsic to the VC system- but it is the system for funding many startups which we have right now, so I wouldn't hold that against all venture capitalists. Though I certainly have my biases- I work at a VC funded QC startup, and separately know some venture capitalists from my time on my alma mater's board of trustees.
Part of the fault for the ascendance of the vulture capital class lies with those who add value without expecting to be compensated in proportion to that value. I explain at