The article does not mention or address an important contributor to the current state of VC. The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. And, until recently M&A was actively avoided. The alternative was to stay private longer offering higher returns for private investors wanting to capture a (previously non-existent) illiquidity premium. The co-dependency of companies and growth VC fueled an entirely new asset class (that many still call VC). As well as 100s of overfunded zombie unicorns.
Today, the AI boom is a perfect storm of opportunity to put $Ts to work in frontier model AI Cos.
"In recent years, as private markets inflated, the default behavior switched to remaining private and absorbing more capital (to justify more VC fee income). This has resulted in fewer IPOs, and worsening prospects post-IPO for venture-backed companies."
The issues raised in this article are very real but even aside from that, you end up enabling a class of zombie companies that have no pressure to succeed. Their founders raise and end up as advisors and LPs themselves eventually while employees at these companies receive equity that will never be liquid and will rarely be worth anything. At best the equity in these companies will be realized at steep discounts as the lack of liquid markets makes it very easy for private companies to claim that a company was valued at a certain amount at a certain time with scant certainty of what happens next. Companies stay unprofitable and private for decades, relying on private markets to stay solvent.
Pre-GFC plenty of undisciplined, unprofitable companies would IPO. While some did take public money then eventually go under, most just made their underwriters lose money. With pressure to trade publicly and put sunshine on company books, losers lost and winners won.
The result is a K-shaped economy. Private capital appreciates on paper and private capital holders take out loans on the inflated value of their equities. Meanwhile public markets are more discriminating and fiscally tight by necessity. A private company may eventually go under but cheap loans collateralized on private capital may be paid back before there's any financial reckoning.
> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public.
Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.
My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's the ultimate reason IPOs have become less common.
This hasn't made it "impossible" for companies to go public. It just eliminated the need. If you can raise billions of dollars in a G round why go to the public markets at all?
They're poking at SOX and Dodd-Frank I think, but it's a bit of a specious argument, in my opinion the rise of massive private equity (plus the absurd market orientation around short term results) is more of the story, as you say.
And further, if the goal is to eliminate regulatory frictions in public markets that keep companies staying private, then you're effectively advocating for eliminating public markets.
The entire damn deal we make when a company goes public is that the company can raise money from a much broader, potentially less sophisticated investor base that don't have to be accredited, etc, and in exchange there are more stringent requirements around reporting and so forth.
So sure, we could just throw away that regulatory and social contract, but at that point the public market serves no purpose.
Sure. SOX reg sec 302 and 404. Section 302 is a 100% dealbreaker for most companies, so I stand by my 'impossible' threshold. My comment was simply shorthand for all the upfront and downstream costs of going public, combined with fewer exit alternatives. Auditor/directors increased/personal liability, litigious shareholders, time and attention of management, etc. And, to your point, the lower cost of capital from growth investors. But that wasn't always the case. Certainly not true during the dot-com bubble (pre-SOX). I'll leave it to the academics to try to and isolate causality.
Sarbanes-Oxley passed in 2002 and the number if IPOs climbed between then, in the wake of the dot-com crash, and the GFC six year later, while the median age didn't change much:
If your claim was true you'd either expect a decline in IPOs or the age of those companies going up and neither is true during that period.
Now to be clear I'm not saying changes in regulation had no impact. Rather my claim is that regulations plus monetary policy and other macro effects fundamentally changed the structure of the market itself, thereby deincentivizing going public, rather than somehow acting as a break or barrier to IPOs.
Seriously? The "you can't knowingly lie in your financial statements, and you have to make an actual effort when compiling them" section?
If that's a "100% dealbreaker" to you, nobody should ever invest in your company, because you are literally complaining about not being able to defraud them!
There's no strong consensus, but there's weak consensus that post-GFC regulation is a factor behind but is not causal in any way, for the decrease in IPOs. Here's a paper [1] (well it's the paper author discussing his paywalled paper lol) exploring SOX regulations and their effects on IPOs. There's other papers and I think a good survey will help you on this topic. I don't think there's consensus on regulations being the causal factor, but it is one of many.
I thought GP was modest in calling it out as simply a contributing factor. Regulation is complicated and reaching for it should be something done with care.
(Also FWIW, I think you're being a bit cheap by appealing to culture war talking points.)
It's hard for me to read '"Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.' as anything more than that.
It's an observation about prevailing libertarian values in the HN community that tend to attract upvotes while going unchallenged.
If you consider that part of a "culture war", then it seems that term has lost all meaning. Might as well just accuse me of being "woke" and get it over with.
I think this forum has a lot of values and don't think it's been libertarian in outlook in a long time based on what gets upvoted here so appealing to that is a bit silly but anyway I don't think this is a fruitful conversation so have a good day.
I think we're running into (or at least pretty close to) a Two Guys Fallacy here:
There's still a strong libertarian streak in HN posters, in a variety of ways.
However, there are also (mostly) different posters who have more vocally shifted the site's Overton window to the left.
These days, I find it fairly common to, for instance, make a comment that points out the very obvious problems the Republican Party has created in recent years, get downvoted to -3, and then upvoted to +5 (or vice versa), all within a few hours. This would suggest that there are contingents of posters (or at least voters!) in both camps.
I generally operate with the understanding that HN today has lots of groups, with an overall "left" lean (as much as anyone can flatten politics into a single axis.) Libertarians, leftists, liberals, nationalists, everyone is here. Appealing to one "enemy" group strikes me as a cheap blow; it's sure to increase engagement for your post with little added discourse value. IMHO at least.
Sarbox is a drag, but another issue is the rise of the securities plaintiffs bar. Public companies are subject to Rule 10b-5 claims on each statement they make because the market can "rely" on that statement. This means every public interview, press release, and even tweet needs to be scrutinized by lawyers or risk subjecting the company to expensive lawsuits because the founder's "misstatement" moved the stock price by 45 cents.
I've never run a public company, but my bet is the mechanical filings, etc are way less of a burden than shareholder litigation.
Yeah, I did barely cover the shift in dynamics around IPOs. I originally had a lot more on that, but cut a lot out. I think what you point out is absolutely a huge factor.
I think privatization is always a metric of the functionality and thrust level in a society. Cohesive, honest society, socialized health care.
Messy, parralell society ladden mess, private healthcare. Basically the thrust that was in a society gets moved into a smaller parallel privat society.
I reject that for simple reasons of linear time. The GFC happened in 2008 and Dodd-Frank passed in 2010. Since then, there have been no large, notable regulations passed and Dodd-Frank was watered down a bit in 2018.
While Sarbanes-Oxley did make it substantially harder for small companies (market cap <$1B) to go public, there was a wave of very affordable and notable IPOs throughout the 2010s - Tesla at $2B, Shopify at $1B, Square at $3B, LinkedIN at $4B, etc. All of these have now grown substantially since their IPOs, with Square (absolute dog) being worth 10x their IPO. So yes, SOX killed micro-IPOs, but GFC/Dodd-Frank did not kill affordable IPOs.
Now, you're right that IPOs have grown a lot more expensive over time, but you're absolutely wrong to attribute it to increased regulations post GFC. The actual answer is much more closely related to what the article is talking about - VCs realized how much growth and returns they were leaving on the table and there has been substantial pressure on firms to stay private as long as possible, as well a huge increase in larger rounds and private credit. In fact, rather than increased regulations, there has been a loosening of regulations that allow investors to use SPVs (and SPVs of SPVs, and SPVs of SPVs of SPVs, a veritable matrioshka of SVPs) to get around the maximum number of shareholders a private company can have.
I have seen this first-hand - part of my investing strategy was to blindly buy cheap tech IPOs and that got me some great returns, but this strategy no longer works, because the VCs have effectively managed to hoover up any decent returns retail investors could get. Today you gotta be on AngelList or other platforms (only qualify investors, obviously, more exclusion) buying secondaries if you want decent returns.
Don't want to split hairs here, but SOX was pre-GFC, so I'm not attributing it to only post-GFC. My first-hand experience discussing personal liability with a BoD lasted about 3 seconds. LOL.
I think tech founders need to think smaller. Build software for a few thousand people and make a profit from it. Something niche. Something that is sustainable with a small team.
VC eats up everything that's becoming bigger. And they will kill it. Their goal is not to run a healthy business that serves their customers. They try to take out as much money as possible and then trash it.
This is it. Sustainability. Not everything has to be about more money quickly. You don't even need VCs for that. More win to bootstrappers! I see a lot of folks bootstrapping in the LLM era, but that can be defeaned in the VC noise.
Exactly. And the dangerous mindset tends to be worse than just "more money quickly": it's far too commonly "if this can't become the next Facebook/iPhone/ChatGPT, it's not worth doing." The only options are "take over the world" or "fail"; there's no room (in many people's heads) for a product that makes a decent, steady profit and continues to do so over the course of many years.
There is, is just different capital for those companies (debt, growth equity, angels, grants) and less attention. There’s far more of these types of companies too.
Because you still need a good sales and product team. Speak with potential customers, understand their problems. Building the software was never the hard part.
They don't give a shit about making a good product, the literal only thing any of these ghouls care about is line going up in the short term, because if line goes up they can dump their investments and move on to the next entity that they can get their greedy claws on and devour.
This is becoming more and more of a problem. For a small software company it could become an asset. Tell customers they are privately owned and small, and therefore won't be acquired by VCs.
Traditionally big vendors were more trustworthy and stable, that's no longer the case.
Edit: I'm not talking about end users, most commercial software is licensed by companies.
In that environment the founder has no hope or reason to go public, making equity in the company worthless.
VC used to push to public exits in order to maximize the founders and VCs stake which turned employees equity to a liquid asset. Truly aligning everyones interests, nowadays not so much.
You're forgetting about dividend, and off-market trade.
If a company is worthless if it isn't public, then IKEA would be absolute garbage. Quite strange for a company making hundreds of millions in profit for its owners.
The insane valuations for selling a dream are what make VC worthwhile.
TSLA would be worth crap if it were a private company giving off dividends. It is really truly about the insane valuations driven by collective delusion.
While Anil makes a lot of great comments about VC's shift towards institutional PE, the legal issues he harps on are insignificant.
Until 2012 or so there was no legal concept of "venture capital". Around that time, the SEC adopted some new rules in response to the GFC. In those rules came the "venture capital adviser" exemption. To be a "venture capital adviser", a firm needed to avoid doing a lot of things that looked like private equity investments or hedge fund management. The only consequence of falling awry of the new "venture capital adviser" definition was registration as an "investment adviser" with the SEC.
The important anti-fraud provisions of the Advisers Act still apply to "venture capital advisers" even though they aren't registered, and most big VC shops would have probably been pushed to register for other reasons anyway.
I’m a VC and agree with much of this. The mega firms have totally warped VC and the desire for massive cash appreciation has led to a host of bad characters getting involved. I still love working with early stage companies but it is hard to cut your own lane when these mega groups control so many aspects of the stack and have such outsized capital and political influence. There are so many issues destroying early stage VC right now. We need major policy change / guardrails but that won’t happen.
I think “regular” VCs are one of the cohorts of people I feel worst for! I have a lot of friends who got into the business wanting to help entrepreneurs, and now they’re stuck on a cap table with folks who they’d never want to do business with. It’s not any different than the founders or employees who don’t want to be saddled with these guys, either.
The hard part is figuring out how to change these structures so that people can actually extract themselves and still build stuff that isn’t toxic and destructive.
I don't feel bad for VCs. Venture capital has turned the old style of startup entrepreneurship into a financial hustle of Startupism that is about trading equity value and not about venture creation. Maybe it always was about that, but at least in the 1960s-early 2010s it seemed at least somewhat more about business and value creation. Now it all just seems like a financial hustle. I hope we see VC become the minority way that businesses are built and financed as it used to be in the tech industry.
I think the root problem is it takes a lot more money and resources to compete now than it did before. Before, due to broadband being new, everyone not already having high performance computing devices, and the quickly decreasing costs of hardware, it was possible to use a skeleton crew and barebones resources to do something impactful. Or you have to be a very, very exceptional performer.
I know milenimals who know how everything works but only check messages every 2 weeks and dont answer if anyone calls. Might play a game once per month, might watch one movie per week.
One guy boots up his pc, looks at one website, closes the tab, closes the browser, shuts down the pc and switches the monitor off. I have to admit the technology looks terrible if used like that.
That's like waiting for domesticated animals to walk of the farm by themselves. Mess resolves itself the same way throughout history when different camps within the elite start saying enough. But there is a process just like abolishing slavery or getting kings to hand over money printing to the central bank. Wasn't driven by the plebs. It takes time because the different camps have to align. The parasites get reigned in eventually because they are in the minority camp.
I find it very useful to be able to look up information at a moment's notice, whether or not a store has something in stock and where it is in the store before I go, doing group chats and video calls with family and friends almost anywhere I am, being able to get a taxi at a known price and see it arrive on a map, etc.
I just had a medical emergency in a foreign country and was able to navigate it with relative ease and almost no cost using translation features. I was able to scan and OCR documents with my phone camera which let me easily submit insurance claims, yada yada, a lot of things are much easier and cheaper in this day and age.
I stay away from the "news" websites (ironic given this site is called Hacker News, but it's not as monetized, so I guess it still works) and instagram/tiktok/youtube shorts/x style stuff.
I wouldn't lump up all inventions into this. The incentives are warped and we're too focused on adtech and filling human lives with screentime. It should be entirely possible to live a fulfilling life without having to carry a phone everywhere you go.
What societal change and what inventions, exactly? Some societal changes are for the better, others for the worst. We are heading toward the "worst" direction in full speed.
Some inventions are for the better, other mostly don't matter and yet others make the world actively worst. And the "for the better" things dont seem to come from our industry anymore. Nor for rich VCs, nor from private equity investments etc.
I'm guessing you located are in the bay area? If so, that is one thing under your control that you could change. The early SV VCs didn't build the industry by staying in NY (where the capital concentration at that time was). They had to get away from that scene to do what they did. It might be easier to cut your own lane if you weren't sharing the same turf.
I agree. Ethics is at the forefront of everything I do both personally and professionally. I used to serve on an ethics in business council. All the investments we make are grounded in genuinely improving the world. It’s unfortunate that so much money flows to certain VC firms when people like me exist since I reckon I’m much more aligned with what the general population wants.
I'm someone in the startup space that's sworn off raising capital and talks to a lot of founders. I can say that if you're willing to take an anti-Zionist position, you will get incredible deal flow from frustrated founders and definitely make your own lane. I know how difficult that is in this space though.
Some of us care about the ethics of those we work with. Being a Zionist is also a brand risk. Just look at Vercel when their CEO met with Netanyahu. Many people canceled their accounts and now will never use Vercel. Mainly I don't want to work with people who are enthusiastic about committing genocide, as so many VCs are.
I don’t follow the logic. Since when does the act of meeting with someone mean you’ve adopted their beliefs? Do you adopt the beliefs of everyone you’ve met?
What if you've met both a Zionist and an anti-Zionist? What does that make you?
For sure. But that's not what you said before. And Netanyahu isn't on Vercel's board, nor did Netanyahu raise money for him. The only news I see about this is a brouhaha over a selfie and a meeting in NYC with different tech business leaders.
Oh yes, I wouldn't ever work with anyone who met with Netanyahu. That's ridiculous. Vercel's CEO even went to Israel to do it (that wasn't in NYC -- not that that would make it ok). I'll never use one of their products.
Would you work with someone who took a selfie with Hitler? This is the 21st century equivalent.
This is a really dumb take. You're relying on a straw man (nobody claimed the CEO adopted his beliefs; they're talking about brand risk) and a category mistake (treating a high-level corporate photo-op like bumping into someone at a coffee shop). You can do better.
Also your original comment was a non sequitur. I replied to a VC saying they could make their own lane by being ethical and being anti-Zionist and you replied asking about business fundamentals, which had nothing to do with what we were discussing.
That post does not establish the connection that you think it does. There was no language of agreement with Natanyahu’s political views therein. In fact his language was inclusive (“peace for Israel AND its neighbors”). You drew a contrary conclusion yourself (as did anyone else who thinks similarly).
It’s fair to question whether a VC should care about a founder’s position on Zionism (or vice versa). If you don’t like it, that’s on you.
A Zionist is someone who thinks Israel should exist, and here he is wishing for "greatness" for Israel. He is a Zionist.
> It’s fair to question whether a VC should care about a founder’s position on Zionism (or vice versa). If you don’t like it, that’s on you.
Re-read the thread. No one was talking about what VCs want, I was talking about what founders want. VC opinions on founders aren't part of this discussion.
I think Israel should exist. So I’m a Zionist and therefore persona non grata, even if I disagree with much of what Israel has done? If so, that is a very interesting and hard line perspective. Perhaps people should conclude you are a Jew hater and a racist based on this evidence alone?
I’m sure your customers would find this interesting. Do you disclose your position to them before they agree to do business with you? Are you also refusing to do business with them or unilaterally canceling existing contracts if you learn that they too believe that Israel should exist?
> No one was talking about what VCs want, I was talking about what founders want.
> I think Israel should exist. So I’m a Zionist and therefore persona non grata, even if I disagree with much of what Israel has done? If so, that is a very interesting and hard line perspective.
Yes.
> You do know what “or vice versa” means, right?
You know your comment about business fundamentals is a non sequitur right? The comment you were replying to had nothing to do with that or the point of view of venture capitalists with regard to entrepreneurs.
> It’s unfortunate that so much money flows to certain VC firms when people like me exist since I reckon I’m much more aligned with what the general population wants.
You sound like a pretty good dude
The study of Ethics is such a double edged sword. On one hand you have people who study ethics to think about how to treat people well, on the other hand you have people who study ethics in order to treat people as poorly as possible while still being "ethical"
I don't have a ton of firsthand exposure to the decision making process of huge corporations, but I imagine they mostly listen to the second group of ethicists
Hate to sound like a Marxist but... this is what happens when capital has this much power concentrated in so few people. Eventually the system eats itself.
If you're in the right elite at the right time though, you can make a lot of money while everything falls apart underneath
I'm in a startup, and we are (somewhat lazily) trying to do Series A fundraising. We _are_ a company that has AI as a part of our app, but not an LLM company.
The advice from our early investors was to basically overhype ourselves, telling that we can transform the world overnight. And also to remove any mentions of our _actual_ product that has real paying users because it can muddy the grand vision.
Another hot thing in the startup world is what I'm calling the "vibe income". It's potential income from a signed MOU or contingent on the success of some trial. So we have to compete with companies saying that they're already having $500k in "income" after just a few months. We naïvely thought that our GAAP income is more important.
I have really bad feelings about this whole situation.
Don't take any sort of business advice from VCs. They aren't even competent at running their own business, which is a financial play, not an operational business building and selling products or services. 90% of VC firms don't provide a net positive return to their own investors. That should tell you something. Their advice is self-serving to help inflate your equity value and has nothing to do with your current or future business.
Most of the industry is running on bullshit. The concept of running a productive service that meets genuine user needs in a clever, delightful, and satisfying way has been replaced by grifting, scamming, hyping, manipulating, and outright lying - a headless chicken voodoo dance to attract moar moneyz and worship the blind, idiot god Number Go Up.
I have so many thoughts about this, I'm not sure where to start.
Doing a raise has always been weird, there are lots of things that impact it, and different players in PE have totally different theses and motivations.
As a founder, finding the right investment partner has always been one of the most important and difficult things.
As a rule of thumb, I recommend to founders that only about 50% of the value of the investor is their cash investment. In many cases, less than that.
The things that are at least as important are their advisors (who open doors for you), their portfolio companies that can partner with you, and the alignment of their thesis and worldview.
I don't see any of that as having really changed much recently, other than a tightnening of capital for non-AI companies, but I suspect we're going to see a big shift there over the next 18-24 months, as the pressure from the LPs to deploy stays the same, but fingers get burnt from this bubble.
Also, don't forget family offices and industry VCs (Optum Ventures, etc...) that have a lot of these features built in to their structure, not just the fund.
It's not our first fundraise, and not our first startup. But something _is_ distinctly different this time. People are no longer willing to wait for years and are betting on nebulous claims in hopes of a huge payout.
And I feel that this goes far beyond the usual VC risk-taking.
I think society at large is increasingly hitting a gambling mindset fueled by algorithms murdering everyone's attention spans and dopamine receptors. Life is also expensive and it's NOT getting cheaper. Combine thag with endless stories of the rich and powerful getting away with heinous acts and most people have stopped caring. They stop caring about the future, they stop caring about any kind of long term thinking, because why would they?
Interesting, I'm curious about the changes - I know AI has drawn most of the pump & dump sharks, just like crypto before it, but there were always a set of responsible holdouts that resisted fad-tech for real value opportunities.
Yes, we are working with responsible VCs: endowments and large well-established companies in the field.
It's as if the whole industry is suffering from a high fever. This is purely my personal vibe, perhaps others might chime in with their subjective opinions.
I was part of a couple raises back then and I remember every founder was being forced to find some blockchain application, no matter how inappropriate, to get any attention from the fad-tech VCs
AI is sucking up orders of magnitude more capital than blockchain. So it's not like there is a segment of VCs who are fad-tech and obsessed with AI. The entire ecosystem is distorting around mega-companies and people who can believably say (usually by lying) that they will be a mega-company. And "mega-company" means something much much much bigger than it did even 5 years ago.
Based on my experience on the fundraising side, I'm inclined to agree with your perspective. One small nit to pick: I think policy changes can happen. However, it's hard for me to imagine meaningful change occurring before a catastrophic event. How big would the blast radius be? Obviously no one knows, but I hope it's closer in scope to "The Collapse of Silicon Valley Bank" as opposed to "The Collapse of Lehman Brothers".
At the Federal level, absolutely. I could imagine that California and New York could work together to affect meaningful change. It would still be tough because specialty finance regulation is unlikely to generate the type of constituent response usually required for government action, but it's not impossible.
That said, reform would be a Herculean task under the best conditions. Effective change would never be a "one and done" operation. It would be great to have a non-profit like the Electronic Frontier Foundation to carry the mantle.
I don’t think collapse is by itself a good predictor of change. People in collapse just bow easier. Change of this scale unfortunately comes from terminal and collective despair. Let’s not rule out either normal change, not every marginal action needs to make things worse. The system might have enough variation still to turn around. In short, despair or its anticipation are not optimal strategies.
> but it is hard to cut your own lane when these mega groups control so many aspects of the stack and have such outsized capital and political influence
Are you able to shed some light on this? It would be interesting to hear what people like you come across.
There’s a lot so we would need to talk in person. But basically the power law is way too powerful right now. The impact that a small group of people can have is too much and it’s distorting things. This is not unique to VC, the concentration is insane right now across the board.
Wow, TIL a16z hired the NYC subway guy as a partner purely as a political stunt. This on top of the $115M in the midterms, them no longer legally being a VC firm, and recent discussion on dark patterns in their portfolio [1]. I'm inclined to agree with the thesis of the article especially with regards to this firm. Looking forward to the other articles in the series.
a16z has always struck me as the shadiest vc - i associate them with NFT's, crypto and god knows what. They personify the amorality of chasing money over anything (Maybe indicative of SV culture these days in general).
As someone reading much of what Molly White publishes, there is no short supply of people in crypto that give of the same aura and are f̵i̵n̵a̵n̵c̵i̵n̵g̵ donating to someone that will push their crypto regulation agenda https://hachyderm.io/@molly0xfff/117191164732599820
I don't think anything that could even be mentioned as VC despises its own clients as much as a16z. Trying to sell investors on NFTs in 2026 should be criminal.
I think the current gold-rush of nearly all money into GPU Datacenter and frontier LLMs is essentially starving the economy of innovation.
Academics and founders who might work on developing practical products using NN / ML / RL techniques to solve a realworld problem in engineering/logistics/medicine are not getting investment money. VCs and most people are blind to the fact there is AI outside of LLMs, despite the fact that we have seen AlphaGo and AlphaFold as evidence of non-LLM AI progress in hard domains.
This is perhaps a sub-problem of a larger issue - hyper-inequality means that capital is not allocated to talent [ capital is localized, talent is more widely spread throughout the population ].
We are not getting money to things that will grow our future such as :
- small innovative startups
- university science research
- people who are young enough to have kids, being able to afford them
- new garage bands / authors / musicians / photographers
- public works / infrastructure / libraries
- local retail : bookshop, artisanal bakery, cafe
My thesis is that during the 70s-90s we had higher tax, lower inequality, lower median income to median house price ratio, higher levels of innovation and more original art, literature and music being made.
AI could be a golden age of human flourishing - but thats not where we are heading, what we are seeing is a territory rush by the megacorps.
The fact that RAM and GPU prices have risen so fast, is evidence of supply and demand effect where inequality steals resources from the commons [ middle of the economy ].
Can a talented garage inventor / math or arts student afford a Ryzen AI dev platform, let alone a DGX spark on which to create the next important technology innovation ?
Let's keep praying for fewer and fewer regulations, it's going great!
I didn't know that VCs were ever "not cancer", I've always known them like that. Also my experience with startups is that it is a big scam for employees, but I understand it's not always the case (maybe it depends on where in the world?). I have been an early employee in multiple startups that got the founders rich, and what I got from the stocks didn't compensate for the low salary while working there.
Do I understand correctly that when VCs invest, they dilute the employees and somehow the founders can get away without being diluted? That's the only way I could explain the difference between what the employees get and what the founders get if the startup is successful.
And young people are super excited to work in startups because of old stories like "early employees at Google/Facebook became rich", I guess.
Everything which is not your salary is completely speculative, and should be valued at near-zero. That you wanted to gamble on that was your own decision and your own fault. You have nobody to blame but yourself. If you had gotten rich from the stocks you wouldn't have complained here.
If you want to go with that tone... I wonder if you did not understand my English or if you lack basic logic?
I did not say that I felt scam because of my low salary. I said that I felt scam because the founders got rich and what I got didn't compensate the low salary.
Said differently, the founders got rich and I didn't get much at all. When I say "not much", it means "not nothing, but not a lot".
You took a gamble on a lower salary with the expectation that it would be compensated by your company stock going up in value.
I told you that there is no such guarantee, the only thing guaranteed is the salary you agree on. Everything else is speculative = gambling. Which is your decision, but don't cry later that you got scammed and that VC are cancer and so on.
But there's no reason for me to teach you, because you already learned it the hard way.
> You took a gamble on a lower salary with the expectation that it would be compensated by your company stock going up in value.
I did not. I joined a startup as a young graduate without thinking about what stocks meant at all.
> Which is your decision, but don't cry later
My decision was "let's join an exciting startup, probably those stocks won't ever have any value". I don't even care about the fact that I did not get more than I did: I never counted or even hoped for it.
But what wasn't clear to me back then was that I was being abused by the founders.
Startups define different classes of stock. The class A shareholders are the founders and investors. Everyone else gets class B shares. The A class shares don't get diluted, and they are inherently worth more anyway.
VCs get preferential shares, not common. Preferential shares have economic rights to protect the investors, but more importantly they usually have extra control rights like veto abilities, board seats, IPO control, or ability to sack the founder (which may even cut out the founder's voting rights by sunsetting their class A common into class B common shares).
Employees get a third tier of stock (e.g. options that convert to non-voting class B common shares).
After IPO the preferential sheets becomes common shares. The dual A class may be removed or have sunset clauses because large public investors prefer one plain common share class.
Not a VC - so take above as written by a student. Founders in zero sense have the same voting control as VCs.
Edit: VCs play the same game over and over again, against different innocent founders. VCs know how to stack everything in their favour - especially using social cues and "norms" that benefit them. My favourite article on this is: https://siliconhillslawyer.com/2019/02/18/relationships-and-...
Pref shares do get diluted, they are however senior to common stock so they get money FIRST if there’s not enough to go around. There is some cap on this and sometimes it’s pretty high. Huge pref overhangs are, indeed, a problem.
Pref shares with a 1x preference are still worth like 10x common stock in early stage companies and it’s common for employed to get fucked by this.
Founders don’t get preferred shares (I think it’s really, really rare). There is founder pref stock, which is somewhat different. It’s common for founders to cash out some shares along the way, though.
Founders that take a pay cut from a high paying job should demand preferential shares to the value they are giving up.
If they were in job where they were saving $50k a year, then after becoming a founder they should be getting $50k worth of preferential shares per year because they are investing that much in the business.
Not that I've actually ever heard of founders getting preferential shares to match their dollars invested.
This is not standard. Normally founders and employees get common stock and investors get preferred stock. Founders may get more stock issued in a round, and VCs/founders can pretty much rework the cap table to their liking if they really want to. The difference in return between founders and employees is down to percentages. Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.
> Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.
So that's a scam by the founders to the employees, in my book. It's fine, it's just that I am not sure young professionals joining a startup know that.
Said differently, if you join a startup, you should not work too much without compensation, and you should not care about making it super valuable, because you don't benefit from it. If you have a super good idea or realise you have expertise that would make the startup valuable, you should leave and become a founder yourself.
I agree it's a scam. I just wanted to point out the way the scam works, by ownership percentage and new shares issued during new rounds (and cap table shenanigans), not generally through a different class of stock issued to founders vs employees. That's much more rare.
So fundamentally, "everyone else" is scammed. Unless the class A scammers get so, so rich that everyone else gets rich as well. In which case it's still a scam, but the "everyone else" are happy anyway.
Why is that a scam? Nobody ever promises you any specific valuation or fraction of the company. When I joined a company relatively late but well before IPO, some funny number of shares at 12 cents or whatever each did not even enter my calculation any more than "oh and they also give me a free lottery ticket". In my case depending on when one sold after IPO they would have been in the range centered around about compensating for the salary differential I think, but nobody promises you they'd ever be worth more than Monopoly money
> Nobody ever promises you any specific valuation or fraction of the company
Would you mind asking before saying what I have been promised?
Also it feels like you have never been in a startup. The whole language of growth everywhere, the "billion-dollar startup", the "becoming a unicorn", this is all suggesting that "you're part of it and it matters to you if it becomes a unicorn". But it doesn't, really. Because you get diluted.
> But it doesn't, really. Because you get diluted.
At this day and age, if you don't understand dilution before you join, it's entirely on you.
This isn't a new concept - it was the case decades ago. Even when I left school over 15 years ago, the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."
And class A vs class B isn't even a rich vs everyone else thing. I have class A shares in an LLC, where even the (richer) founders are class B. The operating agreement is that we class A folks are "guaranteed" a fixed rate of return on our investment, and the class B folks don't get anything unless we get at least that rate of return. This is very normal in that industry.
> At this day and age, if you don't understand dilution before you join, it's entirely on you.
I don't know what to tell you. Young graduates get an offer to work at a startup, nobody tells them how it works. They are just excited, as I was. And they don't think about "what happens if the startup is successful" because they do know it probably won't be.
And when the startup is successful (happened to me) is when they realise that they got scammed. But all they can do is see their founders become rich and tell everyone why THEY deserve it because it was THEIR idea and THEY are the best.
> the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."
That does not say AT ALL that the founder gets rich when you get nothing. It says "be careful, most startups fail, so make sure you get a salary". Usually that salary is subpar.
I was given a very large number of very low value shares. The company was about 60 people iirc and I think the hr guy said well we won't IPO soon but when we do, these shares might be worth a lot! Companies often aim for shares to be worth 10, 20, 50 dollars at IPO! Something like that. But it's obviously just vague pep talk. They also sometimes say everyone is there to make the world a better place...
It would be a scam if they promised you 0.2% of the company but then it was diluted to 0.1%. and nobody prevents you from asking i think. Otherwise it's no more a scam than a lottery ticket commercial showing the guy who won a Ferrari.
It is a scam to me because they imply "if the founders get rich, we all get rich" because "we're on the same boat". And it's not the same boat at all: the founders may get rich, the employees most likely not.
It’s strange, every startup offer either is obviously a horrible scam or comes from a place of fairness and is sold like a total scam.
I guess being honest brings about too many opportunities for people who don’t understand the finances to make (or be perceived to make ) promises they can’t keep. So you might as well just get into a race to present the most ridiculous stuff possible.
> Since the Cancer Capital firms have become so powerful, the overall balance of power between founders and VCs has flipped; instead of founders having a company that VCs would try to fund, now VCs publish extremist political manifestos, and “founders” are just the people who are selected to carry out parts of those plans
> The rest of the world doesn’t know: New founders and workers entering the tech industry are unaware that Cancer Capital has taken over, so many are still trying to play by the old rules, and can’t figure out why their ideas are being pushed into serving the goals of the Cancer Capital firms
> These days, venture firms are increasingly getting their funds from pension funds and retail retirement accounts, meaning the public (you!) are increasingly holding the bag for the parts of their portfolios that actually have some risk, even if you never intentionally made that choice
> Part of why this has gotten so corrupt is the way the Cancer Capital firms have transformed themselves into their post-VC forms. Because they’re not legally VC firms anymore, they’re free to buy shares directly from founders, or hold unlimited amounts of publicly-traded stock — exactly what they couldn’t do as regular VCs. They can even sell their investment in a company as an asset to another one of their own funds, and then book the increase in value as a profit, all without the company ever having made a penny. Another racket: a company that’s raised a bunch of cash in a funding round can buy out its early investors if they’re one of these post-VCs, so they can get paid off even if their portfolio company has never made a penny in profits or revenues.
Aka the classic dynamic of wealth concentration resulting in power concentration. Great article. One thing it does not mention is how much this small circle of people have gotten zero-sum leverage over the whole country, because when the surveillance economy collapses, America collapses. This wouldn't be the first time the oligarchy triggers a crisis with reckless financial games.
My paranoid brain thinks the new "Every baby gets a $1000 investment account" is a lame effort on their part to keep it going. For an extremely low price tag they can give every child & parent skin in the game. For someone struggling seeing their kids account go up a $100 might compel them to support the bloated financial/banking industry now that they get a few drops from it.
The Gilded Age didn’t just “pass”. It was ended by strong unions and antitrust legislation (and enforcement). Passivity will kill us if we let the oligarchs have their way. Hope is not a plan. Appeasement will have no more success than it did in WWII.
Maybe not yours but it was taught at my mediocre public school. We definitely covered Fort Frick, the Pinkertons, the Haymarket bombing, formation of the IWW and AFL-CIO, etc. For some reason people just tend to not pay attention or remember anything from their high school history classes.
The first one passed with a lot of regular people losing their homes, their jobs, and even their lives. I wish just for once we could have the wealthy elites get their comeuppance without it also screwing over everyone else.
there were substantial crashes and booms during the gilded age as well, it wasn't uncommon to go bust and lose a house before the great depression. The panic of `73 is pretty comparable with the great depression, for example
We need something like an open source model or guild for VC, where successful people can put money into a pool that is generally accessible to anyone, with little friction. The idea would be to join the guild and gain access to funding, with a contract to contribute back some percentage of gross revenue and/or net profit, depending on how many people game the rules.
Honestly, wealth inequality has reached such epic proportions, that if someone came up with an alternative funding model, they could make VC lock-in obsolete. This is simultaneously extremely easy and extremely difficult to pull off. Money talks yes, but sometimes saying "your money's no good here" is more empowering.
There is something like this with crowdfunding called Reg CF (Regulation Crowdfunding) but it comes with many limitations. Ultimately the worry is that less wealthy people will invest their life savings in a scam and be rugpulled. Groups of accredited investors can, and definitely, do this. The problem is that these large funds have lost their scruples and it's hard to compete against a large fund that can outspend and out market a smaller one.
I was living in SF Bay Area when a16z started. They had good marketing and a good reputation. Their analyst posts were insightful and well received here. My perception of a16z has changed drastically. I’m ashamed just how badly that marketing worked on me in the early years.
Indeed. I was once an Andreesen fan (many years ago). I've been trying to like him despite all the negatives for many years, but reading this I just can't any more.
VC General Partners (managers of the VC fund) are already fiduciaries with responsibility to the fund's Limited Partners (people and institutions which invest in VCs). Their fiduciary responsibility is to maximize return on investment.
I was thinking about this the other day in regard to Flock. There's simply no way this company will fail, despite the public outcry, because the rich people in charge will not _let_ it fail.
Of course it can fail, just like the AI circular investment moves can fail just like the Soviet Union failed. Too much decisive power in too few hands, disconnected from reality, disconnected from competition, disconnected from outside community criticism. It fails open loop. A lot of money can temporarily buffer the failure, but already we see world wide inflation and interest rate increases from the open loop decisions of the most powerful class.
I don't have a sufficient understanding of how North Korea operates to assess that - too much my information about North Korea is propogandistic sound bites. I do know they have had famines in decades past, and don't think they have them now, so that suggests their economic/industrial strategies are a least passing a minimum threshold of being connected to reality.
Look at Silicon Valley Bank that was also "too big to fail" and when it did the taxpayer had to bail it out. If something is too big to fail, it's too big, the regulator should have stepped in earlier to chop it up.
Strong agree, spot on. There will always be wealthy folks behind the scenes who will arrange for the capital theatrics to land the way they want (Loopt was a failure and Sam Altman still ended up running YC because of vibes, Leopold Aschenbrenner blew up Situational Awareness and wealthy friends [Griffin and Citadel] bailed him out, for example). The best you can do is political recourse (note the wide social efforts to vote out folks who support data centers, and to have Flock contracts cancelled) and decouple from needing anything from any company who is controlled by these folks through cap tables, network, etc.
The game is rigged, operate accordingly. You are managing risk and threat exposure against threat actors who want to obtain and maintain control, influence, and power.
That's a fair point. I suppose the difference is if a rando is about to get blown out of the water, no one is coming to save them. If someone connected is going to get blown out of the water, calls are going to be made, people are going to meet, and it's going to "be taken care of" even if it's a good deal for whomever is Winston 'The Wolf' Wolf in the situation. Caveat being that sometimes, even if well connected, you're still toast (Archegos Capital Management and Bill Hwang).
There is an explicit claim in the essay that says they aren't all the same.
Third bullet point says "a handful of venture capital firms have become 'do everything' funds that combine private equity with their existing VC businesses".
> This is how brazen, how toxic and destructive, we’ve allowed the industry formerly known as venture capital to become. We must understand that it is no longer a financial machine that is used to fund startups, but a political and social machine focused on dismantling democracy and civil society. And it’s time to act accordingly.
Its at least heartening to see a broad recognition across many circles and communities of how insane wealth/power concentration, corruption and insane laws like Citizens United are dismantling democracy today. But a16z and others are still pushing their own techno-utopia anti-doomer message that a lot of useful idiots buy into, even though it serves to detract from the political and social root causes of our problems today and instead says even more technology will fix it all.
I've been in an interesting spot the last few months. I've pitched probably two dozen or so VCs and, and while almost every case showed interest, it was quickly followed by "rules" and "desires" that were antithetical to the product.
The product I am building is a decentralized trust system. The word "trust" is literally in the name. It requires very specific decisions and a very specific organizational and legal structure to be successful. Why? Because anything else doesn't breed trust.
But that's actually the problem. The VCs don't like those things, because in almost every case it relinquishes their control/power. Or, they ask us to do something either questionably or blatantly unethical in order to sweeten the pot. I was one of those founders "unaware of the Cancer Capital situation." After six months of pitching, it's become extremely obvious to me that the current VC system is incapable of funding anything ethical or long-term.
I don't know what the right answer is from here. Our current attempt is founding a syndicate of like-minded individuals to bootstrap a pre-seed. It seems like the only possibility where you might be able to maintain an ethical vision without fighting a cancerous overlord. We'll see how it goes.
I think the problem is that decentralization is almost by definition antithetical to the ability to capitalize on something. As you indicated, decentralization means diffusion of control and power, which are essential to capitalize on that thing. Why would a VC or any capitalist invest money if they cannot see a way to earn back multiples?
Sure you could make some money, but nowhere near the monopoly profits everyone is seeking. A decentralized Google would never be as profitable as a centralized one, so where would a capitalist prefer putting their money?
IMO this is also why decentralized systems or peer-to-peer applications never really caught on. Some point to technical challenges or usability issues or a lack of use-cases, but I believe all of those could have been overcome with enough investment. There just wasn't enough money in them compared to centralization. (It didn't help that the only really popular systems were almost entirely used for illegal or unproductive purposes.)
And these dynamics over time are what have led to the asymmetric Internet today. The Internet was supposed to be equal, with each node capable of being a client and a server and, heck, even a router. But that's clearly not what we have today: networks hostile to P2P connectivity, increasingly powerful centralized services, and decreasingly capable end-user devices.
Well said. To be fair, there is a proposed healthy income stream to the company proper, and the investors are buying equity in the company (at relatively low scale, >$20M ARR). But that's sort of an "old school" play and it seems most VCs want more than just equity. Or if they do take equity, it comes with some insane pump and dump plan that would destroy the very thing we're building.
But I think the broader point I'm making is that what _is_ making all of the money nowadays is increasingly unethical and counter-productive to society. For example, see Kalshi and co. That, in our experience, is what the VCs are in all of the rage for right now, and as I said it's completely antithetical to our vision.
"Why would a VC or any capitalist invest money if they cannot see a way to earn back multiples?"
Why did Andrew Carnegie invest in building public libraries? Surely it wasn't because he was expecting a capital return.
The oligarchs (at least some of them) used to feel some responsibility to the betterment of man. It really seems like today's billionaires really only care about money and power and nothing else.
In case of Andrew Carnegie, it was probably desire at end of his life to been rembered as not only a ruthless businessmen and monopolist.
"Carnegie spent his last years as a philanthropist. From 1901 forward, public attention was turned from the shrewd business acumen which had enabled Carnegie to accumulate such a fortune, to the public-spirited way in which he devoted himself to using it on philanthropic projects."
As an olive branch, I came in connection with a group (mostly out of Asia) that seems to be more connected by the day (meaning I keep making more mutual connections). They have a very specific vision for capital aimed at funding generational companies whose vision aligns with bettering humanity rather than exploiting it.
They are out there, but unfortunately very much on the fringe because it's difficult to raise money with that ethos.
Yeah, you need to look away from private equity investment. Mutuals, co-ops, LLPs, there's lots of other models, but VC and PE money is not where you want to be.
It hasn't occurred to you that your idea might not stand on its own? If your product was amazing, serious and highly ethical investors would throw themselves over each other to invest with you. There are many such investors, but they have strict requirements on what they invest in as well.
You don't have any God given right to other people's money for high risk ventures. Neither does anybody else. But it's easy to blame "the system" when things don't go our way.
Not sure how practical for your startup, but how much of the next 18 months can you fund in ways that don't create equity (or implied equity) overlords? Can design-partners prepay? Can you get paid pilots, deposits, a grant?
The root of the problem I think was caused by allowing institutional funds to invest money in VC firms. You combine that with the majority of the value being generated before they go public and you have a stock market which no longer works as a way to raise money for the company but as a way for VC´s to exit their positions and offloading companies on the public and funds.
A huge chunk of the demand is already fake. It's why there are so many auto-enabled "helpers", blinking nag buttons, and popups begging you to pleasepleaseplease use their new AI feature. The vast majority of people are simply ambivalent about the vast majority of AI integrations, so companies have to take increasingly-desperate measures to artificially keep their MAU up and pretend that they haven't wasted a huge amount of money. And all of that is before we get into the heavily-subsidized LLM subscriptions for the people who do want to use it.
User base and demand are irrelevant when it comes to a bubble. People invest because Line Goes Up, which in turn makes Line Goes Up, convincing people to invest. As the saying goes: markets can remain irrational a lot longer than you and I can remain solvent.
How many of the apps you use on a daily base have some form of AI integration? In my experience, outside of FLOSS software it is approaching 100%. How many of those did you intentionally enable it? In my experience, basically 0%. Even worse, after manually disabling it many of them re-enable it after an update!
If, say, Google publishes a claim that "95% of Google Search users have adopted AI", that does not mean that 95% of Google Search users think AI is a core feature of Search they would potentially pay extra for - which is what the massive valuations are based on. The AI Mode is auto-enabled, so the only thing it tells you is that 5% of users are annoyed enough by it that they take the time to disable it.
Some people of course genuinely like it and would indeed pay extra for AI-enhanced search, but a huge chunk of users simply does not care either way. They wouldn't pay a dime for AI, just like they wouldn't pay a dime for the ability to re-arrange the letters in the Google logo into "Oggoel". If AI were default-off, they would not bother enabling it. That is fake demand.
well the reason i asked is because chat gpt and others claim to have bazillions of users and you are saying most of that demand is fake, so what are these users? actual people or bots?
It was already great when I first read it ~10 years ago. And his linked post about VCs writing extremist manifestos from 2023 is arguably better than this one. But this post is amazing as well.
I wonder how many iterations it takes to remove all the extra words and reach this 0% fat state.
Both articles also brought me to a peak / cliff hanger type of place. The post from 2023 doesn’t even have a follow up!
Though I didn’t like the repetition of the phrase (“cancer capital”) he clearly wants to coin. It’s Trump-like. More importantly, it’s the kind of thing simpletons do. Or people who think of their audience as simpletons.
Reminds me of this post from earlier in the year (from a VC, Michael Dempsey) titled "VC-Backed Startups are Low Status"[0], which I'm inclined to agree with, having been in the industry for over 15 years now and witnessing how the vibe shifted from "techies are good" to "techies are bad" over this period.
I graduated into a tech workforce that was a celebrated part of society (i.e. "high status") to one that is decidedly not (and I'd say it's grown to deserve this disrepute).
The first main wave of the vibe going negative (at least at the heart of the 'imperial core' in the SF Bay Area) was around ~2013/14 (the 'tech co bus protests'), then again around ~2018 ("don't call SF General 'Zuck General'"), and now it's kicked into a much higher gear during this current AI wave. It spans big tech co's to startups to everything in between. Anil's post speaks to this too, when he says:
> Politicians and media still look at VC as if it works like it did 10 or 20 years ago, and cheer them on ... when their primary goal is concentrating power and wealth
It's not just VC per se, but the 'managerial class' within tech rotted into mostly career-climbing types that were a far cry from impassioned creative technologists aiming to 'do good' with tech. It became the same status-bound competition you'd find on Wall Street and elsewhere (which the Dempsey post describes well).
I have a mentality and overall life orientation that is aligned with Anil and celebrates the open web, public interest technology, and so forth, and many of my peers in tech (often from elite universities and backgrounds) look at me as a strange creature. I'll bring up the need to increase awareness about Public AI and boosting AI literacy among citizens, and I hear, "Wow, you like, really care about like, people. That's so interesting." It's unbelievable, I wish I was kidding.
Thanks for writing this Anil. I wish for better days.
Speaking of accountability, if you look around and see the tech enshitified you have no one else to blame but the biggest investors in the vicinity. Like it or not they are building your future and more often than not it's just a byproduct of whatever the hell they think they're doing, not a deliberate milestone, which makes it even worse.
The 2 groups getting fucked with the stay private longer trend are the LPs and the startup employees.
We should insist on public policy forcing public money into only public assets. It's the obvious sensible rule.
And company safes need to start including a clause where all classes of vested equity are offered buyouts in equal proportions. So VCs can't keep paying founders/each other on the way up while zeroing out common stock and eventually selling company IP for around the liquidity preference to some "totally unrelated" entity. Realistically this will only happen if YC gets onboard but I doubt Garry tan is the guy who can show this kind of spine.
Likewise, stock market IPOs are a parody now - not means of getting financing, but dumping the paper on the retail after for the insiders and VCs to realize their gains.
Yes, it's downright stupid to buy into any tech IPO these days. The fundraising and all the growth were done by the A-M rounds, while the IPO is the bag-dump for the last few rounds of investors. Stay far away.
The lockup period is still in effect (for now) but reductions to index inclusion rules expose the stock to passive vehicles like ETFs that are obligated to have a specific allocation on the stock. So now there is an essentially guaranteed demand established by the time the lockup period expires. NASDAQ allows mega-cap companies into the NASDAQ-100 after 15 days which is much shorter than the lockup period for 80% of the SpaceX shares.
15 days - Pump: get into indexes -> ETFs obligated to buy shares
After - Dump: insiders cash out benefiting from the price premium of demand for shares from ETFs
They're solving that problem. Look at Spacex. They not only got the rules changed for fast-tracked inclusion in Nasdaq and Russell indexes to pump the price on their garbage asset, they changed the rules so insiders could bail early. It was a one-two punch in service of making insiders richer at the expense of retail investors. Transparent corruption, where a few billionaires write the rules that allow them to reach into regular folks pockets.
In my ~20 year career half of which were well funded startups I made it to one IPO (multiple sole proprietor sales) with a bigcorp and my prize was having 3 years to buy my stock options at the IPO day strike-price, which was higher than the stock ever was in my last 2-3 years there.
In the end I made my million(th) sitting behind a cubicle collecting 401k which none of those startups gave me.
Can you name a recent IPO that didn't put funds in the corporate coffers?
If the complaint is that people are investing in companies that are a Bad Bet, the solution is simple. Don't buy stocks that are you think are losers. That's the definition of insanity.
If someone wants to blindly invest money with zero diligence, then they have to be willing to accept the returns of a zero diligence bet.
I've been feeling this for years. From my perspective, the purpose of VCs was to:
- Waste my time filling out forms to participate in incubators they would always reject me for.
- Fund my competitors so much as to drive up CPC for any given keyword as to make make ROI on ads impossible.
- Monopolize all tech markets through a variety of ways including contributing to the culture of making it taboo for companies to purchase solutions from small vendors who aren't funded by them. My friend who did get into the club described the ecosystem as 'incestuous'. The circular deals we saw going on with AI companies and hardware companies recently are not new; just the same thing they always did, on a bigger scale.
I entered the industry in 2012 so for me it has always been like this.
That said, it's really a deeper system issue which allows this.
VC is basically just plowing capital into people that went to prestigious schools or maybe were at a top company. They collect fees and every once in a while a company hits.
Any analysis on the asset class is moot.
Most of the VC media is aimed at hiding the fact that its a lottery machine for a pre selected group
I think the letter V should be removed from VC to better reflect your point that these are barely ventures - they're more like a rigged casino spin for those that don't have the talent to do the building themselves.
That's what the letter V was historically understood to mean. As the article says, venture capital used to be a small segment of the capital markets for the uncommon set of companies who can't prove their idea is any good until they get more capital than their friends and family have to offer. The idea that venture funding is supposed to be anything more than a rigged casino spin is upstream of quite a lot of the problems people have with modern VC.
I don't think they are that squeamish about hiding it. VC's talk all the time about investing in people and understanding that their ideas May shift over time.
Tyler Cowen is a big proponent of pre-selecting talented people and not even requiring an idea. I think this is the model of Emergent Ventures (EV), launched in 2018, and is getting replicated in many places.
yea but part of this is the consolidation of funding too. Standards to raise seed capital are soooo lofty now compared to 3 years ago. If you are in your in, if not good luck.
The principle is simple. VCs are soccer stars, but founders play basketball.
Basketball and soccer share much in common. For instance, both involve teams dribbling, passing, and shooting a round ball. But successful abilities and traits in one may not translate to the other.
Think of each profession as a different sport. Venture, growth, and value investing all differ, and all differ from founding.
VCs are all driven and highly intelligent, but so are lawyers, bankers, and consultants. Talent isn't the issue.
Capital confers authority, but not expertise.
Based on resume alone, 80% of VCs would not earn board seats at their portfolio companies. Their experience and skills, much like consultants and value investors, were honed on a field different from the basketball arena where founders compete.
Here's a quick heuristic: sans capital, would you still hire the VC to sit on the board? If yes, wonderful.
This is no slight and works in reverse: 80% of founders would not earn the right to direct VC investments.
To clarify, great VCs are absolutely worth the premium and can reshape a startup's trajectory as all great advisors can. If you find a great VC, do not haggle. Strike a deal, and return to building.
The greatest VCs exhibit the same pattern, understanding their role on the startup team as advisors, not alphas. They are often understated and work tirelessly on behalf of their clients.
The worst VCs exhibit the inverse pattern and imagine themselves as the alpha, not appreciating how a talented peer could have replaced them without changing the exit. They are loud on social media and assume accomplishments from finance or FAANG map to the startup arena. These VCs should run funds on Wall Street, not advise founders in Silicon Valley.
How do we highlight good VCs without attacking bad ones? Many good VCs, as with many good advisors, prefer subdued profiles and dislike self-promotion. This is the challenge.
The original idea was to flag bad VCs, but such a system grants founders too much power to levy unjust charges and settle feuds.
After all, many disputes are legitimate and reflect bad founders. Founders, like all professionals, sit on a spectrum. The surge of big money has spawned plenty of bad ones who, sadly enough, do not represent the best of tech and innovation but rather greed and self-aggrandizement.
The Pincus post sparked a cleaner iteration.
The proposal is a public page/spreadsheet where only founders can post, only after an outcome or a certain number of years, and only with affirmative assessments. Nothing negative, nothing anonymous. Posts must certify no quid pro quo or other VC prodding.
Topics could include responsiveness, support during dark days, absence of alpha syndrome, and other key considerations.
Over time, good VCs should reveal a clear pattern and attract new founders: founders trusting them again with repeat business and consistent high marks across the portfolio, not only unicorns. Arguably, the strongest signal will radiate from the worst outcomes.
Critically, this system won't incite mob justice or expose VCs to unfair accusations, but can still suggest who to diligence more deeply.
The purpose is to spotlight good VCs who advance innovation and startups over time, letting their body of work rise to the top and garner proper recognition.
Of course, it penalizes newer investors and is vulnerable to gaming like any system, but it plugs a small gap. Founders want to find good investors based on data, but good investors dislike boasting.
All the same to me. All of these entities have ruined previous workplaces in one way or another. Effectively stealing years of my life that I put my labor into.
These rich cunts are the reason everything is shittier and the term "enshittification" exists in our modern vernacular
> And did you know pension funds invest in this stuff?(which is bad?)
Not if this were something healthy. This wouldn't be the first time joe average is holding the bag when the rich set the house on fire again. The USA economy is particularly brittle (as in: not diversified) in that regard.
I can understand how the article might conflict with personally held notions and thus might look odd, especially as the weird dealings of the tech accelerationists do not find much press coverage. The only thing I can do is recommending to keep your mind open for new info, the article mentions he will follow up on the bullet points. The author has another previous article [1] that references Paul Krugman's article "The rich are crazier than you and me"[2], that might be an interesting read alongside the other pointers. As an aside, I also recommend to watch the video at the end that goes into Andreessen hiring murderer Daniel Penny.
It's not like pension funds are forced to invest in VC funds. It's the unions decision too, so ultimately if they are bad investments, it's average joe union workers fault they voted for shitty leadership.
The shit happens from how these funds are bound by their statutes to buy into index funds. A while back, there has been some insightful commentaries here on HN regarding the spacex IPO and the subversion of stock exchange.
"politics the author doesn't agree with" = racism, hatred, calls for ethnic cleansing, dismantling of the democratic government, open support for fascism... all being coordinated and advanced by a cabal of extremely wealthy VCs. Yeah those politics.
VC was good when a guy with no technical skills raised 10s of millions of dollars. That was when VC was good, right?
This guy has been grifting his entire career but it's those other people who are the problem, guys!
He's not wrong about VC but he's another Chamath - a guy who grifts a thing to death, moves on to the next grift and goes 'look, that grift I'm no longer doing - it's bad, very bad!'
When you get caught stealing candy, saying 'look, he stole more than me!' doesn't work. Were you raised in a human society? I thought people learned these things when they were 7.
If you’re arguing he and I are the same thing, though he’s a VC and spends his time being a podcaster who advocates for the venture industry, and I’m someone who is talking about how power actually works in society, I proposed an easy test of your assertion. Let me know what results you find.
> and I’m someone who is talking about how power actually works in society
He also does this. That's... the entire point of the comparison.
Nice try. Shall we continue to where I start copy/pasting an LLM explaining it to you until you can't pretend to not understand any longer and move on to some other bad faith tactic? I want to see your most advanced bad faith attempt - deflection and playing dumb are for juniors. Show me something good.
i can't believe the whole blog post was just the tldr. this is going to be a legendary series of blog posts! j/k i WOULD like to read the long version of this but i probably won't remember to go back to this blog.
> But a cancer grows from a cell that a body needs in small, healthy amounts, and that turns deadly when it grows without limit until it harms, or even kills, its host
I thought a cancer grew from a defective cell that is able to divide and grow to over take the healthy ones.
I would not focus on individual cells but the ability to grow super fast, which itself is not a defect since it's important during development, but the checks on this ability can be removed by later mutations/metabolic issues
The problem is using cancer as a singular noun in this context.
>a cancer grows from a cell that a body needs in small, healthy amounts
"A" cancer does not grow from a cell, a cell is a cancer cell if it keeps dividing when it should not. The cancer cells as a collective are the disease referred to as "cancer".
If they had written
"cancer grows from cells that a body needs in small, healthy amounts, and that turns deadly when it grows without limit until it harms, or even kills, its host"
Do you think people who suspect tolerated opposition would not also criticize A16Z? How about investigating controlled opposition financed by A16Z or others?
The article does not mention or address an important contributor to the current state of VC. The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. And, until recently M&A was actively avoided. The alternative was to stay private longer offering higher returns for private investors wanting to capture a (previously non-existent) illiquidity premium. The co-dependency of companies and growth VC fueled an entirely new asset class (that many still call VC). As well as 100s of overfunded zombie unicorns.
Today, the AI boom is a perfect storm of opportunity to put $Ts to work in frontier model AI Cos.
"In recent years, as private markets inflated, the default behavior switched to remaining private and absorbing more capital (to justify more VC fee income). This has resulted in fewer IPOs, and worsening prospects post-IPO for venture-backed companies."
https://x.com/credistick/status/2092259921177804930
So, maybe more regulation is not the answer.
Yes this is something I think a lot about.
The issues raised in this article are very real but even aside from that, you end up enabling a class of zombie companies that have no pressure to succeed. Their founders raise and end up as advisors and LPs themselves eventually while employees at these companies receive equity that will never be liquid and will rarely be worth anything. At best the equity in these companies will be realized at steep discounts as the lack of liquid markets makes it very easy for private companies to claim that a company was valued at a certain amount at a certain time with scant certainty of what happens next. Companies stay unprofitable and private for decades, relying on private markets to stay solvent.
Pre-GFC plenty of undisciplined, unprofitable companies would IPO. While some did take public money then eventually go under, most just made their underwriters lose money. With pressure to trade publicly and put sunshine on company books, losers lost and winners won.
The result is a K-shaped economy. Private capital appreciates on paper and private capital holders take out loans on the inflated value of their equities. Meanwhile public markets are more discriminating and fiscally tight by necessity. A private company may eventually go under but cheap loans collateralized on private capital may be paid back before there's any financial reckoning.
> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public.
Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.
My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's the ultimate reason IPOs have become less common.
This hasn't made it "impossible" for companies to go public. It just eliminated the need. If you can raise billions of dollars in a G round why go to the public markets at all?
They're poking at SOX and Dodd-Frank I think, but it's a bit of a specious argument, in my opinion the rise of massive private equity (plus the absurd market orientation around short term results) is more of the story, as you say.
And further, if the goal is to eliminate regulatory frictions in public markets that keep companies staying private, then you're effectively advocating for eliminating public markets.
The entire damn deal we make when a company goes public is that the company can raise money from a much broader, potentially less sophisticated investor base that don't have to be accredited, etc, and in exchange there are more stringent requirements around reporting and so forth.
So sure, we could just throw away that regulatory and social contract, but at that point the public market serves no purpose.
Regulations is a scary word for rules.
Sure. SOX reg sec 302 and 404. Section 302 is a 100% dealbreaker for most companies, so I stand by my 'impossible' threshold. My comment was simply shorthand for all the upfront and downstream costs of going public, combined with fewer exit alternatives. Auditor/directors increased/personal liability, litigious shareholders, time and attention of management, etc. And, to your point, the lower cost of capital from growth investors. But that wasn't always the case. Certainly not true during the dot-com bubble (pre-SOX). I'll leave it to the academics to try to and isolate causality.
Except the data doesn't support the claim.
Sarbanes-Oxley passed in 2002 and the number if IPOs climbed between then, in the wake of the dot-com crash, and the GFC six year later, while the median age didn't change much:
https://site.warrington.ufl.edu/ritter/files/IPOs-Age-of-Com...
If your claim was true you'd either expect a decline in IPOs or the age of those companies going up and neither is true during that period.
Now to be clear I'm not saying changes in regulation had no impact. Rather my claim is that regulations plus monetary policy and other macro effects fundamentally changed the structure of the market itself, thereby deincentivizing going public, rather than somehow acting as a break or barrier to IPOs.
Seriously? The "you can't knowingly lie in your financial statements, and you have to make an actual effort when compiling them" section?
If that's a "100% dealbreaker" to you, nobody should ever invest in your company, because you are literally complaining about not being able to defraud them!
There's no strong consensus, but there's weak consensus that post-GFC regulation is a factor behind but is not causal in any way, for the decrease in IPOs. Here's a paper [1] (well it's the paper author discussing his paywalled paper lol) exploring SOX regulations and their effects on IPOs. There's other papers and I think a good survey will help you on this topic. I don't think there's consensus on regulations being the causal factor, but it is one of many.
I thought GP was modest in calling it out as simply a contributing factor. Regulation is complicated and reaching for it should be something done with care.
(Also FWIW, I think you're being a bit cheap by appealing to culture war talking points.)
[1]: https://corpgov.law.harvard.edu/2009/09/21/the-effect-of-sox...
I think you're being oversensitive or just looking for a fight if you detect even a hint of "culture war talking points" in my comment.
It's hard for me to read '"Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.' as anything more than that.
It's an observation about prevailing libertarian values in the HN community that tend to attract upvotes while going unchallenged.
If you consider that part of a "culture war", then it seems that term has lost all meaning. Might as well just accuse me of being "woke" and get it over with.
I think this forum has a lot of values and don't think it's been libertarian in outlook in a long time based on what gets upvoted here so appealing to that is a bit silly but anyway I don't think this is a fruitful conversation so have a good day.
I think we're running into (or at least pretty close to) a Two Guys Fallacy here:
There's still a strong libertarian streak in HN posters, in a variety of ways.
However, there are also (mostly) different posters who have more vocally shifted the site's Overton window to the left.
These days, I find it fairly common to, for instance, make a comment that points out the very obvious problems the Republican Party has created in recent years, get downvoted to -3, and then upvoted to +5 (or vice versa), all within a few hours. This would suggest that there are contingents of posters (or at least voters!) in both camps.
I generally operate with the understanding that HN today has lots of groups, with an overall "left" lean (as much as anyone can flatten politics into a single axis.) Libertarians, leftists, liberals, nationalists, everyone is here. Appealing to one "enemy" group strikes me as a cheap blow; it's sure to increase engagement for your post with little added discourse value. IMHO at least.
Sarbox is a drag, but another issue is the rise of the securities plaintiffs bar. Public companies are subject to Rule 10b-5 claims on each statement they make because the market can "rely" on that statement. This means every public interview, press release, and even tweet needs to be scrutinized by lawyers or risk subjecting the company to expensive lawsuits because the founder's "misstatement" moved the stock price by 45 cents.
I've never run a public company, but my bet is the mechanical filings, etc are way less of a burden than shareholder litigation.
Yeah, I did barely cover the shift in dynamics around IPOs. I originally had a lot more on that, but cut a lot out. I think what you point out is absolutely a huge factor.
I think privatization is always a metric of the functionality and thrust level in a society. Cohesive, honest society, socialized health care. Messy, parralell society ladden mess, private healthcare. Basically the thrust that was in a society gets moved into a smaller parallel privat society.
I reject that for simple reasons of linear time. The GFC happened in 2008 and Dodd-Frank passed in 2010. Since then, there have been no large, notable regulations passed and Dodd-Frank was watered down a bit in 2018.
While Sarbanes-Oxley did make it substantially harder for small companies (market cap <$1B) to go public, there was a wave of very affordable and notable IPOs throughout the 2010s - Tesla at $2B, Shopify at $1B, Square at $3B, LinkedIN at $4B, etc. All of these have now grown substantially since their IPOs, with Square (absolute dog) being worth 10x their IPO. So yes, SOX killed micro-IPOs, but GFC/Dodd-Frank did not kill affordable IPOs.
Now, you're right that IPOs have grown a lot more expensive over time, but you're absolutely wrong to attribute it to increased regulations post GFC. The actual answer is much more closely related to what the article is talking about - VCs realized how much growth and returns they were leaving on the table and there has been substantial pressure on firms to stay private as long as possible, as well a huge increase in larger rounds and private credit. In fact, rather than increased regulations, there has been a loosening of regulations that allow investors to use SPVs (and SPVs of SPVs, and SPVs of SPVs of SPVs, a veritable matrioshka of SVPs) to get around the maximum number of shareholders a private company can have.
I have seen this first-hand - part of my investing strategy was to blindly buy cheap tech IPOs and that got me some great returns, but this strategy no longer works, because the VCs have effectively managed to hoover up any decent returns retail investors could get. Today you gotta be on AngelList or other platforms (only qualify investors, obviously, more exclusion) buying secondaries if you want decent returns.
Don't want to split hairs here, but SOX was pre-GFC, so I'm not attributing it to only post-GFC. My first-hand experience discussing personal liability with a BoD lasted about 3 seconds. LOL.
I think tech founders need to think smaller. Build software for a few thousand people and make a profit from it. Something niche. Something that is sustainable with a small team.
VC eats up everything that's becoming bigger. And they will kill it. Their goal is not to run a healthy business that serves their customers. They try to take out as much money as possible and then trash it.
This is it. Sustainability. Not everything has to be about more money quickly. You don't even need VCs for that. More win to bootstrappers! I see a lot of folks bootstrapping in the LLM era, but that can be defeaned in the VC noise.
Exactly. And the dangerous mindset tends to be worse than just "more money quickly": it's far too commonly "if this can't become the next Facebook/iPhone/ChatGPT, it's not worth doing." The only options are "take over the world" or "fail"; there's no room (in many people's heads) for a product that makes a decent, steady profit and continues to do so over the course of many years.
There is, is just different capital for those companies (debt, growth equity, angels, grants) and less attention. There’s far more of these types of companies too.
> Something that is sustainable with a small team.
These days, it can be sustainable for a tiny team, named Claude and Luna.
Why doesn't every engineer have a side project or three for small market things of this caliber in 2026?
Because you still need a good sales and product team. Speak with potential customers, understand their problems. Building the software was never the hard part.
They don't give a shit about making a good product, the literal only thing any of these ghouls care about is line going up in the short term, because if line goes up they can dump their investments and move on to the next entity that they can get their greedy claws on and devour.
This is becoming more and more of a problem. For a small software company it could become an asset. Tell customers they are privately owned and small, and therefore won't be acquired by VCs.
Traditionally big vendors were more trustworthy and stable, that's no longer the case.
Edit: I'm not talking about end users, most commercial software is licensed by companies.
[dead]
In that environment the founder has no hope or reason to go public, making equity in the company worthless.
VC used to push to public exits in order to maximize the founders and VCs stake which turned employees equity to a liquid asset. Truly aligning everyones interests, nowadays not so much.
You're forgetting about dividend, and off-market trade.
If a company is worthless if it isn't public, then IKEA would be absolute garbage. Quite strange for a company making hundreds of millions in profit for its owners.
The insane valuations for selling a dream are what make VC worthwhile.
TSLA would be worth crap if it were a private company giving off dividends. It is really truly about the insane valuations driven by collective delusion.
While Anil makes a lot of great comments about VC's shift towards institutional PE, the legal issues he harps on are insignificant.
Until 2012 or so there was no legal concept of "venture capital". Around that time, the SEC adopted some new rules in response to the GFC. In those rules came the "venture capital adviser" exemption. To be a "venture capital adviser", a firm needed to avoid doing a lot of things that looked like private equity investments or hedge fund management. The only consequence of falling awry of the new "venture capital adviser" definition was registration as an "investment adviser" with the SEC.
The important anti-fraud provisions of the Advisers Act still apply to "venture capital advisers" even though they aren't registered, and most big VC shops would have probably been pushed to register for other reasons anyway.
The legal stuff is nearly irrelevant here.
I’m a VC and agree with much of this. The mega firms have totally warped VC and the desire for massive cash appreciation has led to a host of bad characters getting involved. I still love working with early stage companies but it is hard to cut your own lane when these mega groups control so many aspects of the stack and have such outsized capital and political influence. There are so many issues destroying early stage VC right now. We need major policy change / guardrails but that won’t happen.
I think “regular” VCs are one of the cohorts of people I feel worst for! I have a lot of friends who got into the business wanting to help entrepreneurs, and now they’re stuck on a cap table with folks who they’d never want to do business with. It’s not any different than the founders or employees who don’t want to be saddled with these guys, either.
The hard part is figuring out how to change these structures so that people can actually extract themselves and still build stuff that isn’t toxic and destructive.
I don't feel bad for VCs. Venture capital has turned the old style of startup entrepreneurship into a financial hustle of Startupism that is about trading equity value and not about venture creation. Maybe it always was about that, but at least in the 1960s-early 2010s it seemed at least somewhat more about business and value creation. Now it all just seems like a financial hustle. I hope we see VC become the minority way that businesses are built and financed as it used to be in the tech industry.
Great write up anil!
Agreed it’s so difficult. And every time I think we have things all figured out, someone flips the table!
I’ve seen some ruthless terms for angels too. My buddy took an uncapped SAFE to get in a deal while the deal runners gave themselves a cap.
One thing that always exists in financial markets is cycles. It just might last longer than we care for.
I’m a small biz guy and not interested in VC. Very boring.
I think the root problem is it takes a lot more money and resources to compete now than it did before. Before, due to broadband being new, everyone not already having high performance computing devices, and the quickly decreasing costs of hardware, it was possible to use a skeleton crew and barebones resources to do something impactful. Or you have to be a very, very exceptional performer.
bix6 alludes to it another comment:
https://news.ycombinator.com/item?id=49554814
Sometimes I wonder if people will one day wake up and just ditch all the tech. That's seems to be the only way to be out of this mess.
I know milenimals who know how everything works but only check messages every 2 weeks and dont answer if anyone calls. Might play a game once per month, might watch one movie per week.
One guy boots up his pc, looks at one website, closes the tab, closes the browser, shuts down the pc and switches the monitor off. I have to admit the technology looks terrible if used like that.
That's like waiting for domesticated animals to walk of the farm by themselves. Mess resolves itself the same way throughout history when different camps within the elite start saying enough. But there is a process just like abolishing slavery or getting kings to hand over money printing to the central bank. Wasn't driven by the plebs. It takes time because the different camps have to align. The parasites get reigned in eventually because they are in the minority camp.
yes but there is helpful tech! We’re just over focused on SaaS and now AI (new SaaS).
I do find myself enjoying my computer / phone less these days though.
I find it very useful to be able to look up information at a moment's notice, whether or not a store has something in stock and where it is in the store before I go, doing group chats and video calls with family and friends almost anywhere I am, being able to get a taxi at a known price and see it arrive on a map, etc.
I just had a medical emergency in a foreign country and was able to navigate it with relative ease and almost no cost using translation features. I was able to scan and OCR documents with my phone camera which let me easily submit insurance claims, yada yada, a lot of things are much easier and cheaper in this day and age.
I stay away from the "news" websites (ironic given this site is called Hacker News, but it's not as monetized, so I guess it still works) and instagram/tiktok/youtube shorts/x style stuff.
Hard disagree. Societal change and more inventions are needed, not a degrowth attitude.
I wouldn't lump up all inventions into this. The incentives are warped and we're too focused on adtech and filling human lives with screentime. It should be entirely possible to live a fulfilling life without having to carry a phone everywhere you go.
What's the difference between the two exactly?
What societal change and what inventions, exactly? Some societal changes are for the better, others for the worst. We are heading toward the "worst" direction in full speed.
Some inventions are for the better, other mostly don't matter and yet others make the world actively worst. And the "for the better" things dont seem to come from our industry anymore. Nor for rich VCs, nor from private equity investments etc.
Like Dear Alice. https://www.youtube.com/watch?v=z-Ng5ZvrDm4
Lol that would lead to billions of deaths
I'm guessing you located are in the bay area? If so, that is one thing under your control that you could change. The early SV VCs didn't build the industry by staying in NY (where the capital concentration at that time was). They had to get away from that scene to do what they did. It might be easier to cut your own lane if you weren't sharing the same turf.
I left the bay many years ago :)
Is it possible to list the mega firms?
There’s lists out there but it’s $10B+ AUM like Andreeseen, sequoia, GC, etc.
Y'all need ethics is what ya need.
I agree. Ethics is at the forefront of everything I do both personally and professionally. I used to serve on an ethics in business council. All the investments we make are grounded in genuinely improving the world. It’s unfortunate that so much money flows to certain VC firms when people like me exist since I reckon I’m much more aligned with what the general population wants.
I'm someone in the startup space that's sworn off raising capital and talks to a lot of founders. I can say that if you're willing to take an anti-Zionist position, you will get incredible deal flow from frustrated founders and definitely make your own lane. I know how difficult that is in this space though.
Why is anti-Zionism necessary if your business fundamentals are strong?
Some of us care about the ethics of those we work with. Being a Zionist is also a brand risk. Just look at Vercel when their CEO met with Netanyahu. Many people canceled their accounts and now will never use Vercel. Mainly I don't want to work with people who are enthusiastic about committing genocide, as so many VCs are.
I don’t follow the logic. Since when does the act of meeting with someone mean you’ve adopted their beliefs? Do you adopt the beliefs of everyone you’ve met?
What if you've met both a Zionist and an anti-Zionist? What does that make you?
Raising money from someone and putting them on your board is more than "meeting with them".
For sure. But that's not what you said before. And Netanyahu isn't on Vercel's board, nor did Netanyahu raise money for him. The only news I see about this is a brouhaha over a selfie and a meeting in NYC with different tech business leaders.
So I don't quite know what you're on about.
Oh yes, I wouldn't ever work with anyone who met with Netanyahu. That's ridiculous. Vercel's CEO even went to Israel to do it (that wasn't in NYC -- not that that would make it ok). I'll never use one of their products.
Would you work with someone who took a selfie with Hitler? This is the 21st century equivalent.
This is a really dumb take. You're relying on a straw man (nobody claimed the CEO adopted his beliefs; they're talking about brand risk) and a category mistake (treating a high-level corporate photo-op like bumping into someone at a coffee shop). You can do better.
People have the responsibility to say what they mean and make their arguments clear and well understood.
He said that being a Zionist is a brand risk. The implication is that the CEO of Vercel is a Zionist.
The CEO of Vercel is a Zionist:
https://x.com/rauchg/status/1972669025525158031
Also your original comment was a non sequitur. I replied to a VC saying they could make their own lane by being ethical and being anti-Zionist and you replied asking about business fundamentals, which had nothing to do with what we were discussing.
That post does not establish the connection that you think it does. There was no language of agreement with Natanyahu’s political views therein. In fact his language was inclusive (“peace for Israel AND its neighbors”). You drew a contrary conclusion yourself (as did anyone else who thinks similarly).
It’s fair to question whether a VC should care about a founder’s position on Zionism (or vice versa). If you don’t like it, that’s on you.
A Zionist is someone who thinks Israel should exist, and here he is wishing for "greatness" for Israel. He is a Zionist.
> It’s fair to question whether a VC should care about a founder’s position on Zionism (or vice versa). If you don’t like it, that’s on you.
Re-read the thread. No one was talking about what VCs want, I was talking about what founders want. VC opinions on founders aren't part of this discussion.
I think Israel should exist. So I’m a Zionist and therefore persona non grata, even if I disagree with much of what Israel has done? If so, that is a very interesting and hard line perspective. Perhaps people should conclude you are a Jew hater and a racist based on this evidence alone?
I’m sure your customers would find this interesting. Do you disclose your position to them before they agree to do business with you? Are you also refusing to do business with them or unilaterally canceling existing contracts if you learn that they too believe that Israel should exist?
> No one was talking about what VCs want, I was talking about what founders want.
You do know what “or vice versa” means, right?
> I think Israel should exist. So I’m a Zionist and therefore persona non grata, even if I disagree with much of what Israel has done? If so, that is a very interesting and hard line perspective.
Yes.
> You do know what “or vice versa” means, right?
You know your comment about business fundamentals is a non sequitur right? The comment you were replying to had nothing to do with that or the point of view of venture capitalists with regard to entrepreneurs.
If you say so, dude.
> It’s unfortunate that so much money flows to certain VC firms when people like me exist since I reckon I’m much more aligned with what the general population wants.
You sound like a pretty good dude
The study of Ethics is such a double edged sword. On one hand you have people who study ethics to think about how to treat people well, on the other hand you have people who study ethics in order to treat people as poorly as possible while still being "ethical"
I don't have a ton of firsthand exposure to the decision making process of huge corporations, but I imagine they mostly listen to the second group of ethicists
I’m trying. I love startups and want as many good entrepreneurs to succeed as possible. All the VC drama causes people to forget the whole point.
It’s inherent with true capitalism. You have to be willing to forego some profit to actually treat people right and for some that’s just too much.
> You have to be willing to forego some profit to actually treat people right
I wish they taught this in business schools. I get the impression they really don't, based on my experiences with business grads
Judging from the handful of B school professors I’ve interacted with, I’d be surprised if they didn’t.
Judging from the many HBS students I’ve interacted with, the takeaway seems to be judiciously avoiding treating people fairly.
Ethics are always forced. In a society that does not force ethics in one way or another they will cease to exist.
Ethics come directly from first principles.
Go on…
I'm afraid the only ethics some of them believe in is the Friedman Doctrine.
Hate to sound like a Marxist but... this is what happens when capital has this much power concentrated in so few people. Eventually the system eats itself.
If you're in the right elite at the right time though, you can make a lot of money while everything falls apart underneath
>> Eventually the system eats itself.
Can it please finish itself before it eats the table, chairs, and dishes?
I'm in a startup, and we are (somewhat lazily) trying to do Series A fundraising. We _are_ a company that has AI as a part of our app, but not an LLM company.
The advice from our early investors was to basically overhype ourselves, telling that we can transform the world overnight. And also to remove any mentions of our _actual_ product that has real paying users because it can muddy the grand vision.
Another hot thing in the startup world is what I'm calling the "vibe income". It's potential income from a signed MOU or contingent on the success of some trial. So we have to compete with companies saying that they're already having $500k in "income" after just a few months. We naïvely thought that our GAAP income is more important.
I have really bad feelings about this whole situation.
Don't take any sort of business advice from VCs. They aren't even competent at running their own business, which is a financial play, not an operational business building and selling products or services. 90% of VC firms don't provide a net positive return to their own investors. That should tell you something. Their advice is self-serving to help inflate your equity value and has nothing to do with your current or future business.
You’re better off bootstrapping/self-funding and just being a humble old business, not a startup.
Most of the industry is running on bullshit. The concept of running a productive service that meets genuine user needs in a clever, delightful, and satisfying way has been replaced by grifting, scamming, hyping, manipulating, and outright lying - a headless chicken voodoo dance to attract moar moneyz and worship the blind, idiot god Number Go Up.
I have so many thoughts about this, I'm not sure where to start.
Doing a raise has always been weird, there are lots of things that impact it, and different players in PE have totally different theses and motivations.
As a founder, finding the right investment partner has always been one of the most important and difficult things.
As a rule of thumb, I recommend to founders that only about 50% of the value of the investor is their cash investment. In many cases, less than that.
The things that are at least as important are their advisors (who open doors for you), their portfolio companies that can partner with you, and the alignment of their thesis and worldview.
I don't see any of that as having really changed much recently, other than a tightnening of capital for non-AI companies, but I suspect we're going to see a big shift there over the next 18-24 months, as the pressure from the LPs to deploy stays the same, but fingers get burnt from this bubble.
Also, don't forget family offices and industry VCs (Optum Ventures, etc...) that have a lot of these features built in to their structure, not just the fund.
It's not our first fundraise, and not our first startup. But something _is_ distinctly different this time. People are no longer willing to wait for years and are betting on nebulous claims in hopes of a huge payout.
And I feel that this goes far beyond the usual VC risk-taking.
I think society at large is increasingly hitting a gambling mindset fueled by algorithms murdering everyone's attention spans and dopamine receptors. Life is also expensive and it's NOT getting cheaper. Combine thag with endless stories of the rich and powerful getting away with heinous acts and most people have stopped caring. They stop caring about the future, they stop caring about any kind of long term thinking, because why would they?
Interesting, I'm curious about the changes - I know AI has drawn most of the pump & dump sharks, just like crypto before it, but there were always a set of responsible holdouts that resisted fad-tech for real value opportunities.
Are you seeing a difference there?
Yes, we are working with responsible VCs: endowments and large well-established companies in the field.
It's as if the whole industry is suffering from a high fever. This is purely my personal vibe, perhaps others might chime in with their subjective opinions.
Also a founder raising currently and big +1. VCs are off their fucking rockers.
Mad FOMO, listening to, believing, and benchmarking against actual liars (both obvious and non-obvious).
Is it different than the crypto days?
I was part of a couple raises back then and I remember every founder was being forced to find some blockchain application, no matter how inappropriate, to get any attention from the fad-tech VCs
AI is sucking up orders of magnitude more capital than blockchain. So it's not like there is a segment of VCs who are fad-tech and obsessed with AI. The entire ecosystem is distorting around mega-companies and people who can believably say (usually by lying) that they will be a mega-company. And "mega-company" means something much much much bigger than it did even 5 years ago.
Based on my experience on the fundraising side, I'm inclined to agree with your perspective. One small nit to pick: I think policy changes can happen. However, it's hard for me to imagine meaningful change occurring before a catastrophic event. How big would the blast radius be? Obviously no one knows, but I hope it's closer in scope to "The Collapse of Silicon Valley Bank" as opposed to "The Collapse of Lehman Brothers".
I don’t really have hope because big money controls politics. Everything gets steered towards capital’s interest instead of humanity’s.
At the Federal level, absolutely. I could imagine that California and New York could work together to affect meaningful change. It would still be tough because specialty finance regulation is unlikely to generate the type of constituent response usually required for government action, but it's not impossible.
That said, reform would be a Herculean task under the best conditions. Effective change would never be a "one and done" operation. It would be great to have a non-profit like the Electronic Frontier Foundation to carry the mantle.
I don’t think collapse is by itself a good predictor of change. People in collapse just bow easier. Change of this scale unfortunately comes from terminal and collective despair. Let’s not rule out either normal change, not every marginal action needs to make things worse. The system might have enough variation still to turn around. In short, despair or its anticipation are not optimal strategies.
Apparently The Collapse of Silicon Valley Bank is not enough to force change.
The Collapse of Lehman Brothers is also not enough for long term change, also apparently.
There’s a lot so we would need to talk in person. But basically the power law is way too powerful right now. The impact that a small group of people can have is too much and it’s distorting things. This is not unique to VC, the concentration is insane right now across the board.
Wow, TIL a16z hired the NYC subway guy as a partner purely as a political stunt. This on top of the $115M in the midterms, them no longer legally being a VC firm, and recent discussion on dark patterns in their portfolio [1]. I'm inclined to agree with the thesis of the article especially with regards to this firm. Looking forward to the other articles in the series.
[1]: https://news.ycombinator.com/item?id=49416055
a16z has always struck me as the shadiest vc - i associate them with NFT's, crypto and god knows what. They personify the amorality of chasing money over anything (Maybe indicative of SV culture these days in general).
As someone reading much of what Molly White publishes, there is no short supply of people in crypto that give of the same aura and are f̵i̵n̵a̵n̵c̵i̵n̵g̵ donating to someone that will push their crypto regulation agenda https://hachyderm.io/@molly0xfff/117191164732599820
They are. The fact that they LPs escape any peril for financing nonsense morals and returns is something of a marketing miracle.
I don't think anything that could even be mentioned as VC despises its own clients as much as a16z. Trying to sell investors on NFTs in 2026 should be criminal.
a16z is one of the firms whose influencers I mute on sight on twitter. Far too many grifters shilling dubious products.
I think the current gold-rush of nearly all money into GPU Datacenter and frontier LLMs is essentially starving the economy of innovation.
Academics and founders who might work on developing practical products using NN / ML / RL techniques to solve a realworld problem in engineering/logistics/medicine are not getting investment money. VCs and most people are blind to the fact there is AI outside of LLMs, despite the fact that we have seen AlphaGo and AlphaFold as evidence of non-LLM AI progress in hard domains.
This is perhaps a sub-problem of a larger issue - hyper-inequality means that capital is not allocated to talent [ capital is localized, talent is more widely spread throughout the population ].
We are not getting money to things that will grow our future such as :
My thesis is that during the 70s-90s we had higher tax, lower inequality, lower median income to median house price ratio, higher levels of innovation and more original art, literature and music being made.AI could be a golden age of human flourishing - but thats not where we are heading, what we are seeing is a territory rush by the megacorps.
The fact that RAM and GPU prices have risen so fast, is evidence of supply and demand effect where inequality steals resources from the commons [ middle of the economy ].
Can a talented garage inventor / math or arts student afford a Ryzen AI dev platform, let alone a DGX spark on which to create the next important technology innovation ?
Let's keep praying for fewer and fewer regulations, it's going great!
I didn't know that VCs were ever "not cancer", I've always known them like that. Also my experience with startups is that it is a big scam for employees, but I understand it's not always the case (maybe it depends on where in the world?). I have been an early employee in multiple startups that got the founders rich, and what I got from the stocks didn't compensate for the low salary while working there.
Do I understand correctly that when VCs invest, they dilute the employees and somehow the founders can get away without being diluted? That's the only way I could explain the difference between what the employees get and what the founders get if the startup is successful.
And young people are super excited to work in startups because of old stories like "early employees at Google/Facebook became rich", I guess.
Just move to EU, you will have all the regulations you want (maybe even more) :-)
It's an increasingly enticing offer. But they aren't exactly that open to immigration either as of late.
Everything which is not your salary is completely speculative, and should be valued at near-zero. That you wanted to gamble on that was your own decision and your own fault. You have nobody to blame but yourself. If you had gotten rich from the stocks you wouldn't have complained here.
> If you had gotten rich from the stocks you wouldn't have complained here.
Duh.
> That you wanted to gamble on that
What makes you think I gambled at all?
You said that you worked for a low salary at startups and feel scammed because of that.
You could have worked somewhere else instead for a higher salary if you weren't gambling.
Or if nobody would have hired you for a higher salary somewhere else, then maybe your salary at the startups wasn't so low after all?
If you want to go with that tone... I wonder if you did not understand my English or if you lack basic logic?
I did not say that I felt scam because of my low salary. I said that I felt scam because the founders got rich and what I got didn't compensate the low salary.
Said differently, the founders got rich and I didn't get much at all. When I say "not much", it means "not nothing, but not a lot".
You took a gamble on a lower salary with the expectation that it would be compensated by your company stock going up in value.
I told you that there is no such guarantee, the only thing guaranteed is the salary you agree on. Everything else is speculative = gambling. Which is your decision, but don't cry later that you got scammed and that VC are cancer and so on.
But there's no reason for me to teach you, because you already learned it the hard way.
> You took a gamble on a lower salary with the expectation that it would be compensated by your company stock going up in value.
I did not. I joined a startup as a young graduate without thinking about what stocks meant at all.
> Which is your decision, but don't cry later
My decision was "let's join an exciting startup, probably those stocks won't ever have any value". I don't even care about the fact that I did not get more than I did: I never counted or even hoped for it.
But what wasn't clear to me back then was that I was being abused by the founders.
Startups define different classes of stock. The class A shareholders are the founders and investors. Everyone else gets class B shares. The A class shares don't get diluted, and they are inherently worth more anyway.
Founders get common stock - class A voting.
VCs get preferential shares, not common. Preferential shares have economic rights to protect the investors, but more importantly they usually have extra control rights like veto abilities, board seats, IPO control, or ability to sack the founder (which may even cut out the founder's voting rights by sunsetting their class A common into class B common shares).
Employees get a third tier of stock (e.g. options that convert to non-voting class B common shares).
After IPO the preferential sheets becomes common shares. The dual A class may be removed or have sunset clauses because large public investors prefer one plain common share class.
Not a VC - so take above as written by a student. Founders in zero sense have the same voting control as VCs.
Edit: VCs play the same game over and over again, against different innocent founders. VCs know how to stack everything in their favour - especially using social cues and "norms" that benefit them. My favourite article on this is: https://siliconhillslawyer.com/2019/02/18/relationships-and-...
Pref shares do get diluted, they are however senior to common stock so they get money FIRST if there’s not enough to go around. There is some cap on this and sometimes it’s pretty high. Huge pref overhangs are, indeed, a problem.
Pref shares with a 1x preference are still worth like 10x common stock in early stage companies and it’s common for employed to get fucked by this.
Founders don’t get preferred shares (I think it’s really, really rare). There is founder pref stock, which is somewhat different. It’s common for founders to cash out some shares along the way, though.
Founders that take a pay cut from a high paying job should demand preferential shares to the value they are giving up.
If they were in job where they were saving $50k a year, then after becoming a founder they should be getting $50k worth of preferential shares per year because they are investing that much in the business.
Not that I've actually ever heard of founders getting preferential shares to match their dollars invested.
This is not standard. Normally founders and employees get common stock and investors get preferred stock. Founders may get more stock issued in a round, and VCs/founders can pretty much rework the cap table to their liking if they really want to. The difference in return between founders and employees is down to percentages. Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.
> Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.
So that's a scam by the founders to the employees, in my book. It's fine, it's just that I am not sure young professionals joining a startup know that.
Said differently, if you join a startup, you should not work too much without compensation, and you should not care about making it super valuable, because you don't benefit from it. If you have a super good idea or realise you have expertise that would make the startup valuable, you should leave and become a founder yourself.
I agree it's a scam. I just wanted to point out the way the scam works, by ownership percentage and new shares issued during new rounds (and cap table shenanigans), not generally through a different class of stock issued to founders vs employees. That's much more rare.
So fundamentally, "everyone else" is scammed. Unless the class A scammers get so, so rich that everyone else gets rich as well. In which case it's still a scam, but the "everyone else" are happy anyway.
Why is that a scam? Nobody ever promises you any specific valuation or fraction of the company. When I joined a company relatively late but well before IPO, some funny number of shares at 12 cents or whatever each did not even enter my calculation any more than "oh and they also give me a free lottery ticket". In my case depending on when one sold after IPO they would have been in the range centered around about compensating for the salary differential I think, but nobody promises you they'd ever be worth more than Monopoly money
> Nobody ever promises you any specific valuation or fraction of the company
Would you mind asking before saying what I have been promised?
Also it feels like you have never been in a startup. The whole language of growth everywhere, the "billion-dollar startup", the "becoming a unicorn", this is all suggesting that "you're part of it and it matters to you if it becomes a unicorn". But it doesn't, really. Because you get diluted.
> But it doesn't, really. Because you get diluted.
At this day and age, if you don't understand dilution before you join, it's entirely on you.
This isn't a new concept - it was the case decades ago. Even when I left school over 15 years ago, the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."
And class A vs class B isn't even a rich vs everyone else thing. I have class A shares in an LLC, where even the (richer) founders are class B. The operating agreement is that we class A folks are "guaranteed" a fixed rate of return on our investment, and the class B folks don't get anything unless we get at least that rate of return. This is very normal in that industry.
> At this day and age, if you don't understand dilution before you join, it's entirely on you.
I don't know what to tell you. Young graduates get an offer to work at a startup, nobody tells them how it works. They are just excited, as I was. And they don't think about "what happens if the startup is successful" because they do know it probably won't be.
And when the startup is successful (happened to me) is when they realise that they got scammed. But all they can do is see their founders become rich and tell everyone why THEY deserve it because it was THEIR idea and THEY are the best.
> the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."
That does not say AT ALL that the founder gets rich when you get nothing. It says "be careful, most startups fail, so make sure you get a salary". Usually that salary is subpar.
>That does not say AT ALL that the founder gets rich when you get nothing. It says "be careful, most startups fail, so make sure you get a salary".
That one is covered under the standard advice of "comparison is the thief of joy".
>Usually that salary is subpar.
If it was subpar, then the salary would not have been accepted.
> If it was subpar, then the salary would not have been accepted.
Turns out it was. Young graduate excited with the mission, and all that bullshit.
I was given a very large number of very low value shares. The company was about 60 people iirc and I think the hr guy said well we won't IPO soon but when we do, these shares might be worth a lot! Companies often aim for shares to be worth 10, 20, 50 dollars at IPO! Something like that. But it's obviously just vague pep talk. They also sometimes say everyone is there to make the world a better place...
It would be a scam if they promised you 0.2% of the company but then it was diluted to 0.1%. and nobody prevents you from asking i think. Otherwise it's no more a scam than a lottery ticket commercial showing the guy who won a Ferrari.
It is a scam to me because they imply "if the founders get rich, we all get rich" because "we're on the same boat". And it's not the same boat at all: the founders may get rich, the employees most likely not.
It’s strange, every startup offer either is obviously a horrible scam or comes from a place of fairness and is sold like a total scam.
I guess being honest brings about too many opportunities for people who don’t understand the finances to make (or be perceived to make ) promises they can’t keep. So you might as well just get into a race to present the most ridiculous stuff possible.
Anti-dilution shares were extremely uncommon.
It’s the second gilded age
Hopefully this one will pass, just as the first did
My paranoid brain thinks the new "Every baby gets a $1000 investment account" is a lame effort on their part to keep it going. For an extremely low price tag they can give every child & parent skin in the game. For someone struggling seeing their kids account go up a $100 might compel them to support the bloated financial/banking industry now that they get a few drops from it.
The Gilded Age didn’t just “pass”. It was ended by strong unions and antitrust legislation (and enforcement). Passivity will kill us if we let the oligarchs have their way. Hope is not a plan. Appeasement will have no more success than it did in WWII.
The long arm of history bends towards progress. Not because progress happens spontaneously, but because people bend it
The default oligarch orientation is to treat workers as slaves to the maximum possible extent.
Firefights with guns, hand-to-hand violence, and real deaths were needed to give unions the leverage they had.
For some reason this history isn't taught in schools.
Maybe not yours but it was taught at my mediocre public school. We definitely covered Fort Frick, the Pinkertons, the Haymarket bombing, formation of the IWW and AFL-CIO, etc. For some reason people just tend to not pay attention or remember anything from their high school history classes.
The first one passed with a lot of regular people losing their homes, their jobs, and even their lives. I wish just for once we could have the wealthy elites get their comeuppance without it also screwing over everyone else.
there were substantial crashes and booms during the gilded age as well, it wasn't uncommon to go bust and lose a house before the great depression. The panic of `73 is pretty comparable with the great depression, for example
One way to have the biggest house on the block is make sure nobody else can build.
Why spend the money to build the bigger house when you don’t really enjoy it anyway - when your only motivation is that nobody else’s house is as big.
All things pass. The question is what the fallout will look like for everyone who doesn't have their hand in the cookie jar.
I'm more interested in what happens to those with their hands in. They need to lose those hands.
“Thieves of private property pass their lives in chains. Thieves of public property, in riches and luxury”. —Cato the Elder
We need something like an open source model or guild for VC, where successful people can put money into a pool that is generally accessible to anyone, with little friction. The idea would be to join the guild and gain access to funding, with a contract to contribute back some percentage of gross revenue and/or net profit, depending on how many people game the rules.
Honestly, wealth inequality has reached such epic proportions, that if someone came up with an alternative funding model, they could make VC lock-in obsolete. This is simultaneously extremely easy and extremely difficult to pull off. Money talks yes, but sometimes saying "your money's no good here" is more empowering.
There is something like this with crowdfunding called Reg CF (Regulation Crowdfunding) but it comes with many limitations. Ultimately the worry is that less wealthy people will invest their life savings in a scam and be rugpulled. Groups of accredited investors can, and definitely, do this. The problem is that these large funds have lost their scruples and it's hard to compete against a large fund that can outspend and out market a smaller one.
I was living in SF Bay Area when a16z started. They had good marketing and a good reputation. Their analyst posts were insightful and well received here. My perception of a16z has changed drastically. I’m ashamed just how badly that marketing worked on me in the early years.
To be fair to yourself, a16z could have changed over that time, and the marketing was honest early on.
I suspect this is what it is, the money got to everyone's head
not too long ago we were amazed at Apple hitting $1 trillion mkt cap and elon reaching $100 bil
now we're waiting for the first trillionaires to show up
Elon Musk was already minted the worlds first trillionaire back in June wasn't he?
Pretty insane from 100 billion in 2020 to 1 trillion in 2026.
Not a sign of a supremely broken system at all
yup. how are you ever supposed to compete with that capital moat?
and I'm not an Elon hater, I just don't see how this system can be sustained
it's easy, just eat cake.
Indeed. I was once an Andreesen fan (many years ago). I've been trying to like him despite all the negatives for many years, but reading this I just can't any more.
His manifesto was an unvarnished call for corporatist fascism.
Was truly the mask-off moment.
> Those firms also stop legally even being venture capital firms
We need an equivalent of the "Fiduciary" word for financial advisors ... but applied to VCs.
"Are you an Artisanal, Free-Range, Fair-Trade™ VC?"
VC General Partners (managers of the VC fund) are already fiduciaries with responsibility to the fund's Limited Partners (people and institutions which invest in VCs). Their fiduciary responsibility is to maximize return on investment.
I was thinking about this the other day in regard to Flock. There's simply no way this company will fail, despite the public outcry, because the rich people in charge will not _let_ it fail.
Of course it can fail, just like the AI circular investment moves can fail just like the Soviet Union failed. Too much decisive power in too few hands, disconnected from reality, disconnected from competition, disconnected from outside community criticism. It fails open loop. A lot of money can temporarily buffer the failure, but already we see world wide inflation and interest rate increases from the open loop decisions of the most powerful class.
or it can not fail, like North Korea
I don't have a sufficient understanding of how North Korea operates to assess that - too much my information about North Korea is propogandistic sound bites. I do know they have had famines in decades past, and don't think they have them now, so that suggests their economic/industrial strategies are a least passing a minimum threshold of being connected to reality.
> or it can not fail, like North Korea
It's worth noting North Korea probably is not a failure for Kim Jong Un an his ilk, it's just a failure for most other North Koreans.
That's probably a happy end-state for these "Cancer Capitalists."
Look at Silicon Valley Bank that was also "too big to fail" and when it did the taxpayer had to bail it out. If something is too big to fail, it's too big, the regulator should have stepped in earlier to chop it up.
Nit:Taxpayers didn't have to pay money for the bailout. FDIC is an insurance program with premiums paid by banks
Sure it can.
We frequently forget “the system” that protects these actors consist of our respect for rule of law and compliance and the enforcement of the laws.
If the cops stop enforcing, and we stop complying, what would protect them?
Strong agree, spot on. There will always be wealthy folks behind the scenes who will arrange for the capital theatrics to land the way they want (Loopt was a failure and Sam Altman still ended up running YC because of vibes, Leopold Aschenbrenner blew up Situational Awareness and wealthy friends [Griffin and Citadel] bailed him out, for example). The best you can do is political recourse (note the wide social efforts to vote out folks who support data centers, and to have Flock contracts cancelled) and decouple from needing anything from any company who is controlled by these folks through cap tables, network, etc.
The game is rigged, operate accordingly. You are managing risk and threat exposure against threat actors who want to obtain and maintain control, influence, and power.
Griffin and citadel less bailed him out, and more circled like sharks and made out with a good deal TBF.
That's a fair point. I suppose the difference is if a rando is about to get blown out of the water, no one is coming to save them. If someone connected is going to get blown out of the water, calls are going to be made, people are going to meet, and it's going to "be taken care of" even if it's a good deal for whomever is Winston 'The Wolf' Wolf in the situation. Caveat being that sometimes, even if well connected, you're still toast (Archegos Capital Management and Bill Hwang).
For a couple years, I officed out of a VC firm. It was terribly helpful in taking off the shine.
I’m skeptical of the implicit claim that they’re all the same. It seems rather difficult to prove?
There is an explicit claim in the essay that says they aren't all the same.
Third bullet point says "a handful of venture capital firms have become 'do everything' funds that combine private equity with their existing VC businesses".
> This is how brazen, how toxic and destructive, we’ve allowed the industry formerly known as venture capital to become. We must understand that it is no longer a financial machine that is used to fund startups, but a political and social machine focused on dismantling democracy and civil society. And it’s time to act accordingly.
Its at least heartening to see a broad recognition across many circles and communities of how insane wealth/power concentration, corruption and insane laws like Citizens United are dismantling democracy today. But a16z and others are still pushing their own techno-utopia anti-doomer message that a lot of useful idiots buy into, even though it serves to detract from the political and social root causes of our problems today and instead says even more technology will fix it all.
Working as designed? Wasn't "become massively rich by controlling wealthy companies" alwayes the point of capital investment?
What is it that Anil Dash thought the purpose of these firms was?
I've been in an interesting spot the last few months. I've pitched probably two dozen or so VCs and, and while almost every case showed interest, it was quickly followed by "rules" and "desires" that were antithetical to the product.
The product I am building is a decentralized trust system. The word "trust" is literally in the name. It requires very specific decisions and a very specific organizational and legal structure to be successful. Why? Because anything else doesn't breed trust.
But that's actually the problem. The VCs don't like those things, because in almost every case it relinquishes their control/power. Or, they ask us to do something either questionably or blatantly unethical in order to sweeten the pot. I was one of those founders "unaware of the Cancer Capital situation." After six months of pitching, it's become extremely obvious to me that the current VC system is incapable of funding anything ethical or long-term.
I don't know what the right answer is from here. Our current attempt is founding a syndicate of like-minded individuals to bootstrap a pre-seed. It seems like the only possibility where you might be able to maintain an ethical vision without fighting a cancerous overlord. We'll see how it goes.
I think the problem is that decentralization is almost by definition antithetical to the ability to capitalize on something. As you indicated, decentralization means diffusion of control and power, which are essential to capitalize on that thing. Why would a VC or any capitalist invest money if they cannot see a way to earn back multiples?
Sure you could make some money, but nowhere near the monopoly profits everyone is seeking. A decentralized Google would never be as profitable as a centralized one, so where would a capitalist prefer putting their money?
IMO this is also why decentralized systems or peer-to-peer applications never really caught on. Some point to technical challenges or usability issues or a lack of use-cases, but I believe all of those could have been overcome with enough investment. There just wasn't enough money in them compared to centralization. (It didn't help that the only really popular systems were almost entirely used for illegal or unproductive purposes.)
And these dynamics over time are what have led to the asymmetric Internet today. The Internet was supposed to be equal, with each node capable of being a client and a server and, heck, even a router. But that's clearly not what we have today: networks hostile to P2P connectivity, increasingly powerful centralized services, and decreasingly capable end-user devices.
Well said. To be fair, there is a proposed healthy income stream to the company proper, and the investors are buying equity in the company (at relatively low scale, >$20M ARR). But that's sort of an "old school" play and it seems most VCs want more than just equity. Or if they do take equity, it comes with some insane pump and dump plan that would destroy the very thing we're building.
But I think the broader point I'm making is that what _is_ making all of the money nowadays is increasingly unethical and counter-productive to society. For example, see Kalshi and co. That, in our experience, is what the VCs are in all of the rage for right now, and as I said it's completely antithetical to our vision.
"Why would a VC or any capitalist invest money if they cannot see a way to earn back multiples?"
Why did Andrew Carnegie invest in building public libraries? Surely it wasn't because he was expecting a capital return.
The oligarchs (at least some of them) used to feel some responsibility to the betterment of man. It really seems like today's billionaires really only care about money and power and nothing else.
In case of Andrew Carnegie, it was probably desire at end of his life to been rembered as not only a ruthless businessmen and monopolist.
"Carnegie spent his last years as a philanthropist. From 1901 forward, public attention was turned from the shrewd business acumen which had enabled Carnegie to accumulate such a fortune, to the public-spirited way in which he devoted himself to using it on philanthropic projects."
https://en.wikipedia.org/wiki/Andrew_Carnegie
Bill Gates is in similar phase of life.
As an olive branch, I came in connection with a group (mostly out of Asia) that seems to be more connected by the day (meaning I keep making more mutual connections). They have a very specific vision for capital aimed at funding generational companies whose vision aligns with bettering humanity rather than exploiting it.
They are out there, but unfortunately very much on the fringe because it's difficult to raise money with that ethos.
I'm not saying the VC scene is great, but I mean what's in this for them?
Well, is there a clear route to being a >$10B business? If not, it's probably not a good match for VC. But that's OK.
Yeah, you need to look away from private equity investment. Mutuals, co-ops, LLPs, there's lots of other models, but VC and PE money is not where you want to be.
I'd be interested to hear how it goes.
It hasn't occurred to you that your idea might not stand on its own? If your product was amazing, serious and highly ethical investors would throw themselves over each other to invest with you. There are many such investors, but they have strict requirements on what they invest in as well.
You don't have any God given right to other people's money for high risk ventures. Neither does anybody else. But it's easy to blame "the system" when things don't go our way.
Not sure how practical for your startup, but how much of the next 18 months can you fund in ways that don't create equity (or implied equity) overlords? Can design-partners prepay? Can you get paid pilots, deposits, a grant?
Are you able to say the product you're working on? It sounds really interesting.
See this other thread: https://news.ycombinator.com/item?id=49553649
Unfortunately your product doesn’t fit into Peter Thiel’s "vision" of the world.
The root of the problem I think was caused by allowing institutional funds to invest money in VC firms. You combine that with the majority of the value being generated before they go public and you have a stock market which no longer works as a way to raise money for the company but as a way for VC´s to exit their positions and offloading companies on the public and funds.
Maybe VC always has been VC? Maybe the cancer was always inherent to the system and the author only just now noticed it?
- you need 2 hands to clap, dont want a data center i ll give you a plan
- stop using claude
- stop using open AI
- guess what happens?
- user base drops to 0
- demand drops to 0
- both companies go bankrupt
- no need for data centers anymore? see its that simple
- in the first step, convince all the HN guys to cancel their subscriptions
A huge chunk of the demand is already fake. It's why there are so many auto-enabled "helpers", blinking nag buttons, and popups begging you to pleasepleaseplease use their new AI feature. The vast majority of people are simply ambivalent about the vast majority of AI integrations, so companies have to take increasingly-desperate measures to artificially keep their MAU up and pretend that they haven't wasted a huge amount of money. And all of that is before we get into the heavily-subsidized LLM subscriptions for the people who do want to use it.
User base and demand are irrelevant when it comes to a bubble. People invest because Line Goes Up, which in turn makes Line Goes Up, convincing people to invest. As the saying goes: markets can remain irrational a lot longer than you and I can remain solvent.
I am going to need a little more evidence for your claim that says "a huge chunk of demand is fake"
How many of the apps you use on a daily base have some form of AI integration? In my experience, outside of FLOSS software it is approaching 100%. How many of those did you intentionally enable it? In my experience, basically 0%. Even worse, after manually disabling it many of them re-enable it after an update!
If, say, Google publishes a claim that "95% of Google Search users have adopted AI", that does not mean that 95% of Google Search users think AI is a core feature of Search they would potentially pay extra for - which is what the massive valuations are based on. The AI Mode is auto-enabled, so the only thing it tells you is that 5% of users are annoyed enough by it that they take the time to disable it.
Some people of course genuinely like it and would indeed pay extra for AI-enhanced search, but a huge chunk of users simply does not care either way. They wouldn't pay a dime for AI, just like they wouldn't pay a dime for the ability to re-arrange the letters in the Google logo into "Oggoel". If AI were default-off, they would not bother enabling it. That is fake demand.
well the reason i asked is because chat gpt and others claim to have bazillions of users and you are saying most of that demand is fake, so what are these users? actual people or bots?
Man, this guy’s writing must be at a peak.
It was already great when I first read it ~10 years ago. And his linked post about VCs writing extremist manifestos from 2023 is arguably better than this one. But this post is amazing as well.
I wonder how many iterations it takes to remove all the extra words and reach this 0% fat state.
Both articles also brought me to a peak / cliff hanger type of place. The post from 2023 doesn’t even have a follow up!
Though I didn’t like the repetition of the phrase (“cancer capital”) he clearly wants to coin. It’s Trump-like. More importantly, it’s the kind of thing simpletons do. Or people who think of their audience as simpletons.
Reminds me of this post from earlier in the year (from a VC, Michael Dempsey) titled "VC-Backed Startups are Low Status"[0], which I'm inclined to agree with, having been in the industry for over 15 years now and witnessing how the vibe shifted from "techies are good" to "techies are bad" over this period.
I graduated into a tech workforce that was a celebrated part of society (i.e. "high status") to one that is decidedly not (and I'd say it's grown to deserve this disrepute).
The first main wave of the vibe going negative (at least at the heart of the 'imperial core' in the SF Bay Area) was around ~2013/14 (the 'tech co bus protests'), then again around ~2018 ("don't call SF General 'Zuck General'"), and now it's kicked into a much higher gear during this current AI wave. It spans big tech co's to startups to everything in between. Anil's post speaks to this too, when he says:
> Politicians and media still look at VC as if it works like it did 10 or 20 years ago, and cheer them on ... when their primary goal is concentrating power and wealth
It's not just VC per se, but the 'managerial class' within tech rotted into mostly career-climbing types that were a far cry from impassioned creative technologists aiming to 'do good' with tech. It became the same status-bound competition you'd find on Wall Street and elsewhere (which the Dempsey post describes well).
I have a mentality and overall life orientation that is aligned with Anil and celebrates the open web, public interest technology, and so forth, and many of my peers in tech (often from elite universities and backgrounds) look at me as a strange creature. I'll bring up the need to increase awareness about Public AI and boosting AI literacy among citizens, and I hear, "Wow, you like, really care about like, people. That's so interesting." It's unbelievable, I wish I was kidding.
Thanks for writing this Anil. I wish for better days.
[0] https://mhdempsey.substack.com/p/vc-backed-startups-are-low-...
Speaking of accountability, if you look around and see the tech enshitified you have no one else to blame but the biggest investors in the vicinity. Like it or not they are building your future and more often than not it's just a byproduct of whatever the hell they think they're doing, not a deliberate milestone, which makes it even worse.
The 2 groups getting fucked with the stay private longer trend are the LPs and the startup employees.
We should insist on public policy forcing public money into only public assets. It's the obvious sensible rule.
And company safes need to start including a clause where all classes of vested equity are offered buyouts in equal proportions. So VCs can't keep paying founders/each other on the way up while zeroing out common stock and eventually selling company IP for around the liquidity preference to some "totally unrelated" entity. Realistically this will only happen if YC gets onboard but I doubt Garry tan is the guy who can show this kind of spine.
Likewise, stock market IPOs are a parody now - not means of getting financing, but dumping the paper on the retail after for the insiders and VCs to realize their gains.
Yes, it's downright stupid to buy into any tech IPO these days. The fundraising and all the growth were done by the A-M rounds, while the IPO is the bag-dump for the last few rounds of investors. Stay far away.
Aren't all the insiders restricted from dumping their shares for a set number of months?
The lockup period is still in effect (for now) but reductions to index inclusion rules expose the stock to passive vehicles like ETFs that are obligated to have a specific allocation on the stock. So now there is an essentially guaranteed demand established by the time the lockup period expires. NASDAQ allows mega-cap companies into the NASDAQ-100 after 15 days which is much shorter than the lockup period for 80% of the SpaceX shares.
15 days - Pump: get into indexes -> ETFs obligated to buy shares
After - Dump: insiders cash out benefiting from the price premium of demand for shares from ETFs
They're solving that problem. Look at Spacex. They not only got the rules changed for fast-tracked inclusion in Nasdaq and Russell indexes to pump the price on their garbage asset, they changed the rules so insiders could bail early. It was a one-two punch in service of making insiders richer at the expense of retail investors. Transparent corruption, where a few billionaires write the rules that allow them to reach into regular folks pockets.
https://www.cnbc.com/2026/05/21/spacex-insiders-will-get-to-...
No. Look at the SpaceX lockup. It’s staggered with various groups getting ability to sell earlier than others. Well ahead of 6 months.
But serioslly when IPOs were not a sad joke? In early 1990s? But I think never.
In my ~20 year career half of which were well funded startups I made it to one IPO (multiple sole proprietor sales) with a bigcorp and my prize was having 3 years to buy my stock options at the IPO day strike-price, which was higher than the stock ever was in my last 2-3 years there.
In the end I made my million(th) sitting behind a cubicle collecting 401k which none of those startups gave me.
At this point we must have a drink to that.
Can you name a recent IPO that didn't put funds in the corporate coffers?
If the complaint is that people are investing in companies that are a Bad Bet, the solution is simple. Don't buy stocks that are you think are losers. That's the definition of insanity.
If someone wants to blindly invest money with zero diligence, then they have to be willing to accept the returns of a zero diligence bet.
I've been feeling this for years. From my perspective, the purpose of VCs was to:
- Waste my time filling out forms to participate in incubators they would always reject me for.
- Fund my competitors so much as to drive up CPC for any given keyword as to make make ROI on ads impossible.
- Monopolize all tech markets through a variety of ways including contributing to the culture of making it taboo for companies to purchase solutions from small vendors who aren't funded by them. My friend who did get into the club described the ecosystem as 'incestuous'. The circular deals we saw going on with AI companies and hardware companies recently are not new; just the same thing they always did, on a bigger scale.
I entered the industry in 2012 so for me it has always been like this.
That said, it's really a deeper system issue which allows this.
Not really unique to VC, similar things are happening to private equity with secondary funds.
VC is basically just plowing capital into people that went to prestigious schools or maybe were at a top company. They collect fees and every once in a while a company hits.
Any analysis on the asset class is moot.
Most of the VC media is aimed at hiding the fact that its a lottery machine for a pre selected group
I think the letter V should be removed from VC to better reflect your point that these are barely ventures - they're more like a rigged casino spin for those that don't have the talent to do the building themselves.
I learned to pronounce the V in VC as 'vulture' back in the 1980's.
That's what the letter V was historically understood to mean. As the article says, venture capital used to be a small segment of the capital markets for the uncommon set of companies who can't prove their idea is any good until they get more capital than their friends and family have to offer. The idea that venture funding is supposed to be anything more than a rigged casino spin is upstream of quite a lot of the problems people have with modern VC.
VC is also exercising incredible power over media and politics. That's part of the article's point: VC isn't just about VC anymore.
You should add that they use pension funds to do this too. Easy to make stupid bets when it's not your money.
I don't think they are that squeamish about hiding it. VC's talk all the time about investing in people and understanding that their ideas May shift over time.
Tyler Cowen is a big proponent of pre-selecting talented people and not even requiring an idea. I think this is the model of Emergent Ventures (EV), launched in 2018, and is getting replicated in many places.
I think it is regarded as highly successful
"Looking for motivated people willing to do anything for money"
I'll say it directly, as _they have_: they are attempting to recreate fuedalism.
Those folks are in these comments. They'll get their pitchforks and torches eventually.
yea but part of this is the consolidation of funding too. Standards to raise seed capital are soooo lofty now compared to 3 years ago. If you are in your in, if not good luck.
I think a lot about fixing broken VC-founder dynamics, and this post by Marc Pincus (https://x.com/markpinc/status/2089572143344599079) crystallized one plank of the platform.
The principle is simple. VCs are soccer stars, but founders play basketball.
Basketball and soccer share much in common. For instance, both involve teams dribbling, passing, and shooting a round ball. But successful abilities and traits in one may not translate to the other.
Think of each profession as a different sport. Venture, growth, and value investing all differ, and all differ from founding.
VCs are all driven and highly intelligent, but so are lawyers, bankers, and consultants. Talent isn't the issue.
Capital confers authority, but not expertise.
Based on resume alone, 80% of VCs would not earn board seats at their portfolio companies. Their experience and skills, much like consultants and value investors, were honed on a field different from the basketball arena where founders compete.
Here's a quick heuristic: sans capital, would you still hire the VC to sit on the board? If yes, wonderful.
This is no slight and works in reverse: 80% of founders would not earn the right to direct VC investments.
To clarify, great VCs are absolutely worth the premium and can reshape a startup's trajectory as all great advisors can. If you find a great VC, do not haggle. Strike a deal, and return to building.
The greatest VCs exhibit the same pattern, understanding their role on the startup team as advisors, not alphas. They are often understated and work tirelessly on behalf of their clients.
The worst VCs exhibit the inverse pattern and imagine themselves as the alpha, not appreciating how a talented peer could have replaced them without changing the exit. They are loud on social media and assume accomplishments from finance or FAANG map to the startup arena. These VCs should run funds on Wall Street, not advise founders in Silicon Valley.
How do we highlight good VCs without attacking bad ones? Many good VCs, as with many good advisors, prefer subdued profiles and dislike self-promotion. This is the challenge.
The original idea was to flag bad VCs, but such a system grants founders too much power to levy unjust charges and settle feuds.
After all, many disputes are legitimate and reflect bad founders. Founders, like all professionals, sit on a spectrum. The surge of big money has spawned plenty of bad ones who, sadly enough, do not represent the best of tech and innovation but rather greed and self-aggrandizement.
The Pincus post sparked a cleaner iteration.
The proposal is a public page/spreadsheet where only founders can post, only after an outcome or a certain number of years, and only with affirmative assessments. Nothing negative, nothing anonymous. Posts must certify no quid pro quo or other VC prodding.
Topics could include responsiveness, support during dark days, absence of alpha syndrome, and other key considerations.
Over time, good VCs should reveal a clear pattern and attract new founders: founders trusting them again with repeat business and consistent high marks across the portfolio, not only unicorns. Arguably, the strongest signal will radiate from the worst outcomes.
Critically, this system won't incite mob justice or expose VCs to unfair accusations, but can still suggest who to diligence more deeply.
The purpose is to spotlight good VCs who advance innovation and startups over time, letting their body of work rise to the top and garner proper recognition.
Of course, it penalizes newer investors and is vulnerable to gaming like any system, but it plugs a small gap. Founders want to find good investors based on data, but good investors dislike boasting.
Marc Pincus is one of the worst of the worst when it comes to toxic VCs:
https://x.com/search?q=from:markpinc%20israel&src=typed_quer...
VC, private equity, angel investor, vulture capitalist.
All the same to me. All of these entities have ruined previous workplaces in one way or another. Effectively stealing years of my life that I put my labor into.
These rich cunts are the reason everything is shittier and the term "enshittification" exists in our modern vernacular
> Effectively stealing years of my life
You got a paycheck, no?
all of the institutions that built our current era of prosperity have been corrupted.
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I can understand how the article might conflict with personally held notions and thus might look odd, especially as the weird dealings of the tech accelerationists do not find much press coverage. The only thing I can do is recommending to keep your mind open for new info, the article mentions he will follow up on the bullet points. The author has another previous article [1] that references Paul Krugman's article "The rich are crazier than you and me"[2], that might be an interesting read alongside the other pointers. As an aside, I also recommend to watch the video at the end that goes into Andreessen hiring murderer Daniel Penny.
1. https://www.nytimes.com/2023/07/06/opinion/robert-kennedy-jr... 2. https://www.anildash.com/2023/07/07/vc-qanon/
It's not like pension funds are forced to invest in VC funds. It's the unions decision too, so ultimately if they are bad investments, it's average joe union workers fault they voted for shitty leadership.
The shit happens from how these funds are bound by their statutes to buy into index funds. A while back, there has been some insightful commentaries here on HN regarding the spacex IPO and the subversion of stock exchange.
"politics the author doesn't agree with" = racism, hatred, calls for ethnic cleansing, dismantling of the democratic government, open support for fascism... all being coordinated and advanced by a cabal of extremely wealthy VCs. Yeah those politics.
VC was good when a guy with no technical skills raised 10s of millions of dollars. That was when VC was good, right?
This guy has been grifting his entire career but it's those other people who are the problem, guys!
He's not wrong about VC but he's another Chamath - a guy who grifts a thing to death, moves on to the next grift and goes 'look, that grift I'm no longer doing - it's bad, very bad!'
You should ask Chamath how he feels about empowering workers through unions.
Is that supposed to work?
When you get caught stealing candy, saying 'look, he stole more than me!' doesn't work. Were you raised in a human society? I thought people learned these things when they were 7.
If you’re arguing he and I are the same thing, though he’s a VC and spends his time being a podcaster who advocates for the venture industry, and I’m someone who is talking about how power actually works in society, I proposed an easy test of your assertion. Let me know what results you find.
> and I’m someone who is talking about how power actually works in society
He also does this. That's... the entire point of the comparison.
Nice try. Shall we continue to where I start copy/pasting an LLM explaining it to you until you can't pretend to not understand any longer and move on to some other bad faith tactic? I want to see your most advanced bad faith attempt - deflection and playing dumb are for juniors. Show me something good.
i can't believe the whole blog post was just the tldr. this is going to be a legendary series of blog posts! j/k i WOULD like to read the long version of this but i probably won't remember to go back to this blog.
This reads like someone who can’t make smart bets “before it’s obvious.”
Lots of VCs out there still taking big gambles on the agendaless and unproven ideas.
> But a cancer grows from a cell that a body needs in small, healthy amounts, and that turns deadly when it grows without limit until it harms, or even kills, its host
I thought a cancer grew from a defective cell that is able to divide and grow to over take the healthy ones.
I would not focus on individual cells but the ability to grow super fast, which itself is not a defect since it's important during development, but the checks on this ability can be removed by later mutations/metabolic issues
The problem is using cancer as a singular noun in this context.
>a cancer grows from a cell that a body needs in small, healthy amounts
"A" cancer does not grow from a cell, a cell is a cancer cell if it keeps dividing when it should not. The cancer cells as a collective are the disease referred to as "cancer".
If they had written
"cancer grows from cells that a body needs in small, healthy amounts, and that turns deadly when it grows without limit until it harms, or even kills, its host"
that would have made more sense to me.
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Anil Dash writes what people want to hear (except for boring medical analogies).
He writes against Big-AI, but supports AI (small?) and copyright theft at the EFF, where he is a board member.
I'm getting tolerated opposition vibes here.
So A16Z is the largest spender on politics, but Anil Dash's "momma is.."
https://techcrunch.com/2026/08/31/a-group-funded-by-andreess...
https://www.nytimes.com/2026/05/13/technology/andreessen-hor...
Do you think people who suspect tolerated opposition would not also criticize A16Z? How about investigating controlled opposition financed by A16Z or others?
I don't understand what you're saying. Can you clarify your question?