We had it coming
Everyone hates VCs and loves the Knicks
Stayed alive, Knicks in five
I was at MSG for game 1 of the Eastern Conference Finals when the Knicks came back from 22 down in the fourth quarter. It was the most miraculous sports moment I’ve ever seen and I didn’t think it would ever be topped... until the right hand of OG.
Wednesday night started out terribly and it seemed like the officiating would once again take the day. But, between some brilliant coaching and leadership, a legendary choke job from the 8 foot loser corn dog, and stunning late game play the Knicks took back the vibes and momentum in the series.
We are increasingly bereft of monocultural events that focus the energy and attention of the world onto a single fulcrum. This Knicks run is the single most exciting, captivating, unifying event in my life as a New Yorker (with the exception of 9/11 but that’s different).
After game 4 I saw people completely take over the streets. I saw bus drivers laying on the horns. I saw children (1000 drunk teens) dancing on cars and bodysurfing. The on court action was incredible and the off court feelings are magical. I love the bandwagoning for the same reasons I want more transplants in New York: it creates more vibrant fanbase to celebrate with. Why would I want to be alone at a party?
We’re seeing something special and I have no doubt it will birth a newly engaged generation of Knicks fans.
Dunking on VCs
Last week there was a big brouhaha on twitter dot com about the bad behavior of VCs over the years. It was not pretty. While the behavior was varied (pulling deals, falling asleep in meetings, light crimes, etc.) the theme struck a nerve and there was clearly a receptive audience to see some venture capitalists taken down a page.
Clearly there’s some simmering rage against VCs...
But none of this is new nor is it random. In 2019 during a different bout of dunking, I wrote about why VCs draw such widespread ire:
In venture capital you can’t really build a brand or reputation on performance. You can’t advertise competence via returns. It just takes too long... Instead, VCs have to cultivate brands for themselves and their firms through omnipresence: they and their takes have to be everywhere always... Venture capitalists need to look smart because it’s impossible to prove they’re smart. Perception, not returns, is reality
This is, obviously, extremely cringey and annoying.
And beyond being generally annoying, VCs are, for most people, avatars of their own failure - even successful people.
After all, the overwhelming majority of interactions between the overwhelming majority of VCs and the overwhelming majority of founders ends in rejection. For most founders, raising capital feels like a humiliation ritual.
That breeds resentment and makes people eager to take VCs as a class down to size. Venture capitalists are the living avatar and personal embodiment of your own feeling of rejection.
Other people are prolific rejectors too. But HR managers don’t gloat constantly on the internet. Because VCs are principally in the narrative business (not the returns business, at least not on any useful or measurable timeline) they do all that rejecting while crowing and bragging on the internet. As a class, it’s deeply unsympathetic and un-endearing behavior.
Worse, VCs have become emblematic of a world arbitrarily stacked against you (as you struggle against being consigned to the permanent underclass). People feel powerless in the shadow of this faceless market that blesses some and damns others, and almost overwhelmingly does not bless them. Seeing that market and that arbitrary kingmaking power personified in a small coterie of people, and then seeing those people be demonstrated to be stupid, dishonest, lazy, disrespectful, etc., is validating and vindicating.
The catch, of course, is that it’s the hopium of proving VCs wrong when, for the modal or even the 75th percentile founder, they’re not wrong.
VCs are ultimately extraordinarily privileged. We don’t work that hard. We don’t add that much. We don’t risk anything. We’re generally all very lucky to get to spend our time with brilliant, passionate people working on the single thing in the whole world about which they are the most brilliant and passionate. So on balance, I don’t think it’s bad for people to air their grievances and ask for more from their capital partners.
On the other hand, the readiness to join the dunk-a-thon is a sign of the times, and of how seemingly arbitrary the market has become, even compared to a few years ago when I first wrote this.
Great thoughts. This is a big problem. Love the way you write.
I'm using an industry SCP framework to reflect on your thesis (Structure > Conduct > Performance)
I don't expect anyone to reply, i'm just thinking and this is the UX that's in front of me. I'm not a politician in any way.
Structure:
a) Venture capital in the most fundamental sense is an asset class. It's a pool of dollars that have a particular return preference. That's all. Most people don't find their capital in VC funds because their marginal dollar will find a higher risk adjusted ROI elsewhere.
b) VC capital is tied to liquidity preferences of rich people and pension funds.
c) The actual JTBD of VC - to identify investments that could possibly meet the return profile - is a difficult skill that requires a particular type of taste-based business acumen.
Conduct:
a) large top of funnel of startups seeking capital, very small bottom of funnel = exclusivity
b) high upside = attracts elite talent. Elite talent often comes from the elite social class.
c) massive failure rate within portfolio: one could argue that this is the darwinian nature of business building. One could also argue that incentive structure multiply the natural (darwinian) rate of failure
d) social blowback: VC becomes a caricature for people to dump on. Sentiment gets worse in hard times. All of what Yoni's essay described very poignantly.
Performance (this is the section that may contain some insights)
A. For context, I'm using an economist framing of consumer & producer surplus. In a world where CS & PS are balanced, society benefits from large-scale business being built. Think 2008 to present.
a1) Producer surplus perceived as being very high. Evidence: VCs are rich. Excited founders are rich. Many VC investments become public companies.
a2) Consumer surplus perceived as being very low: Most widely used consumer apps don't generate a material / visible benefit. Social media = most people perceive as net negative. Netflix - in fact does generate large consumer surplus, but not sure people perceive it that way.
a3) In a perfect world, producer surplus (think equity participation) would be available to more of the consumer class. In our world, its not. So what incentive does the average person have to celebrate the wins of venture capital?
B. The missing middle
a) What if - not due to the malevolence of VCs, but due to the economics of VC $ - we aren't funding the right businesses?
b) Imagine that 100,000 startups have been founded, funded, and failed in the last decade. How many of those businesses would be value-producing and profitable in a classical economic landscape? This is a big question to ponder. I know that fund math doesn't (historically) support this type of company. I also know that other niche forms of capital (Growth equity) exist, that fund makeup exists on a spectrum. Still, the bigger question is what if in a post AI world the economics change?
My layout isn't diligent enough to be really solve anything. But I do think this is the right train of thought to consider.
Here's the big problem: our country is heading in a direction where this pushback may grow rapidly. Imagine an ambitious government composed of leftist thinkers comes to power. Entirely possible that they could choke off VC and the entire productive / innovative processes that it sponsors. That's a really bad outcome for everyone.
What if instead of demonizing the winners we just saw the past as historical inertia and incentives. Baby boomers built the v1, next generation knows better and can do better.
We need to do better. I'm tired of the stupidity.
-Let's direct capital to productive businesses that produce real outcomes.
-Let's have the smartest most ambitious people solve healthcare, energy and education instead of making the 900th email automation tool.
-Let's celebrate intelligent / diligent people who succeed financially. It's America, baby! Not Sweden.
-Let's establish a functioning social safety net (lean, fair, intelligent) - this isn't socialism. Read John Rawls concept of the 'maximin' principle.
🇺🇸🇺🇸 ain't over til it's over - best days are ahead baby