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Hey tech billionaires, if you want to talk about radical change, let’s abolish venture capitalism
(www.theguardian.com)
this post was submitted on 01 Nov 2023
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I'm just gonna be straight up that probably none of you have any real experience with VC. Just statistically, it's probably the case. It's anecdotal, but I want to share my story.
I helped found a company about three years ago. It's a software/ services company that focuses on specific kinds of climate change risk. No I won't tell you who we are. Anyways, me and my cofounders are first time founders, although we both have built business segments within companies, this was our first time in our own. We did try for VC that first year. We basically got rejected all around. What I learned is that the basic function of VC isn't to fund good ideas. It's a filter to keep opportunities in the hands of those who already have them. It's a kind of social filter to make sure only the "right" kind of people get funded. It's pure credentialism and institutionalism. Anyways, several of our competitors took the cash. As a result, they ballooned in head count and we're forced to do things the way the vcs expected them to. As a result, almost all of these companies failed or pivoted. We didn't get funded. We got rejected by all fronts. Instead we just built our client base one brick at a time. Well, now their customers are our customers. We're signing deals with the big names and still haven't taken VC money. We've got the best in class technology and they are bleeding money.
VC is a poison pill. It's not there to drive innovation but to filter down who has access to opportunities. Their ideas about what works or doesn't are bad, and largely driven by the culture they are apart of. They worship elitism and credentials, but will the respect for those who are willing to do the work. It's inherently extractive. They add nothing. Want to kill a business? Take VC money.
Kind of right but of course it's not just a filter to make sure the right kind of people get funded.
But it is a bet that only matters if it pays 100 or 1000x. If it's not paying that it's as good as 0. That's why, most of the times, vc money does not benefit the company, unless it manages to have that insane level of growth. It's also frequently not in the best interest of the founder.
This right here has been my experience with VC. I was working for an online retail startup when 9/11 happened. Within days, we were all called into the office to be told we were shutting down because the VCs pulled our funding. This despite the fact that we were only two months away from projected profitability and beating our sales projections every single month. But we weren't the biggest paying bet in the casino, so they dumped us when the cash flow got tight.
That would have been a successful company, but it wasn't good enough for the VC class.
Not a coincidence that folks with Ivy League degrees get showered with money, while kids from state schools end up doing all the drudge work that keeps infrastructure running.
Its an excellent way to cash out of a mediocre idea. Also an excellent way to elevate a mediocre idea from a regional/niche/insider scam to a national stage.
Like most elements of our meritocracy
This comment doesn't even pass the smell test.
If every company that took VC money failed, VCs wouldn't make any money.
The reality is MOST VC investments fail, but the few who make it are home runs. This is how they make money. The risk/reward of your company was just not a favorable investment for them. Whether it's because you went to an Ivy League or not is irrelevant.
Without VCs, many of those homeruns would never be able to get off the ground and the US economy would be significantly less dynamic
You are free to take your great idea to VC and see if they get funded bro. I think they are a complete joke at this point.
I don't have a good business idea, not everyone has to. That's not even what we're talking about.
VC is clearly not "a joke". All you have to do is Google "major companies that took VC funding" to see the impact of it. Of course this leaves out the thousands of others that failed, but long term the winners are going to have a very positive impact on driving innovation.
You may say "those companies would have succeeded anyway" and maybe so, but I doubt it would have happened nearly as fast, if at all.
VC today isn't VC 20 years ago isnt VC 40 years ago.
VC today has ridiculous expectations on ROI and it re-enforces poor decision making, which, imo, brings down companies that might otherwise have been successful. Its part of a culture that was propped up by access to ridiculously cheap money. Modern VC is a dice roll at best, maybe worse.
The final summary of the article you linked:
"Using 105,950 observations from 32 different studies we find that CVC investments are performance enhancing, for both corporations and start-ups. Our results detect that time, country, and industry moderate the effects. Especially after the Dotcom bubble burst, high performance is detected. Similarly, the performance in the U.S. outreaches the performance of other countries. Due to the high risk of successfully developing a pharmaceutical drug, no statistically significant effect of CVC investments in the health care industry is observed. As expected, strategic performance outperforms financial impacts. Although there is good rationale for a clear strategic focus, the finding that CVC investment does not lead to stronger financial performance is surprising and urges practitioners to rethink their CVC objectives and approach"
Disregarding the fact that this is only looking at CVCs and not traditional VCs, I don't think this really supports your argument that it is a dice roll at best. Seems to me like it is broadly beneficial with some caveats.
Um if we instead taxed those VCs setup a government fund and grant program instead you would have greater innovation, more equitable access and a better solution. VCs siphon IP and manage where wealth can be consolidated, it's a pretty basic concept.
I believe we already do this to some extent. There are government funded grants for all kinds of things. I guess you just want more of that? I think you have to be careful, because that starts to look like the government picking a lot of winners and losers in private industry. Ripe for misallocation of resources.