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Venture Capitalists Are Deforming Capitalism
- mxskelly 6y agoThis is just capitalism working as expected and - wow news flash - it is a broken system.
- zbyte64 6y agoHow dare they act in a self-interested manner with no other regards.
- chunkstuntman 6y agoActually yeah, parasitic selfishness should definitely be discouraged in a healthy society
- nickpp 6y agoBy force, eventually. Those daring to have their own interest in mind instead of the greater good should receive a healthy struggle session and their wealth confiscated. For all mankind!
- mxskelly 6y agoYes, actually.
- nickpp 6y agoGood to know how the ones so worried with our welfare REALLY think.
- oscargrouch 6y agoOr its just a matter of not letting bad players to ruin all the game. Too many greedy blood suckers will drain and kill the cow eventually. The word here is balance to have a sustained long running system that can benefit the maximum number of people. It doesn't need to be a false dichotomy between what it is now and stalinist Russia comunism. Note: the blood suckers is not the whole of the capital market of course, they produce value. The problem is some players and some practices..
- stale2002 6y agoIn the context of this article and conversation, you are saying that companies that give away their product, for too low of a price, and too cheaply, in which consumers benefit too much is.... parasitic? Giving things way to people for less than they are worth may not be good idea, but I don't think I would call that parasitic. Instead, that is closer to charity.
- mxskelly 6y agoYou make it sound like the companies who run this shit are penniless, they're not, they're making millions of dollars of actual cash. There's no charity going on here.
- stale2002 6y agoBut specifically the issue being discussed is these companies selling their product for too cheap and low prices. I would not use the word "parasitic" to describe a situation where good and services are very cheap and good.
- CalChris 6y agoThe article doesn't say that VCs shouldn't be self interested. Nowhere does it say that greed, for lack of a better word, is bad. The herd mentality of the VCs investing in WeWork wasn't about greed, or self interest. It was about Kool-Aid, a term the article does use. The point of the article is that it is this Kool-Aid thinking which deforms actual capitalism.
- Rmblnm4n 6y agoYep, I do the same by using my buyout money to undermine the west. Y’all wanna be ok deflating my wealth? I’ll do what I can to tank yours altogether.
- oblio 6y agoI think we can all agree that the ends don't always justify the means. "Machiavellian" isn't a word of praise.
- disgruntledphd2 6y agoRunning unprofitable companies at a loss with no clear plan for making money (apart from the Pinky and the Brain plan of taking over the world) is not how capitalism is supposed to work, and only persistently low interest rates and a global savings glut have ever facilitated it. This used to be called dumping, and was a crime. The new part is that the companies don't even make any money at their core business. Take Hailo, an uber-like startup that operated a franchise model. They made money, were expanding slowly and profitably, and followed the laws. They were driven out of business by Uber who still (ten years later) have not made any money, and have been subsidised by deluded pension funds looking to juice their returns. Whatever that is, it's not capitalism, which at base is a system designed for people to invest money in the hope of getting more money back in the future. Hailo was capitalistic, Uber is some kind of weird mishmash of communism and hipsterism. It's like the performance art of capitalism; all of the trappings and none of the substance. (For Uber, substitute your least favourite unprofitable unicorn).
- claudeganon 6y agoHowever it works is how it works. Capitalism absolutely devolves into the corrupt oligopolies we have today, where businesses capture government and entrench their position and power over everyone else. Strong organized labor and various forms of social democracy can resist these trends, but what's happening in America is just Capitalism running its course.
- mxskelly 6y agoExactly this. You can't take "well this is happening but it's not real capitalism" even though everyone's calling it capitalism. It's capitalism. Capitalism is busted and rewards greed and concentration of wealth. It doesn't take a galaxy brain super genius to figure out that an economic system that relies on infinite growth doesn't exactly pan out in the long run, and what we're seeing in America today is just the late effects of the capitalist system that we allowed to run rampant because apparently any amount of socialism is communism and scary because reasons I guess.
- 6y ago
- cbozeman 6y agoThe system works just fine... when you don't have a bunch of weak fuckers running it, and when you don't have a bunch of weak fuckers in your nation. People cry, but everyone wanted a bailout, even average Americans, because no one wants to go through The Great Depression again, because everyone's scared, and everyone's scared for different reasons. Rich people are scared they'll be killed for their hand in another Big Sad. Poor people are scared they'll starve to death during another Big Sad. Politicians are scared they'll lose their (laughably pathetic...) power - and/or be killed for allowing another Big Sad to happen. Its all based on fear, and its ultimately cowardice. The most American thing to do in 2008 would have been to allow every company that was going to fail, to fail. This is how you purge the weak and allow the strongest to survive. Whoever's got the gumption, the grit, the fortitude, the courage, etc., will survive and whoever doesn't... too bad. The problem is, few people really have the stomach for this, because our modern world has become so comfortable. The beautiful thing is, the coming reckoning can't be put off indefinitely. Eventually, the bill will come due and people will be made to pay up, whether they want to, or not.
- kgin 6y agoCan you explain why this is expected?
- rubiquity 6y agoGee,where have I seen this strategy of using private capital to subsidize a deliberately unprofitable business just long enough to drive all of its competitors out of business so they can form their own duo/monopoly before? VC yielded like this it isn’t creating innovation or anything of value, it’s perverting the spirit of capitalism.
- void-star 6y agoI agree this is not how capitalism is supposed to work in the spirit of the version that many democratized nations were sold. But I also agree with another downvoted post, in that this has become the expected behavior. I guess the point is that VC didn’t start this fire, it’s just the latest incarnation of what seems to be the endgame of capitalism. Proponents of capitalism sell a version of it where innovation and efficiency are rewarded through a kind of economic Darwinism where the fittest survive. But it isn’t hard to find examples that show it is capital itself that drives success and allows the unhealthy and unfit to prosper at the expense of superior competitors or even entirely alternative industries.
- benjohnson 6y agoI think the problem is that “fitness” now includes governmental regulatory capture, mass-media manipulation, and human rights abuses.
- eeZah7Ux 6y ago> not how capitalism is supposed to work in the spirit of the version that many democratized nations were sold AKA: people were misled.
- CalChris 6y agoHow does one drive out all of your competitors from a low barrier to entry business and expect to win the endgame?
- rubiquity 6y agoBy raising prices after the competition is gone.
- lwigo 6y agoAnother read in a similar vein today: https://www.theverge.com/21571690/oomba-startup-work-environment-sex-lies-video-games-gameworks-exworks https://www.theverge.com/21571690/oomba-startup-work-environ... I think (and hope) this era of unfettered partying and bro-culture capitalism is finally coming to an end (with the WeWork debacle and even a bit of Theranos finally permeating the public view). And of course, Rona forcing everyone from line engineers to hedge fund managers to take stock of their lives (and finances).
- vsareto 6y ago>I think (and hope) this era of unfettered partying and bro-culture capitalism is finally coming to an end This was Wall Street banks before tech. I think the culture will just shift to something else.
- lwigo 6y agoYes, the cycle moved from 80s Wall Street into tech (a bit in the 90s but like 2014-2019 or so just felt like a giant party in the startup world). Who knows where it goes next.
- shortandsweet 6y agoAre there any tv shows inked for this story? Sounds like a wolf of wall street type of deal. Only in tech.
- sremani 6y agoIf you think VC is deforming wait till next year - when liquidity for select few and austerity for rest of us kicks in.
- peteradio 6y agoWhat is the above statement predicting exactly?
- claudeganon 6y agoExactly what happened during the 2008 crisis. Bankers got bailed out and everyone else got screwed. It's almost guaranteed that the Biden administration will take the same tact.
- john_moscow 6y agoWhat puzzles me is that many people understand it, they understand that Trump would not have done the bailouts, but they still voted for Biden over Trump. Their hatred for Trump's personality was somehow a stronger factor than the very grim economic consequences affecting them personally.
- Jochim 6y agoI'm not American so I could be wrong on this, but wasn't it the Trump administration that passed the previous stimulus package that disproportionately benefited the largest companies?
- kylelibra 6y agoThis thing is extremely divisive on VC twitter: https://twitter.com/benedictevans/status/1330889261479043075?s=20 https://twitter.com/benedictevans/status/1330889261479043075...
- QuercusMax 6y agoDivisive?
- kylelibra 6y agoYes...auto-correct failed me there.
- save_ferris 6y agoThis seems like a really weak argument IMO. Isn't Rupert Murdoch a venture capitalist in this context? He cut a big check to a startup (Theranos) with high growth-potential in exchange for equity. How did Murdoch's investment in Theranos not qualify as VC? It seems like Benedict is trying to argue that Murdoch isn't a VC because he isn't known typically as a VC. Instead of explaining his argument, he simply compares this to "summer intern" work. It should be pretty easy to make the distinction between VC and whatever Benedict considers Murdoch without resorting to attacking the reporters.
- partingshots 6y agoHe’s just being nice. In reality, what he’s really saying is that Rupert Murdoch is dumb money. Seeing the success of VC and trying to copy it, but only doing it at the most superficial of levels. To be fair, in recent years, a lot of dumb money has entered into the VC scene. Again, mostly from traditional incumbents attempting to emulate without understanding the bigger picture.
- Retric 6y agoIf you exclude all the dumb VC investments after the fact then sure the industry looks awesome. The problem is making distinctions beforehand. Exclude non investment fund VC’s and you exclude most of the best investments and keep a lot of cruft. Net result professional VC’s under preform the market. Include non professional investors and you get successes like George Forman and a ton of far less successful athletes etc. which on net also under preform the market.
- OliverGilan 6y agoThis article gets a lot wrong. For one, it calls Rupert Murdoch and Betsy DeVos VC and I think that's a real stretch of the term VC. Everyone likes to point out Theranos as an example of Silicon Valley Hubris when in reality no respected SV institutions put money into it.
- save_ferris 6y agoHow are they not VC in this context? They invested in startups with growth potential in exchange for equity. From investopedia[0]: > A venture capitalist (VC) is an investor who provides capital to firms that exhibit high growth potential in exchange for an equity stake. How does this not describe Murdoch and DeVos in this situation? 0: https://www.investopedia.com/terms/v/venturecapital.asp https://www.investopedia.com/terms/v/venturecapital.asp
- DenisM 6y ago> A venture capitalist (VC) is an investor who provides capital to firms that exhibit high growth potential in exchange for an equity stake. I have a friend who invested $10k into another friend's startup. Is he a VC now? If you want a term that refers to all investors we already have one - it's "startup investors". VCs are mercenaries - they invest someone else's money and they are responsible to return the money in 10 years or bust. They take board seats, they try to drive when things get tough, they try to push companies to the breaking point because 10 years are fast approaching. This sets them apart from FFFs or Angels, for example. Or even from Investment Bankers.
- mrkurt 6y agoYou've redefined VC here, but not for any useful reason. Putting money into a risky company is "venture capital". It's literally capital for a new venture. The distinction you're making is between institutional and individual investors. It's worth talking about the difference between institutional and individual investors, but it's all venture capital.
- mrkurt 6y ago
- partingshots 6y agoIt definitely seems like New York has a case of jealousy / FOMO as finance has steadily moved to Silicon Valley.
- admiralspoo 6y agoIn the age of work from home, I don't see New York surviving.
- kilbuz 6y agoIt's possible you're weighting the events of 2020 far too heavily. See Lindy effect.
- cbozeman 6y agoI think its the opposite. People are weighting the events of 2020 far too lightly. The American identity is under siege... being told where you can and can't go, and under what conditions (mask / no mask), is totally alien to an American, and I don't know why it would shock anyone, anywhere, that understands even the slightest bit about our culture to hear this. And that's just one small aspect of the cultural component of this pandemic. No... 2020 is going to change the entire world, or more accurately, COVID-19. EDIT: Oh yeah, Morgan Stanley is already issuing guidance that 2021 is going to be a commercial real estate bloodbath, lol, so, you know... there's that. Not to mention the huge influx of people into flyover states once they realize New York is only a nice place to be if you can actually go out and do shit. If you can't do any of the shit that New York is known for, why would you live there?
- ericmay 6y agoI'd say expanded is probably the better term to use here. I don't think finance is really moving to SV. The weather is great, lots of great, important companies, and the investing climate is insane, but "finance" as it is in NYC is more global in nature. I think SF will continue to rise as a peer to NYC but I'm not sure I force anything supplanting NYC as the finance capital. Proximity to trading platforms, and a quick flight to Europe, for example, are some of the unsung benefits.
- ezluckyfree 6y agois it really a deformation of capitalism if it happens within capitalism?
- convolvatron 6y agoto me - this is the point of the article. money sloshes around. why are we so dead set on pretending something else is going on?
- fcantournet 6y agoIt's just capitalism. Like read ONE(1) book please for the love of god. Concentrating a lot of wealth in the hands of few people who then have complete power over what human endeavor gets funded, and potentially given insane financial advantages over more virtuous competition, to obtain monopolistic positions. It turns out : this is bad, empirically. Of course any analysis a priori would have also netted this result.
- admiralspoo 6y agoIt's not capitalism, it's simple game theory and the economic system under consideration is quite irrelevant. Monopolies of all kinds are bad. Including monopolies of government.
- kazagistar 6y agoMonopolies (or even high concentrations) of power are bad, whether that's financial or legal or whatever. However, democratization can redistribute that power back amongst the people. The goal should be to work towards nearly even power, which prevents the abuses in power. If the government was controlled by the people, its "monopoly" wouldn't really be one, because it couldn't be abused by those who wield power within it.
- nickpp 6y agoList of governments controlled by their people: ...
- dasudasu 6y agoHow are we supposed to fund new capital-intensive ventures otherwise? The government just subsidizes everything at the taxpayers' expense? (Welcome to Canada and Europe.) The government just picks winners in advance? (Welcome to the PRC.) Capitalism is supposed to reward people that were able to succeed from previous ventures, or alternatively allow people to voluntarily pool more modest amounts of capital together. Everything gets distorted in the real-world, of course.
- f00zz 6y agoFun article, but it's not like fools parting from their money is a new thing
- papito 6y agoThat scene in Silicon Valley where Hendricks gets chewed out for trying to make a profit is extremely accurate. The current system that we have is a miscarriage of Capitalism, where the HOPE of future profits is more valuable than the skill and competence to make a profit out of the gate, the way, you know, a grocery store has to before it goes under in two months. Basically it's a giant pyramid scheme. A bunch of VCs throwing companies around like hot potatoes until the biggest idiot ends up with an overvalued load of crap.
- nipponese 6y agoMaybe you are forgetting the part where Russ Hanneman loses money and then acts desperately to force them to monetize?
- Apocryphon 6y agoIt’s part of the hype cycle.
- nicbou 6y agoI run a small website that generated higher profits than AirBnB, Uber, Lyft, WeWork, Lime, Pinterest, Slack, Snap and Zillow combined. In fact, it generates more profit in a day than they did in the last decade. Want to hear about my morning routine?
- tehjoker 6y agoThat's kind of the nature of wealth that you can make projects keep going regardless of how good or bad they are. There's no meritocracy, just power.
- aeternum 6y agoWealth is finite, it typically does not last more than a couple generations. Bad decisions also generally cost more than good ones. The same cannot be said for many other types of power.
- ChuckNorris89 6y agoUnless by rich people you mean lottery winners and Instagram influencers, the truly rich people have top financial education, trust funds and top wealth management companies that keep their wealth growing so they can't make mistakes.
- DethNinja 6y agoIf that was the case then why there are so many zombie companies? I would say USA will lose considerable power over the coming years because of their bad economic management.
- imtringued 6y agoZombie companies are the result of a low inflation policy. If you want to keep your company going you can just borrow a lot of money for almost nothing.
- aeternum 6y agoThose wealth management companies charge significant fees and typically do not beat the market once fees and legal expenses are considered. If you look at any list of the truly rich, it is almost all 'new money', of those that are beneficiaries, the money was inherited relatively recently (such as the Walton family). https://www.forbes.com/forbes-400/ https://www.forbes.com/forbes-400/
- codekilla 6y agoIsn't this the sort of meta-hack that should(or is?) be illegal? I thought selling your services at a loss to specifically drive competitors out of markets was illegal? If it's not, should it be? Once capital has accumulated, there is really no effective way to compete if these practices are allowed.
- anotherforsure 6y agoThat's why the title doesn't fit. Unfair advantage is raw capitalism, not a distortion of it. What you're talking about is government interference in the markets, which is a form of socialism, which is a big no no in our society.
- codekilla 6y agoGovernment intervention in our markets is the rule, not the exception. Whether we call it ‘socialism’ or ‘stabilization’ is simply a matter of who is making the sales pitch.
- etripe 6y agoWhy do so many people confuse supply-side economics propaganda with reality? Government interference in the market isn't socialism, it's regulation. It's not socialism when the government ensures that companies have to compete fairly amongst eachother, minimise environmental hazards, safety test pharmaceuticals or respect labour laws. Even anti-trust laws or price controls aren't socialist. They're collectivistic, because they look after the greater good, but so are charities, some churches and , ideally, the justice system. None of those are "socialist". Socialism (and only the statist variety, at that) is when government owns (part of) the means of production, and not even always in those cases, either. The US postal service isn't "socialist", it's a state-run public service. NASA isn't "socialist", it's a government agency funded with public funds.
- schwartzworld 6y agoBecause Americans have been propogandized their entire lives
- think814 6y agoThe subtitle starts like this: "Even the worst-run startup can beat competitors if investors prop it up." This is clearly written by someone that has little to no startup experience. As someone that has spent 15 years as a founder I can tell you that the opposite is true: I have seen startups racking in seemingly endless funding only to be beaten by much smaller / less well funded competitors that happened to have better strategy or execution. The examples are endless, more recently we heard about Quibi ($2B funding!) failing, Yik Yak, WeWork etc There are markets that are capital intensive, and others that are really commodity spaces where winner takes all (Uber comes to mind) but for the most part, the smartest VCs in the industry will tell you that you should worry about strategy and execution, not raising a ton of cash which creates a bunch of problems on its own.
- bhupy 6y agoChiming in, as a founding member of a venture backed startup, the idea that our success is guaranteed strictly because of the capital investment is honestly a bit insulting. If only that were true, I wouldn't have to worry about half of my compensation being worthless — a statistical likelihood.
- kordlessagain 6y ago> the idea that our success is guaranteed strictly because of the capital investment is honestly a bit insulting Nobody but you has that idea. The article is a story about other companies who have maybe shown indications that some can "run amok" with an influx of capital, at the expense of all other stakeholders, including the user. This article is not a story about you or the non-corporal entity you are birthing and even pretending for a minute that it is, is just silly.
- m0llusk 6y agoThis isn't about your success, it is about the failure of others. WeWork is dying a protracted death, but it did a huge amount of damage to coworking providers before it blew up. You seem to be arguing that disrupting markets is okay as long as failure eventually happens, but that dynamic causes a lot of suffering and waste.
- cryptica 6y agoIn some sectors of the economy, we haven't had capitalism for decades. The economy is highly artificial. It turned into a giant ponzi scheme and it constantly needs to use media to brainwash its participants in order to give legitimacy to fickleness. Fickleness and fragility is what you get when you have a system founded on an infinite debt bubble which keeps spreading itself thinner over time. People literally have to go insane to get by in this insane system. The industries which are closest to the money printers are incoherent and have nothing to do with capitalism.
- cryptica 6y agoThis article hits the nail on the head. The financial system is not working. Also there are VC-funded zombie companies everywhere. Just look at Snapchat or Uber. Never made a profit in a decade but they have ridiculously high market cap. What kind of investor puts their money into a business which has a decade long track record of losing money and no profits in sight? In a system which is notorious for incentivizing short term gains... It doesn't add up.
- cbozeman 6y agoBecause everyone wants another Amazon or Tesla. Amazon took 20 years (mas o menos) to turn a profit. Tesla took 15ish or so? A lot of people have clearly latched onto something Jeff Bezos said a long time ago in an interview, which was, "Get big fast." The whole goal with Uber is to utterly crush all competition until they're the only game in town. The only other explanation for Uber is that they're banking on self-driving cars and are hoovering up data from the app towards that goal. Uber only has one way to win, no matter what, beat every other taxi company. They either do that by running every other taxi out of business, or find their Holy Grail of self-driving taxis. Do investors have the stomach to fund Uber until either of those things happen, though?
- deleted 6y ago[deleted]
- thu2111 6y agoQE. All the low risk high quality debt is effectively cleared by governments in order to 'stimulate' the economy. Well, after enough years of pumping enough stimulus in, the economy starts to look like someone on a perma-high who can't come down. That's what we're seeing here: totally irrational behaviour caused by an apparently endless supply of free money. Track it back far enough and you end up at the central bank.
- dasudasu 6y agoNot sure why you would even mention publicly traded companies for your point. Now the actual stock market, comprised of millions of individual investors, is propping up those market capitalizations. The VC delivered them to their IPO, and the market accepted them, so clearly they did something right as far as they are concerned.
- kwertyoowiyop 6y agoWait, Nikola is blaming their problems on WeWork? LOL. Of course they would, but the author shouldn’t include a claim like that without some comment.
- tim333 6y agoOne of the long running problems in capitalism or indeed economics in general is the so called agency problem where in this case you entrust Benchmark as an agent to invest your money wisely but it can be in their interests to throw it around wildly as long as they can collect 2% on assets invested or similar. Not sure exactly what the solution is.
- thu2111 6y agoSurely the answer is to set management fees to zero and demand that investors are paid entirely from a percentage of the ROI. And maybe that ROI is defined as dividends ... although that part might be going too far (under this definition an early investment in Google would be a writeoff).
- timoth3y 6y agoThere is some truth to what the author writes, but it's not absolute. Softbank's Vision Fund basically exists to invest with that thesis. That an extremely well-funded and basically competent team will outlast all competitors and eventually own the market. Then they will have monopoly pricing power and become extremely profitable. It hasn't worked out that way for them. The article is no so much wrong as it is an oversimplification.
- nathanappere 6y agoI never understood why this would not apply to any investment, as it always distort the market.