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>This makes me ask an even more fundamental question: is the structure and business model of most VC firms today unfit for solving complex problems sustainably

>This makes me ask an even more fundamental question: is the structure and business model of most VC firms today unfit for solving complex problems sustainably and long-term? Was it ever actually fit for that? The VC economy basically always served one type of company, consumer-focused "lifestyle" or service 'technologies', and nowadays a lot of the institutions like a16z just appear to turn into straight up media outlets. VC success in the industrial sector, biotech, military or scientific applications has always been muted compared to the kind of money that flows into the leisure/consumer/entertainment economy. If you want to solve complex problems bet on Darpa or academia or bring back the corporate research lab whose demise is one of the real big problems today.

omegalulw 5y ago
Your point is missing a key idea: consumer/lifestyle technologies are highly profitable, with a much faster ROI.
- leroman 5y ago
  There's an implicit assumption you are making where your "Return On Investment" measures $$$ and what I believe the article is trying to say is that is exactly the problem and you should be measuring something else
  - cbnotfromthere 5y ago
    " "Return On Investment" measures $$$" What else should measure???
deleted 5y ago
[deleted]
MattGaiser 5y ago
How much of this is just because for something to be big, it needs to be fairly universally used? I can't imagine any kind of irrigation company every being larger than Uber for example.
- blacktriangle 5y ago
  Exactly. VCs are not picking winners, they're playing a numbers game. For that strategy to work, your winners need to be massive.
- itronitron 5y ago
  Is RainBird not larger than Uber?
tofuahdude 5y ago
> nowadays a lot of the institutions like a16z just appear to turn into straight up media outlets Just noting that they're only media outlets insofar as it helps support their primary business model. The media play is to push brand recognition, influence the startup scene in a way beneficial to VCs, influence politics, etc.
- potatolicious 5y ago
  > they're only media outlets insofar as it helps support their primary business model. Sure, but isn't that the objectionable part? The core conceit of capitalism is free competition and that multiple participants on a level playing field optimizes outcomes (in the form of greater overall wealth, better products, etc.). Investors are needed for liquidity, but if some investors gain enough market power that they can change the outcome of businesses that seems deeply suboptimal and runs counter to the core conceit of capitalism. On the extreme end this would include flooding the field with so much money as to effectively wipe out competitors - including ones with superior technology/product. On the milder end it would include crowding out the marketability of less well-backed competitors by using media clout. Both seem like things very large VC firms do on the regular (though to be fair, not at all unique to a16z).
  - tofuahdude 5y ago
    Just a quick clarification that my comment was only pointing out that a16z isn't a media outlet in the journalistic sense, nor in that the media outlet is the product itself. Their media content is just marketing manipulation. But I'm still interested in addressing your point: > if some investors gain enough market power that they can change the outcome of businesses that seems deeply suboptimal and runs counter to the core conceit of capitalism If a VC's media channel becomes powerful enough (ie monopolistic enough) to decide winners w/o the opportunity for competition, then sure. Though this would require substantially more power consolidation than there is currently. There's enough Tier 1 VC's and of those, the media outlets they operate are certainly not monopolistic enough as to change the business outcome in an unfair way, as currently defined by law wrt monopolistic practices. If you mean more like "if some investors gain enough market power that they can change the outcome of businesses because they invested so much money", then I still think the same point is true - there's enough capital in diverse enough hands. The most ready example being ride share; there's plenty of them.
nbs_tar 5y ago
+1. the author's quote (and statements like it) seem to have this underlying unspoken assumption that VCs are the sole vehicle through which new ideas become businesses. that always bothers me. VCs are a small asset class that chases returns and are not the vehicle through which all global innovation should occur. if that's the reality today, then it's more of a policy problem. institutional LPs have fiduciary responsibility to returns, not a mandate to solve long term difficult problems in industries the VCs they are paying don't understand.
- hoops8 5y ago
  Good luck changing policy as VCs and anyone else with skin the hype bubble game, collude to prevent it.
querez 5y ago
> If you want to solve complex problems bet on Darpa or academia or bring back the corporate research lab whose demise is one of the real big problems today. Isn't that what FAIR, Deepmind, and Google Research are for? (mostly AI focused, though the latter also dabbles with Quantum Computing and tons of other stuff)
- Barrin92 5y ago
  I would agree but the I think the list is pretty short. Honeywell deserves a mention as well. But I don't think there is anything with the impact of Bell Labs today or even close. Given the resources that these companies have there should be a dozen research labs with genuine scientific freedom. If you look at the way people describe the atmosphere at Bell Labs it's hard to find something like it today.
nradov 5y ago
There's a whole separate universe of biotech VCs. But it doesn't get discussed on HN much.
- FranksTV 5y ago
  Yeah this is a big of a survivorship bias thing. People only know about B2C focused VCS because they make themselves known. I'd say the vast majority of VC money is "dark" money. Investors who fund military technology don't spend a lot of time on PR.
hiddencache 5y ago
There are some longer-term deep tech investors out there, or the strategic investors like corporate venture cap...
bsder 5y ago
> Was it ever actually fit for that? The VC economy basically always served one type of company, consumer-focused "lifestyle" or service 'technologies' You're too young. Old VC's funded a lot of hardware (networking, graphics card and microprocessor) companies, for example. This, of course, tied a up massive amount of capital and took 7-10 years to reach a liquidity event. And had a bunch of grouchy people called "engineers" who would tell you to fuck off or leave your company if you treated them too badly. Then the web took off. It was in the the DotBomb and the aftermath that VCs became useless lottery players who want to spend nothing, take all your equity and have their companies be unicorns in 18 months or die trying.
- greenyoda 5y ago
  > Old VC's funded a lot of hardware (networking, graphics card and microprocessor) companies, for example. Yeah, venture capitalists were already funding companies like this in Silicon Valley (hence its name) a half a century ago, long before the days of the consumer internet: https://en.wikipedia.org/wiki/Silicon_Valley#Venture_capital https://en.wikipedia.org/wiki/Silicon_Valley#Venture_capital Back in 1968, VCs were funding Intel. And Intel IPO'ed only two years after being founded, so investors weren't pouring money into it for very long. Source: https://en.wikipedia.org/wiki/Intel#Origins https://en.wikipedia.org/wiki/Intel#Origins

omegalulw 5y ago

Your point is missing a key idea: consumer/lifestyle technologies are highly profitable, with a much faster ROI.

leroman 5y ago
There's an implicit assumption you are making where your "Return On Investment" measures $$$ and what I believe the article is trying to say is that is exactly the problem and you should be measuring something else
- cbnotfromthere 5y ago
  " "Return On Investment" measures $$$" What else should measure???

deleted 5y ago

[deleted]

MattGaiser 5y ago

How much of this is just because for something to be big, it needs to be fairly universally used? I can't imagine any kind of irrigation company every being larger than Uber for example.

blacktriangle 5y ago
Exactly. VCs are not picking winners, they're playing a numbers game. For that strategy to work, your winners need to be massive.
itronitron 5y ago
Is RainBird not larger than Uber?

tofuahdude 5y ago

> nowadays a lot of the institutions like a16z just appear to turn into straight up media outlets Just noting that they're only media outlets insofar as it helps support their primary business model. The media play is to push brand recognition, influence the startup scene in a way beneficial to VCs, influence politics, etc.

potatolicious 5y ago
> they're only media outlets insofar as it helps support their primary business model. Sure, but isn't that the objectionable part? The core conceit of capitalism is free competition and that multiple participants on a level playing field optimizes outcomes (in the form of greater overall wealth, better products, etc.). Investors are needed for liquidity, but if some investors gain enough market power that they can change the outcome of businesses that seems deeply suboptimal and runs counter to the core conceit of capitalism. On the extreme end this would include flooding the field with so much money as to effectively wipe out competitors - including ones with superior technology/product. On the milder end it would include crowding out the marketability of less well-backed competitors by using media clout. Both seem like things very large VC firms do on the regular (though to be fair, not at all unique to a16z).
- tofuahdude 5y ago
  Just a quick clarification that my comment was only pointing out that a16z isn't a media outlet in the journalistic sense, nor in that the media outlet is the product itself. Their media content is just marketing manipulation. But I'm still interested in addressing your point: > if some investors gain enough market power that they can change the outcome of businesses that seems deeply suboptimal and runs counter to the core conceit of capitalism If a VC's media channel becomes powerful enough (ie monopolistic enough) to decide winners w/o the opportunity for competition, then sure. Though this would require substantially more power consolidation than there is currently. There's enough Tier 1 VC's and of those, the media outlets they operate are certainly not monopolistic enough as to change the business outcome in an unfair way, as currently defined by law wrt monopolistic practices. If you mean more like "if some investors gain enough market power that they can change the outcome of businesses because they invested so much money", then I still think the same point is true - there's enough capital in diverse enough hands. The most ready example being ride share; there's plenty of them.

nbs_tar 5y ago

+1. the author's quote (and statements like it) seem to have this underlying unspoken assumption that VCs are the sole vehicle through which new ideas become businesses. that always bothers me. VCs are a small asset class that chases returns and are not the vehicle through which all global innovation should occur. if that's the reality today, then it's more of a policy problem. institutional LPs have fiduciary responsibility to returns, not a mandate to solve long term difficult problems in industries the VCs they are paying don't understand.

hoops8 5y ago
Good luck changing policy as VCs and anyone else with skin the hype bubble game, collude to prevent it.

querez 5y ago

> If you want to solve complex problems bet on Darpa or academia or bring back the corporate research lab whose demise is one of the real big problems today. Isn't that what FAIR, Deepmind, and Google Research are for? (mostly AI focused, though the latter also dabbles with Quantum Computing and tons of other stuff)

Barrin92 5y ago
I would agree but the I think the list is pretty short. Honeywell deserves a mention as well. But I don't think there is anything with the impact of Bell Labs today or even close. Given the resources that these companies have there should be a dozen research labs with genuine scientific freedom. If you look at the way people describe the atmosphere at Bell Labs it's hard to find something like it today.

nradov 5y ago

There's a whole separate universe of biotech VCs. But it doesn't get discussed on HN much.

FranksTV 5y ago
Yeah this is a big of a survivorship bias thing. People only know about B2C focused VCS because they make themselves known. I'd say the vast majority of VC money is "dark" money. Investors who fund military technology don't spend a lot of time on PR.

hiddencache 5y ago

There are some longer-term deep tech investors out there, or the strategic investors like corporate venture cap...

bsder 5y ago

> Was it ever actually fit for that? The VC economy basically always served one type of company, consumer-focused "lifestyle" or service 'technologies' You're too young. Old VC's funded a lot of hardware (networking, graphics card and microprocessor) companies, for example. This, of course, tied a up massive amount of capital and took 7-10 years to reach a liquidity event. And had a bunch of grouchy people called "engineers" who would tell you to fuck off or leave your company if you treated them too badly. Then the web took off. It was in the the DotBomb and the aftermath that VCs became useless lottery players who want to spend nothing, take all your equity and have their companies be unicorns in 18 months or die trying.

greenyoda 5y ago
> Old VC's funded a lot of hardware (networking, graphics card and microprocessor) companies, for example. Yeah, venture capitalists were already funding companies like this in Silicon Valley (hence its name) a half a century ago, long before the days of the consumer internet: https://en.wikipedia.org/wiki/Silicon_Valley#Venture_capital https://en.wikipedia.org/wiki/Silicon_Valley#Venture_capital Back in 1968, VCs were funding Intel. And Intel IPO'ed only two years after being founded, so investors weren't pouring money into it for very long. Source: https://en.wikipedia.org/wiki/Intel#Origins https://en.wikipedia.org/wiki/Intel#Origins