VC isn't VC anymore

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.

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.

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.

[1]: https://news.ycombinator.com/item?id=49416055

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

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 ?

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.

  > 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.

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.

We need an equivalent of the "Fiduciary" word for financial advisors ... but applied to VCs.

"Are you an Artisanal, Free-Range, Fair-Trade™ VC?"

- 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.

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.

What is it that Anil Dash thought the purpose of these firms was?

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.

- 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

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.

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.

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-...

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

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

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.

Lots of VCs out there still taking big gambles on the agendaless and unproven ideas.

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!'

I thought a cancer grew from a defective cell that is able to divide and grow to over take the healthy ones.

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.