Article: VC is deforming capitalism. #dumpsterfire

Sharing a fascinating article.  How Venture Capitalists Are Deforming Capitalism.  

It's a scathing rebuke of the VC industry and business model, and a great war story of the failure relative to WeWork as an example of this.  It compares VC as "an injection of cocaine into the bloodstream of bad companies".  Also critical of IB as a vehicle for selling bad companies to the public and fueling the mania.  

Lots of insights.

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Comments (20)

Funniest
Dec 5, 2020 - 9:58pm

"V.C.s seem like these quiet, boring guys who are good at math, encourage you to dream big, and have private planes. You know who else is quiet, good at math, and has private planes? Drug cartels."

My favorite part of the article, I never thought about how much Bruce Dunlevie and El Chapo have in common until now. 

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  • 3
  • 1
Dec 5, 2020 - 10:19pm

while that argument is correct, that's a false dichotomy of "you have X, Y also had x, therefore Y and you are same, obythewayyoumust=amonsterdrugdealerteheee". For the NewYorker I'm not surprised.

I don't have a private plane and I wouldn't say I'm boring. fucking tards in VC cause this, not educated folks

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Dec 5, 2020 - 10:52pm

Not a scathing rebuke of our industry by any means. WeWork was a bad business, sure (although maybe a fine business, just not at its silly valuation). But if you have to revert to a massive outlier to make your case that VC is a perverted industry, you don't have a very good case. Not to mention that SBVF is generally viewed as a poor fund by most of the top investors in VC

Dec 6, 2020 - 5:18am

Fair assessment. You're right on both counts. SoftBank seems to enjoy lighting piles of cash on fire. And wework was a horrific and egregious example of mismanagement. Still though I find myself gravitating to the concept that VC has somewhat devolved into a clubby, low value adding exercise. The entrepreneurs create the value, and at best VC deploys intelligently. But in some cases VC does distort and help pour lighter fluid on misvalued businesses. I think there were very poignant comments on how valuations and exuberance for tech has run amok. Yes weeork was king of the dung heap for ridiculously overvalued poor businesses, but it is not the only turd in the heap. VC returns have historically been poor when compared to other investment areas, unless you're in a top decile firm.

Most Helpful
  • Analyst 1 in IB-M&A
Dec 7, 2020 - 3:35am

Worked in Corp Dev for a major PE-backed Silicon Valley company for a bit before IB. Got really close with many execs and got a pretty good understanding of the VC and tech cultures. Also grew up in the bay area right next to the VCs so was surrounded by that my whole life. 

There's a ton of insecurity and ego in this area from both VCs and tech companies. The people weren't necessarily nerdy but they definitely weren't the kind of guys that would get someone's panties wet. There's very much a desire to prove yourself and I often feel like it's a dick measuring contest. For example, VCs and Tech firms alike seem to lack simple business acumen on how to deal with competition. Rather than thinking tactically, they do whatever they can to prove they are the best, clouding judgement. This, in my opinion, is why we see such inflated multiples. For example, just take a look at the Salesforce-Slack deal. 26x Rev for a company that still isn't generating cash? Sure there could be some synergies but in the essence of it, this is a purely defensive play. Marc Benioff and the Salesforce team acted in pure fear of Microsoft's growing Teams business. Benioff just wanted to one-up MSFT and literally paid 27 bil for a company that doesn't have anything to do with either Salesforce's or Microsoft's competition. 

VC's also just want to one-up each other. There's pride in VC when they invest in a "high-growth" business that has a brand name. On the flip-side it's almost looked down upon when you invest in a business with stable cash flows and still decent growth. I don't see them investing in the genius of innovation, sustainable products, and things that help our community. They invest in things with buzz words and things that their competitors are vying for as well. Now when there is an excess supply of VC money, the price often drops for the founders. They often sit on much more cash than they are worth/need to operate. I remember at a dinner a founder telling me "VC money grows on trees for us" with the most arrogant smirk I've ever seen. We ended up passing on the deal after seeing no product value in them. I wish I could have seen the founder/VC's face when we passed because the email I received after we passed was quite interesting. That being said, the seed founders who invest on ideas, are fucking ballers. They care about innovation and product, not about the clout. Those guys deserve props.

As a kid from the valley, I grew up admiring the innovation and genius of those such as Steve Jobs, Bill Gates, the HP boys. Sadly, it seems to me that this era is long gone. The genius has been replaced with a massive cloud of insecurity. Nobody is here to innovate to make the world a better place, they're here to get an exit to fuel their already inflated egos. 

Dec 6, 2020 - 12:52am

He's an extraordinary investor. I'm young and new, but if I have a career even remotely similar to his it would mean I was hugely successful. 
 

If his tech-focused SPAC's have good outcomes as publicly traded companies over the next decade, he could go down as one of the greats 

  • Analyst 3+ in IB - Ind
Dec 6, 2020 - 10:30am

While I agree that VCs, like other stewards of capital, succumb to group think, I like to see these guys throw money around. I just wish they got more bagels here and there. Seems like they've lost their balls and refuse to step up to these egomaniac founders

Dec 6, 2020 - 9:03pm

The reality is that separating the good crazy founders from the bad crazy founders is really hard. It pays to be founder friendly in the long run - the things that make some founders conventionally crazy are the same things that make them awesome company builders in the early and growth stages. Founder-friendly funds tend to do well, because founders choose them, knowing that the investors won't try to push them out 

Dec 7, 2020 - 12:13am

One thing that seems off in the new VC model / new sectors is the development of an winner take all driven by cash situations where its not necessarily the best companies/management win rather those that get the most money. If anything the buying of sectors for lack of better terms leads to less creativity and competition and thus worse businesses. 

Also, to an extent its a giant ponzi scheme where the VCs are moving money from earlier investments to later ones - i.e. the magnitude of VC dollars that goes to marketing/customer acquisition ie facebook and the like revenue stream is pretty wild. 

This isn't to say there isn't value in VCs but there are costs/drawbacks too that aren't really addressed all that much. 

  • Analyst 2 in IB - Ind
Dec 7, 2020 - 3:35am

Bubble - Burst - Bubble - Burst 

Nothing new. 

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