So I may be a fucking idiot, but can anyone tell me how VC now is not just a bunch of highly pedigreed fuckwits living off the capital of their LPs while running around playing hot potato with the latest shit investment they’ve rationalized, so that eventually they can dump the steaming pile of shit companies onto the public to gtfo? These firms are literally running around with a fucking deal shotgun doing 7-10 deals a quarter looking for a god damn unicorn; companies that have no business existing are getting funded and for multiple rounds too. It is literally like buying high-end art, where you don’t care how much it is, someone will always be willing to pay more, thus giving the piece value.
Like say you did the series A for a company and are kind of worried because even after all the bullshit analysis you did saying that this company was great, it’s still cash flow negative and shows no signs of turning around, but this is totally fine! Your friend, pedigreed fuckwit #2 at “insert tree species name” Capital, has decided this is also a good investment and will do the series B at a higher valuation than series A! So, on paper you’re good! Your firm is now making money, your LPs are making money, and you’re making money! And if worst comes to worst, you can just wait for pedigreed fuckwit #3 to do the series C which will make you EVEN MORE MONEY!! And if all else fails, you can just hype up the company and go public to dump this shit sandwich on some non-target hardos that get their investment advice from Reddit.
pumping SPACs instead seemed the morally sound thing to do!
Chamath is a fool, a phony. He claims his net worth is $15 billion. Gimme me a fucking break.
This guy's platform exploded in 2017 just around the bitcoin boom. He also had momentum from buying the Warriors
But recently he's positioned himself as a man of the people and democratizing the markets (see the recent GME debacle).
I doubt it's genuine but its in vogue for these wealthy folks to basically pretend on the side of the "little guy"
edit I just saw his Bloomberg interview this guy's completely fallen in love with himself and wears a turtleneck to seem like an intellectual
edit 2: In fairness, prior to these PR campaigns, Chamath has been critical of the capital allocation in his own asset class that more or less confirm the OP's point about the hot-potato game
I refuse to listen to a podcast where grown men refer to themselves as "besties". Someone who has seen it, please tell me – are they wearing pajama onesies? Does Chamath's beard wife interrupt the stream and breastfeed him? Guy is dollar for dollar the most insecure douchebag out there.
Dude has gone full social media influencer between the podcast and other shit, it's embarrassing to watch. I am immediately skeptical of anyone who pretends to be changing the world with fucking SPACs lmao.
There's a whole cult of personality around this guy like he's a youtuber, but his merch is these shitty overvalued SPACs...Hindenburg and Hedgeye did some great work last week on what a turd CLOV is.
Step 1: invest in every single company not run by developmentally delayed marmosets.
Step 2: the hot potato game detailed in the OP
Step 3: look like a genius when you 'invested early in Facebook' when the fact is you invested early in everything and have the same 1-3% hit rate as all the other VCs
Step 4: work hard with all your pedigreed fuckwit friends to obfuscate the fact that not a single VC firm is any better at picking winners than another
There's a positive feedback loop that comes with receiving an investment from the top VCs, accelerators, or corporate VCs - once Benchmark, Sequoia, Y Combinator, or Google Ventures have given a startup their stamp of approval it immediately grants them legitimacy with media, customers, new investors, etc. These firms tend to have amazing returns, partially because they invest in good ideas (and have the connections to get in early with promising teams) but also (I'd argue largely) because their cachet actually creates scale in these companies. Obviously not every time, but often enough (and they cast a wide enough net) that the fund-wide returns look stellar.
There's a huge dispersion of VC returns - everyone else sees what these guys are doing and wants to invest in money pits because Sequoia can do it and occasionally turn a 50x or more, so lesser VCs throw money around at massive valuations hoping to do the same. I think there's a lot of value in someone being willing to take the risk and finance long-term disruptive concepts, but there's also a much larger delta between Tier 1 and Tier 3 VC funds than there is between Tier 1 and Tier 3 PE funds, and I don't think enough people appreciate the self-perpetuating nature of that dynamic.
Clubhouse and Andressen Horowitz is a good example of this. It became successful and will probably get acquired for $5B not because it was a particularly novel or good idea, or the first of its kind to market but because a16z people valued it at $100M in series A, which ascribes value to it. There's no way in hell it would’ve been successful without a16z hyping it up and juicing it, but they probably have a 50x on their hands within a year or two because they did. Pretty freaking smart by all parties involved honestly. But that’s the way of the world - we value name brands and elite sponsorships. Rich dumbfuck gets into Harvard based on family connections, now he’s a Harvard graduate, which ascribes to him a certain value in the minds of many, not because he’s actually particularly smart, but because he’s a Harvard graduate. He’s no better than any other dumbfuck out there, but because he has the Harvard stamp and Harvard resources he has access to certain levels and circles that others would not. YC and Sequoia and a16z are name brands which work in the same way, simply having their name brands will juice their portfolio companies into success.
"tree species capital" LOL
for real though why the fuck is every other firm named after foliage, bodies of water or masses of rock? who's idea was this lol
Yup, if you set things up correctly you can almost guarantee liquidity for yourself during a subsequent round. Don't want to give away too much here but obviously a shorter hold period makes this a lot less risky than a typical venture deal.
Example of a deal we did recently:
Invested @ $11M or $12M valuation
Currently tagged @ $40M+
Will sell in a few months once a few tax benefits kick in at $35M - $50M valuation.
Don't care much about selling at the top. Only quick liquidity so we can redeploy as fast as possible. Unfortunately a lot of my time has been eaten up with a control deal I'm running right now but might hire someone to run with this in the next few months.
I think it's important not to buy into caricatures/extreme characterizations of anything, entire industries in particular. It's hilarious to see folks like the OP try and square things into their narrow world view and get mad when things don't compute.
Outsiders think PE = boring bankers and value investors who put numbers into excel and wouldn't understand technology/new ways of thinking if it hit them over the head. Is that a fair characterization, or is it exaggerated?
There's some good discussion here that I'd maybe add some framing to.
a) Different assets serve different purposes in a portfolio
b) Median VC underperformance is a feature, not a bug of the asset class: why are the best endowments and asset managers overweighted in venture? Even a 60-70th percentile VC firm with the potential to 3-5x a fund can be a better risk-adjusted return than alternatives. Yale's CIO literally wrote the book on managing PE/VC portfolios and his disciplies have consisntently outperformed due to their inclination towards venture.
c) The meme of "all VCs beside the top-tier firms suck" is taken to an insane extreme. Outside of poor business cycle/timing, most half-decent VC firms generate 1.75x MOIC and 12% IRR+. There are a ton of seed-stage firms who are included in these analyses but are casual observers who manage family money who want to say they are a VC. I think if you cullled this tier you'd have a very diffeerent data set on the asset class. As opposed to PE, there are many more of these because check/fund sizes can be smaller and barrier to entry is lower as well. I'm not saying it would get rid of the insane performance skew or even median underperformance relative to PE, but the risk-adjusted return profile would be much clearer.
d) VC is largely public/a media show because the skewed nature of the asset class (losses don't matter as much as how big are your wins?) encourages public parading of investments and faux thought leadership. The reason it's so weird to folks is because other industries tend not to attract the same profiles of investors nor have the same incentive structure or media coverage.
e) Re: Chamath - If you follow the breadcrumbs back enough you'll get a sense for what he can be like to work with and what he's about.
f) The points on name branding helping companies and leading to a hype cycle here is true, but that can be both good or bad.
Lastly, the fact that a discussion on this largely turned into a forum on a tech investor who is regularly CNBC/Squawkbox but had his last firm filled with talented investors depart, basically proves my point that folks like the OP basically just want to take broad media charecterizations of whatever the fuck they don't understand so they can dismiss it.
How do this many people in banking not understand how private markets work
Can we get a VC section of WSO... It's time to bring this to the west coast
I believe it did exist but has since been acquired by the PE tab.
This is all funny, but I think you guys just make fun of VC because you have no fucking clue about it.
Without VCs taking these 'dumb risks', we would not have internet as we know it. We would not have biotech innovations, social media, online news, clean energy. You name it.
Venture capitalists are THE people in finance, who drive innovation and spot groundbreaking ideas providing capital and network, when boomers just sit back and invest in another real estate.
Is VC a stupid game sometimes, with valuations reaching insane amounts and water startups getting $50M checks? Sure. But that doesn't change the underlying narrative.
Good VCs are one of the smartest people in business and anyone saying this is 'dumb money' is fucking retarded.