VC isn't VC anymore

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

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.

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.

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.

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?"

  > 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.

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.

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, 90% 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.

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 surface good VCs without unfairly spotlighting 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 personal feuds.

After all, many disputes are legitimate and stem from 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 highlight 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 historical data, but good investors dislike boasting.

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

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

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!'

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

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.

Take a look at the bullet points. It's just scattered random conflicting complaints.

VC is small and is now big (okay...)

They're not even VC anymore, they're doing all sorts of other investments (okay and?) Oh and they don't really care about their returns, but they grow fast (what? I'm pretty sure VCs care about returns). You know what else grows fast? Cancer!

Now that they're large, they have power over founders (why? there's other sources of capital). And they use companies to push their politics (seems much more complicated than just paying lobbyists).

And did you know pension funds invest in this stuff?(which is bad?)

There's an argument against large VC, but this ain't it. Talk about misaligned incentives, how they push aggressive tactics without regard to the founders, who may not be indifferent between a 50% chance of building a company to $10m to a 1% chance of building a company to $1b

Or just say "I don't like the politics of [VC related person]" and save everyone time.

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