VCs have great reputations.
They are thoughtful visionaries that bring disruptive technologies to the masses through their capital. They are wise oracles that guide inexperienced startups to glory. They are hyper-competent winners that bring immeasurable value to their investors.
This couldn't be further from reality.
VCs act like entitled aristocrats. They expect you to kiss their rings, defer to them, and treat them as demigods of business. What's worse, they believe their own hype.
The first venture capitalist I ever met was Bob. I was 23, working at a startup founded by my high school friend. We were sitting around his disorganized kitchen table in a cruddy apartment-slash-office in Cambridge, Massachusetts. Bob wore an expensive, custom-tailored, yellow suit, shiny alligator boots, and an honest-to-goodness man purse. His presence made as much sense as Vitalik Buterin at a bodybuilding competition.
Bob was a VC legend, and we wanted him to invest in our Series A. We sat there as he told us how he used to be a hippie, but discovered his true talent: investing. We politely listened as he told us stories of the companies he helped. We leaned in as he told us our strategy and widened our eyes as he told us about the music album he was working on. We made up for our modest circumstances with our attention - like girls feigning interest in a rich guy's humblebrags.
We desperately wanted to impress him. We wanted him to see us as a world-class investment, a jewel for his portfolio. He was the owner of a trendy nightclub and we put on our hoochie dresses to get in. We wanted access to his money, his network, his world.
The Party
This was the late 90s and the dotcom boom was in full swing. Meetings like this were common because VCs were pouring money into startups like a drunk guy buying beanie babies.
We were a hot company, not because we had a lot of sales, but because we had the right story.
My high school friend and founder of the company had graduated from Harvard. Of the eight employees, six had graduated from Harvard and one from Yale. I graduated from Michigan, making me the less attractive one that gets past the velvet rope because of the group I'm with.
A month after that awkward meeting in the kitchen, we closed our A round with investments from top-tier VCs, including Bob.
Access Game
VCs are monetary aristocrats. As ruthless and greedy as the banker in "It's A Wonderful Life," yet they dodge criticism because they own the bank. Founders need their money. Journalists need their stories. Politicians need their lobbying. Rich people, the guys buying bottle service, need access to startups. They enjoy a good reputation and everyone is afraid that their access will get cut off.
They're also blissfully unaware of their narcissism. They really think that throwing around some money at Burning Man makes them artists. They think that doing DMT and Ayahuasca makes them spiritual. They think having read Friedrich Nietzche once makes them philosophers. Everyone humors them because no one wants to piss them off.
Messing with monetary aristocrats is like puking in the VIP section. VCs talk to each other. You could easily be blackballed - they know the vomit smell will reduce demand for bottle service. Monetary aristocrats are the gatekeepers not just of money but of reputation. That's why it's so rare to hear any criticism of VCs. Their power comes from being in between the rich people and the startups.
Our startup got into their club but it wasn't all that it was cracked up to be. We worked 80-hour weeks, did too many speculative deals and went in way too many directions. The company was unhealthy spending too much money for too little revenue while hiring too many people. We were being treated like all their portfolio companies, like pigs that needed to be fattened up before going to market. VCs don't care if some pigs die since the obscene profits from the ones that survive more than make up for the ones that don't.
The VCs'greed is coming back to bite them. Jack Dorsey called them out on their scamming of retail investors. They were always using the public markets to exit, but now they're scamming retail investors with altcoins, ICOs, IEOs, DeFi, NFTs and Web3. These aren't businesses and tokens aren't equity. They're not even selling pork to the general public anymore, but some sort of industrial sludge masquerading as pork.
VC firms have had an amazing 25 years. The returns on many of their funds have been obscene and they've gotten used to the lifestyle. Venture capital, for many college graduates, is the new investment banking: a place to make a lot of money, doing less work. The problem is, monetary aristocrats have been the nightclub owners for so long that they're willing to do whatever it takes to continue getting their returns. Who cares if the public gets screwed?
An Alternative System
Monetary aristocrats exist because of fiat money. New money is created all the time and that money has to go somewhere. Much of it finds its way to wealthy people, who now need to deploy that money. After all, they don't want to keep it in cash since there will be even more money created shortly. The wealthy people deploy that money through investments, much of it going to VC funds. They have to go to the nightclubs if they want access.
The monetary aristocrats determine the winners and losers with their money. They outspend, rather than outcompete to win. This is as unsustainable as an aging supermodel's plastic surgery.
As fiat money loses its power, so will the monetary aristocrats. Bitcoin is the decentralized alternative that will turn the lights on in the club. We'll soon find out that there's a lot of ugly drunk companies embarrassing themselves. We're seeing it already. You paid how much for a database pointer to a drooling chimp jpeg?
"...Closing Time, you don't have to go home..."
Instead of going through the monetary aristocrats, startups can bootstrap with bitcoin and go to market directly. Why go to a dark nightclub where everything costs too much, when you can meet people on a normal date? Their competitors powered by VC money will get diminishing returns on their money as bitcoin price rises.
No more of this weird debauchery and fakeness of nightclubs. No more narcissistic monetary aristocrats.
I can't wait for the lights to come on.
- Kraken has integrated Bitcoin's Lightning Network.
- Customers can now deposit and withdraw up to 0.1 BTC with instant and cheap Lightning payments.
- Kraken is running an LND Lightning node.