The venture capitalist's dilemma
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This seems to be the telling quote - and is to me the point.
We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look like - but we'll figure it out.
Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done.
If the control that already existed produced anything other than total dysfunction, things. never would have gotten to a point where half the spend isn't covered - there would be no reason for it to occur.
Your answer is to force it to happen anyway. Im sure that will end well
But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This is usually not a problem with a company that makes a product or renders a service, but it can be problematic for e.g. nation states. I don't think the solution is for a wealthy few to bludgeon the dissenters into compliance but rather split the democracy up into smaller parts, that interface with negotiations and valuable exchange.
I think at best you would end up with a much much smaller population that is an easier problem anyway (ie we can already solve it now), or we kill ourselves off before we learn. I agree with your last sentence entirely, but it's funny to frame it as a wealthy few bludgeoning others. One reason we are in the current situation is because the wealthy pay for the majority of expenses but everyone keeps trying to get them to not have more say in what gets done with their money. Whether it's a good idea to do this or not, human nature doesn't work like this, and they want say commensurate with what they contribute. It's very easy for both "sides" to villify each other and they do.
That is at least one thing you have to claim would get fixed in your first paragraph and I don't buy it you could get it to happen.
Since the wealth part really triggers people imagine you are just a random small business owner, and one day people come in and are like "hey we know you put in 60% of the effort and work and money in your business but we're going to have these 50 other people who put in less than 1% each also have equal say to you in the business choices"
Humans don't really accept that, and if you want direct democracy to work out they would have to be able to.
In fact it's the opposite, most people really get off on being able to feel superior to others in various ways, whether money or status or power or whatever.
That is great to change but ain't gonna happen fast
You concentrate on your balance without a safety net.
Personally I think the big advantage America has is they vote for everything - sheriffs, mayors, dog catchers and presidents. It matters, because it happens a lot. Is it perfect. Hell no. But we get good at what we do most often.
Like all systems, it is better to have more systems than scale single systems to work well from size 0 to infinity
It won't work. We already have enough politics and corporate games at work. Are you advocating for more of that?
It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market regulation, progressive taxes, they are all forms of limiting the accumulation of capital and power.
And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well.
It's nothing short of amazing that it works, really, we are privileged to live in a society where the powerful are so limited in what they can do with their power. We can still fine tune & tax more, of course.
The main objection in this post is that certain members of our society seem to view those developments as “old fashioned” and unnecessary, and would like to roll them back. Some go so far as to advocate for and donate considerable wealth to politicians who promise to do so. But of course when those people are themselves exposed to the exact risks those systems were designed to protect against — suddenly they’re enthusiastically in favor of government protection.
The lesson here is that you should not look at our society and take it for granted. It took work to get us here, and it takes constant work to keep it in place. There are people who would throw it away for a momentary profit, and those people will tell you their beliefs are founded in principle. But for your own protection, you should pay attention to how seriously they take those principles when their money is on the line, and update your mental model accordingly. In this case the answer is: they do not take those principles very seriously at all.
> I would probably argue that venture capitalists are not good for society regardless of what they’re investing in. ... I am feeling particularly secure in my opinion on the investor class after the shitshow we just witnessed ... > People are realizing that despite the hundreds of billions of dollars being deployed each year by venture capital firms in pursuit of “innovation”, the world doesn’t really feel hundreds of billions of dollars better off for it.
The sentiment here is clear, and has nothing to do with rolling back old-fashion regulations. Rather, it's a pure and unadulterated call against investor freedom and profit driven innovation. It's, dare I say it?, a call for economic Stalinism: stripping the "investor class" of their power to direct economic activity, investment and innovation. The author is silent about the implications of those ideas, but let's just say the historic record is not excellent.
This is what I reacted to, and I'm telling the author to chill, go a little easier on that thick ideological slurpee, perhaps read a little more and come back when they come to appreciate the finer nuances of how society really works.
This is naive to the point of absurdity, when the rich and powerful quite often are gifted loopholes for the profits to not be taxable, with a wink and a nudge from the "democratically elected public authority".
I would certainly love to live in your illusion that "we are privileged to live in a society where the powerful are so limited in what they can do with their power" when they are constantly bailed out from their mistakes and get literal "get out of jail free cards" from their misdeeds. Things that would get you in prison get them a slap on the wrist at most.
This is not how I read OP. You’re reading a Panglossian “we’re in the best of all worlds.” I read we’ve found a good solution, but it’s a work in progress.
Democracy alone has evolved through the centuries, ranging from electoral fetishism to enlightened autocracy. Progressive taxation, meanwhile, is a mostly modern invention. Yes, it’s easier to take a cheap shot at how the rich are powerful, but that’s OP’s other point, the rich are always powerful. How they are incentivised to use that power, and how they accumulate it, is a much more productive (and intellectually challenging) discussion than pointing out we aren’t in a utopia. (We know that. Everyone knows that.)
And I disagree that democracy will ever be improved, at least not with humans at the helm.
Again, this is an easy and thoughtless take without a proposed alternative. (Benevolent AI is just benevolent dictatorship with a veneer.)
It's also gratingly at odds with very modern history. History that, granted, is not part of our public education corpus.
A benevolent AI would not work as humans will be the ones to define the constraints under with the benevolent AI operates. Make no mistake, the ruling class will define constraints that will give them more power.
My remark about "humans at the helm" may have given you the false impression that I am optimistic about technology solving our societal woes. I apologize for that. I state that there's no eucatastrophe to save us from ourselves. My remark was intended as a sardonic statement that while there are humans, nothing will ever be improved. These problems are as old as humanity, and will only cease being problems when humanity ceases to exist.
Also it's pretty easy to list actual small tweaks. Does that count as improving democracy itself?
Education works, even if its "efficacy" is pretty low.
Simple solutions aren't the same as easy ones.
Education absolutely does work wonders on social and economic fronts, but it is unevenly distributed and the administration of it is easily subverted.
Applies to the democracy + capitalism combination, as well.
We can try to improve upon it, but should be carefull to not kill the goose that lays the golden eggs.
Humans are tribal above all else. We evolved to cooperate on small bands hunting animals in some African savannah, not to cooperate in large scale as the world we create requires. Any government system we come up with will become dysfunctional because we are unfit for the world we created.
My point still stands. The ruling class is as powerful as they always were, and operate on rules designed by them, so that they can better oppress the lower classes. And I don't advocate that a different system would be any different. There will always be a ruling class.
Those loopholes aren't free and their nature is typically temporary. One example would be tax cuts in exchange for committing to provide N jobs.
They exist only for long enough time until the next loophole is put in place.
> One example would be tax cuts in exchange for committing to provide N jobs.
Gotta love this one. Trickle down economics at its best. "Thanks for going through the trouble of getting richer by expanding your business. Here's some extra tax exemptions for your sacrifice. The silly peasants will pay taxes in your stead".
Does this ever work? That is does it work better than not giving tax cuts in the long run.
Committing costs very little, especially if the tax advantages are not clawed back if the jobs fail to materialise. How does one really measure the number of jobs created by the tax cut versus those that might well have been created even if there were no tax cut.
I think the conclusion I'm coming to, at least for now, is that while that is in fact the system that we owe much of our current wealth to, it is not necessarily the system we currently live under. Yet we do have a society that likes to pretend it is still the system.
I would disagree emphatically with this statement. Prior to the advent of capitalism (200 years ago) there was significantly more long term vs short term thinking in society.
We as a people and culture often engaged in massive generation spanning projects where the people who would see and benefit from the results could be generations in the future and the people who started the project would be long dead before it was finished. How much of this do we see today? The ROI cycle now is what a quarter, a few years...
While I don't disagree that power tends to accumulate and is seldom given away, the focus wasn't solely on the acquisition and hoarding of capital. You can see the change in architecture, city design, the arts, and almost every aspect of life. Even simple utilitarian structures were often built as monuments of progress expected to serve generations. We can't even expand existing highways to meet demand.
There always were and always will be the selfish in society but society as a whole wasn't always this selfish.
In every other attempt at forming different societies (from feudalism to capitalism) it's generally the ones good at power games that win, not the ones with the actual best abilites.
It is said of Stalin he was the best power game player ever born, he was equalled by no one in power accumulation games.
The possible exception to this is small tribes, where it was usually the people who added the most to a tribe that got power (if you were a power game player two friends could basically topple you).
But we're not going back to tribal life, so there we go. Capitalism is still the best of all the bad systems we have.
I believe that the character and soul of a society is how well they give less privileged people at least a chance to earn shelter and food. I was less extreme in my views before I started volunteering at a local food bank and got to know people whose lives collapsed because of one bad family illness, etc.
Like, once you know the Founders Fund companies are rushing to pull their cash, yeah you should maybe start thinking about getting out too, before you’re the only uninsured depositor left.
Imagine the results of an email sent to everyone in Silicon Valley:
—
“So the local bank screwed up and can’t cover all its deposits. But let’s get together to see if we can all agree to wait this out as a disciplined block of customers.
How is Thursday for everyone?
(It’s very important that we all cooperate. So if I don’t hear from any of you in the next 20 minutes, I reserve my own right to start withdrawals.)”
—
That’s not going to work!
The bank will be toast before half the recipients get their email.
This has absolutely nothing to do with an “investor class”.
And everything to do with bad bank risk management and timely contingency planning.
Do more wealthy VCs and firms have more tooling available to be able to properly vet their capital storage houses before deciding to reside there? Sure. But unless we decide that banks should be public facilities with the aim of strictly housing money, I’m not sure any amount of vetting could actually guarantee a depositor’s safety at a bank. And I just don’t think it should be your fault if your bank’s investment branch are nincompoops. You have no control over that, and certainly no degree of control from a quarter to quarter standpoint where the personnel of your bank might shift and change far past your vetting.
So would I have lost sleep if VCs lost their deposits? No. But am I glad they were made whole, even if I think they shouldn’t have that much money in the first place? Yes.
And SVB was a shady bank, hence why it had begun to run out of funds before the VCs started losing their minds on Twitter, and also because there are many stories of them (SVB) opening up accounts and giving lines of credit much more freely compared to an established bank or even to a more cautious "mom-and-pop" bank.
You can prevent the bank runs and massive economic booms/busts by simply prohibiting banks from monetising deposits. We wont do this because it will collapse the nation-state as we know it.
Banks and the government have an agreement where banks operate as if deposits are stable in order to buy long-term assets, while the government insures deposit stability.
These assets primarily comprise of lending to governments, businesses and mortgages. In other words, the banking system essentially acts as a quasi-arm of the government, enabling the welfare state to function both explicitly by buying government debt and implicitly by expanding the monetary supply.
The progressive and libertarian narratives were both fighting against their own interests, which is why I find them both amusing. The reality is that we haven't had a free market for banks since the Federal Reserve Act of 1913, so it wasn't a battle between "evil bankers" and "poor poor lidl workers," but rather a game of king-making.
Definitely. Personally, I have __never__ purchased anything from Amazon, looked anything up with Google, shipped anything with FedEx, gotten somewhere with Uber, received a COVID vaccine from Moderna, used an iPhone or Android cell phone, played an Atari or EA video game, used a Mac or Windows computer, used any program that relies on NVIDIA GPUs, sent money via Paypal/Venmo/CashApp, contacted someone using a Cisco phone or router, found a job or closed a sale via Linkedin, watched a video with YouTube, shared a file with Dropbox/Google Drive/OneDrive, stayed in an Airbnb, booked travel with Kayak/Expedia, bought a home that I found on Zillow, bought anything online via Stripe/Shopify, bought anything in-person via Square terminal, looked a Facebook/Instagram/Snapchat/Twitter post, bought groceries with Instacart, ordered food with Doordash, hosted code on Github, made a video call with Zoom, looked at a Figma/Sketch design for work.
It was, in any case, of course certain that all of these things would exist.
> For all the talk of unbridled innovation, venture capital services only very specific types of innovation: those that stand to produce large exits for investors, and with relatively low risk, regardless of whether the business itself holds much promise or provides any societal benefit.
Yes. Anyone who has ever worked for or invested in a startup can attest to how low-risk and predictable they are. If only they were more volatile: then my life would be more interesting.
3% of seed-stage startups eventually exit? If only I could count on success like that each time I drive my car, take a flight, or cross the street.
In the insurance sector, the situation that a singular event (say, a hurricane) causes damages to a lot of customers at once is a well-known phenomenon, named a "cumulative event". Every insurance company has to model this and thus there exist mathematical tools for this such as copulas: https://en.wikipedia.org/wiki/Copula_(probability_theory)
A bank should better the model the event that a lot of customers want their money back, too. If it does not, there is something deeply wrong with the bank's risk management.
Thus, in my opinion, the article victim-blames venture capitalists to be "evil" while the true culprit are the bankers who did not factor in the cumulative event that lots of customers want their money back (which was given to the bankers by the customers to be held in safe custody) into their risk management.
That simply not how banking works. Many individuals think of banking that way, and they can because FDIC insures their deposits for up to $250k. (Which for the average person might as well be infinite.) But companies are supposed to understand and manage risk better. A corporate bank account is not and has never been a black box to just dump your funds in without worry.
That's kind of a stupid and black and white argument. It can be good, might not be. Overall customers decide. If society deems slavery ok, then some VCs can and will make money with it.
Shitting on VCs from someone that advocates for crypto and "aLtErNaTiVe MoDeLs". This bullshit can only come from someone who never dealt with funding in a startup. I'd rather have a bunch of VCs getting me and my idea instead of having to manage investor relations for thousands of crypto bros. Also: crowdfunding fails if you have complex special solutions which no one understands. The probability that there's a low number of VCs even getting your idea is way higher than getting a critical number of crowdfunders to get your idea so you can even try.
You're so close to getting the point, yet so far. The whole point of the article is that there is nothing in the VC handbook that has anything to do with the "benefits society" part of your "They produce goods or services that benefit society" statement.
In fact, if slavery is magically made legal today, I will bet that the Anderssen Horowitzs of this world will fund the Adam Newmanns of this world to start a slave trading startup before the weekend is over. And we need people like Molly White to keep them accountable, to build consensus on what's legal but not moral, and push for a better society where we can live with human dignity.
Then society deems it ethically ok. You're argument is void. If society thinks things are ok, why are VCs the heavenly instance to rectify that?
> And we need people like Molly White to keep them accountable
You mean crypto shills will enforce ethics? Lol
VCs hoarding even more capital doesn't contribute anything to society, they are all 100% rent-seeking juice-squeezers. They are a huge example of why capitalism is so broken.
> Society has benefited greatly from capitalism. I wouldn't leave it up to the likes Molly White to produce anything meaningful.
Society and the world has been - and continues to be - tremendously damaged by capitalism. But of more interest is the ad hominem against Molly White.
I know Molly's work and I'm quite confident that she did a lot more for the world - especially in the crypto space and wikipedia space - than you ever did. See how I can play your game too?
The behaviour of Facebook and Google, or Microsoft (in the past) of people like Bill Gates and his contemporaries like Elon Musk only show why people should never be allowed to own billions, especially while 60% of just people in the USA live paycheck to paycheck.
To me it's not Venture Captitalism but Vulture Capitalism.
Does it really? Honestly, it's hard to take such sentiments seriously when you start mentioning these particular "hype" billionaires.
For one, it seems like most spite comes of expecting them to act like some godly idols, instead of like some dudes. But largely, it's just that there are so much worse examples, dealing in so much worse things.
You just can't help but wonder if the person actually grasps the scale, or if the whole thing boils down to distaste of someone's character and behavior.
It's not about them as personalities, but what they represent. And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
So... Still personalities since they don't really represent anything but themselves.
> And their flaws only prove why billionaires should not exist and why they should not have that kind of power.
Their flaws are no worse than yours. And people you've named don't have THAT kind of power. Musk barely scratched a shred of power with twitter but was viciously attacked by people with actual power and quickly shown his place.
In any case, your rage should be directed towards someone from the military industrial complex for example - these people actually murdered people and engineered wars in order to get money.
Gates, Musk and so on are harmless children in comparison. This basically looks like another variation of rant about holywood/rap-singers/bloggers and their endless flaws that are oh so harmful to otherwise totally functional society. Really treating a serious issue as some kind of joke or a tabloid material.
You picked the guy who’s curing malaria and the one who kickstarted the modern electric vehicle and rocket industries. Yes, they’re flawed. But all humans are, especially the ambitious. I’m struggling to imagine an alternate system where e.g. they’re in better form as elected representatives.
You may struggle to imagine an alternate system but others don't. Billionaires should not exist. Relying on billionaires to do good is ludicrous.
Tesla was founded by others, Elon bought Tesla.
Rocket industries are not good for the environment or our future. We can do mostly without them. Maybe to keep GPS up and running but that's it.
1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationship where they are also major equity holders in the companies banking at the bank - ie, they've benefited hugely from the de-risking even if nominally they are getting wiped out.
2) "No libertarians in a bank run" - what, did libertarians suddenly become self-sacrificing when I wasn't watching? Libertarianism is recognising that people shouldn't be forced to pay taxes to fund these bailouts and that people should be allowed to avoid the dollar while conducting business if they wish. If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. Since these libertarians aren't idiots, they took the bail out. They aren't dignified, sure, but they never pretended they were going to hold themselves up as sacrifices.
3) "the Fed’s not-a-bailout of Silicon Valley Bank and Signature Bank seems ultimately to be the right choice "
I mean, if you concede that then ok but is anyone naive enough to believe that the wealthy took everyone else's money hostage by accident? It has been clear for a decade that as long as it is a crisis rich people will get free money. Therefore, the powerful have arranged their affairs so they won't lose money except in a crisis. The easy approach is letting the rules play out to their logical conclusions. People overestimate how important the banking sector is, it makes more sense to plan how to transition through a collapse and rebuild it than it does trying to hold up all the idiots currently in charge of all the important decisions. They aren't competent, that is why the system keeps trying to purge them!
Note the remarkable resiliency of the crypto system because it keeps jettisoning all the parts that go bust without rescuing them. Bitcoin's value is more resilient than the banking system right now sans-bailouts.
Only when looking in hindsight.
Unless those extremely wealthy people knew that in the eventuality of a bank run the government would offer them shelter, as the government normally does for the ruling class. But that is not in a sense part of her criticism?
But that's explicitly *not* how the game was set up. The game was set up so everyone gets insured up to a limit, and if you're rich enough to be beyond that limit, then you should be paying market rate for insurance on those funds (which is, like, a thing they could have done).
They chose to forego insurance for their funds, and when it all collapsed they screamed bloody murder demanding the government make them whole. They demanded the government _change_ the rules to socialize their losses. If you demand government intervention when the market goes haywire that's fine, but you turn in your libertarian badge when you come demanding government handouts.
which, if you bought short term treasuries, you can easily just get that safety for "free" (aka, there's no such a need for insurance, unless you believe the insurers are safer than the US gov't).
Having it at a bank should've been equivalent, since you can make the bank's scale of economies in the buying/selling of short term treasuries to make it even easier (dare i say, even transparent). However, when a bank does this, they want to squeeze even a tiny bit more profit, and thus, instead of buying the requisite amount of short term treasuries, they bought long dated bonds/treasuries, which is insanely risky.
The VC depositor should've been financially savvy enough to look at their bank and see this, so i argue they did not deserve the bailout beyond the existing mandated FDIC one. it's causing moral hazard in the banking sector.
Sorry, but yes, it was. It might not have been written down, but if all it took was for a few people to "scream bloody murder demanding the government make them whole," we need to look deeper at the implicit assumptions surrounding that system. And, part of those assumptions is that truly wealthy individuals get a greater level of service from that system than the rest of us, including bailouts like this. The same goes for "too big to fail" type institutions (viz JPMC and other big banks who are directly benefiting from a loss of confidence in institutions like SVB).
I agree that the explicit rules are not the implicit rules. That is a big part of the critique. I'm accusing any "libertarians" who demanded a government bailout in this instance of being just as fake, and just as bullshit, as those explicit rules are.
What they do is insure all deposits up to the limit.
When a bank fails, the assets are used to pay out the depositors (similar to a bankruptcy). If the assets are enough to cover 90% of deposits, then depositors will be made 90% whole. The insured amount is the *exception* to this process, where your amounts below the insured limit will be made whole even when there is an asset shortfall.
I don't think the law would allow the FDIC to cap depositors at the insurance limit, even if the underlying assets are enough to make the depositors whole.
Libertarian means they should acknowledge that these bailouts are making everyone worse off. But if we're going to do the bailouts anyway? I want libertarians to be first in line. There is no point letting authoritarians gain an advantage because of theoretical considerations; there were ample opportunities for the libertarian solution to be bought in from 2007-2022. They weren't, so at this point there is no reason for the brunt of the damage to fall on people who believe in freedom.
No.
VCs don’t make decisions on where a company keeps its cash; the founder/CEO does. And founders freaked the f-ck out. Let’s make sure to remember that founders had 100% agency in the decisions they made about their cash.
Here’s a selection of comments in the Whatsapp founders group Im in - all founders, no VCs:
Thursday 3/8 (36 hours before FDIC takeover):
“I'd consider moving to one of the too big to fail banks..”
“I agree the risk is higher then we thought before, I'm in SVB, with 4% - and looking to understand where to go now.”
“It's a numbers game - if a lot of people do what I do at the moment - it will fall.....”
“Does someone have a contact at Chase for B2B SaaS customers? I'm thinking it's wise to already have an account open there in case it will seem like we need to move off SVB.”
“Let's say we want to open a Chase account and move company funds?”
“for those that have their money in SVB and do not have another company bank account - what are the immediate options?”
“If there is a risk of a bank run, why not take the money out”
“Basically our whatsapp group creates bank runs now... power to the founders?”
“we just moved 85% of our money out”
“I just pulled ours”
It’s not surprising a VC would think she has more power than she actually has, but she also clearly has no idea about the wildfire that was spreading among founders themselves. Founders don’t give a sh-t about what their investors think (generally) - founders make the decisions they think are best because they have the most to lose (or win) from being wrong (or right). And they are much, much, much more likely to trust their fellow founders than their VCs.
Roku keeping half a billion dollars at svb without doing capitalization audits, or venture firms steering portfolio companies there without recommending backup banks is a business failure plain and simple. Those actions deserve scrutiny and the decision makers deserve blame.
One hundred percent. I was more attacking this conspiratorial line around so and so's tweets prompting the run.
They bought SVB’s loans at a $2bn loss to SVB [1] and then advised them to go to market with non-binding capital commitments [2][3][4] all while billing SVB $100mm for the trouble [5]. In short, they gave terrible advice, tanked the bank and then made bank, all while West Coast punditry began blaming depositors.
[1] https://www.ft.com/content/84728014-c900-48cd-be87-8defbf557...
[2] https://ir.svb.com/news-and-research/news/news-details/2023/...
[3] https://www.ft.com/content/7e7fdddb-724c-42fd-98ee-5d7248d53...
[4] https://www.wsj.com/articles/how-goldmans-plan-to-shore-up-s...
[5] https://www.nytimes.com/2023/03/15/business/dealbook/goldman...