Abolish Venture Capitalism | Hacker News Reader

Abolish Venture Capitalism

thenation.com

30 pointsindus33 comments

I'm no fan of pump-and-dump VCs but this is silly. There's good benefit if venture capital is done well. You don't just wake up and scream to abolish everything that's flawed.

Anyways, this article was written by someone who previously worked at Vice News, a media company that just filed for bankruptcy and lit over $1 billion of VC funding on fire...the author has contributed their fair share to abolishing venture capital.

The article does make some valid points about selection bias on who gets money and who doesn’t.

I remember another report where 46% of capital went to alumni of top 10 colleges.

In my opinion, a terrible article. If you are so much better at knowing what is profitable and what is not, why don't you invest and make a quick billion?

"Making a quick billion" is so astronomically rare that it should be considered a fluke rather than the result of business acumen. A million monkeys with typewriters, etc.

Venture capital was risk capital designed to invest in outliers—-has graduated to a homogenous selection based on college, past-company, access to network.

> If you are so much better at knowing what is profitable and what is not,

Perhaps profitability is not the right measure to determine success.

Especially the kind of profitability chased after by VCs. Maybe when a business is making enough to sustain the livelihoods of the workers one might consider a business to be successful.

Why would anyone invest in a venture that loses money long term?

The problem is not venture capital as a concept, but the actual venture-capital environment we have. The focus is entirely on low-percentage but very high-return unicorn chasing, and it's easy to see why, but there are some ill effects. When VCs pick winners with huge cash injections, instead of letting the market decide, you get a lot of shitty companies crowding out better ones. By "better" I mostly mean more stable and sustainable, still producing far better-than-inflation returns but not enough to be "interesting" to the kingmakers. Instead we get wild boom-and-bust cycles, even for the successful ones. But "better" could also mean doing less social harm, since the primary way to stand out in such a crowd is to show the greatest willingness to abandon all guardrails. That's why so many of the unicorns have made our lives worse, and also why we've recently had such a rash of outright frauds. The profit motive is great, when the market is truly open. When so much of a market is controlled by a tight circle of people gambling with other people's money and everyone's future for their own sole benefit ... not so much. VC as it currently exists has empirically been bad for far more people than it has benefited.

I don't know the solution. I don't know what kind of regulation (if any) would fix this without throwing the free-market baby out with the oligopolist bathwater. I;m no fan of central planning, that's for sure, but I sort of feel that's what we already have and what we need to get away from. And yeah, I know this is quite possibly the worst environment in which to express such a sentiment. If you disagree, maybe at least have the courage and courtesy to express that in the form of a coherent counterargument.

This is far from The Nation's best ledes...franlkly, while many VCs have become quite amateurish and feckless, the domain is still with some real benefit.

The Private Equity world however, THAT needs some real regulatory handcuffs, ASAP.

>The Private Equity world however, THAT needs some real regulatory handcuffs, ASAP.

What is the difference between VC and PE, outside of ambiguous "rules" about what stage in a company's life the investment occurs?

A considerable amount in terms of how they behave, what they expect, and for how long.

They invest both in amounts and company types, and typically claim different equity amounts (and carry different liabilities)

VCs do not typically debt load companies after investment, they generally dont do things like sale leasebacks on assets or do dividend re-capitalisation. VCs actually look for an exit event where a healthy company is on the other side. PEs dont give a squirt of piss as long as they can cash out, and often are fine selling acquired firms for scrap as long as they can get a cut on either side of the transaction (ideally both).

Venture capital is one of the foremost in meritorious selection of ideas—but the author is complaining about how recent shenanigans is inflecting a decline in this wonderful asset allocation.

I rarely see articles as stupid and poorly thought out as this one. Much as I've detested the VCs I've personally met, are we supposed to replace new business funding with GOSPLAN?

For those who (like me) were wondering what GOSPLAN is:

“ The State Planning Committee, commonly known as Gosplan,… was the agency responsible for central economic planning in the Soviet Union.”

https://en.m.wikipedia.org/wiki/Gosplan

Imagine starting a small company, and having it grow at a slower, but sustainable pace. The idea you develop makes sense, and so you start being noticed. You are offered funding opportunities to grow faster.

Now you're facing a choice: either take the money, and start answering to VCs, or don't take the money, and face the risk that someone copies your idea, gets lavish funding and buries you by, litterally, selling at a huge loss for years. The scenario of VC-funded companies doing price-dumping for years isn't outlandish, it's what Uber did for instance.

To answer your question, what's supposed to replace the VC model is the people that took the second option and didn't make it, and those that would have, had it been a viable option.

More sustainable companies that take the time to build a real product that they grow over time with their customers' money.

And for companies that need heavy funding to start, well, they can still secure loans, find industrial partners, get grants, etc. Many companies started like that and do fine to this day.

Not everything needs venture capital. That was the idea to find outliers and invest in world impacting outcomes. Probably the best meritocratic allocation of capital.

> I rarely see articles as stupid and poorly thought out as this one. Much as I've detested the VCs I've personally met, are we supposed to replace new business funding with GOSPLAN?

You're presenting a false choice: it's not some binary between VC and central planning.

You can still have capitalism and growth without huge pools of money investing with an unicorn-or-bust mentality.

New businesses don't need to be funded this way and can instead grow more organically. It would be nice to see more room for smaller local businesses not to be "out-competed" by someone with VC-funding who can afford to operate at a loss until they need to fuck over the consumer.

Is it better to be “out-competed” by someone who is wealthy from some previous source? Maybe it’s another business, but maybe it’s wealth from their family.

I mean the gold standard of business funding is state funding, a state's department of economic development is incentivized/mandated to create large sustainable businesses that bring in outside income and provide lots of jobs, they come with very few strings, they have an extremely long horizon, they have connections to state universities if you need r&d, and the loans are usually "no recourse."

There's a reason the line for these loans is a mile long. A middle grounds between anarchy and centrally planned economy does exist.

Corporations are gosplan. There’s so much centralisation that they basically control the economy and society. Venture capital is great but large entities are not.

Not sure about the downvotes. In a very real way most corporations act as a localized command economy with a full range of central planners. Workers are consistently asked to think about the good of the company instead of their own interests. The crucial difference is that there are frequently a lot of similar competing firms, so there are obvious points of reference to evaluate performance, people can bail from a failing or oppressive company and a company can stop existing if it’s planners consistently blow it. The issue isn’t central planning or collective enterprise per se, the issue is that there was no feedback to correct failures when there is only one firm doing all the planning.

I've also had the same reaction to the venture capitalists I've met. It's surprising how universally terrible my impression of them has been.

But I also agree with you, this article is just absurd.

> Why should we trust them with so much power over the economy?

"We" didn't entrust them with anything. It was entrusted to them by individuals. These closet authoritarians really just want to control every decision everyone makes.

> GOSPLAN

Mentioning the Soviet Union's economic planning commission has the whiff of red-baiting. What's a real objection?

It was shorthand, albeit probably too obscure, for failed state central planning as an alternative to VC. As for red-baiting, please feel free to fill in the destructive authoritarian stasis of your choice.

> please feel free to fill in the destructive authoritarian stasis of your choice.

Can we fill in VC-funded authoritarian companies like Palantir? Can we ask which share of 3-letter agencies' data come from VC-funded companies?

I mean, your point would have made sense 25 years ago, but VC-funded companies have made stasi look like amateurs in recent times.

> the destructive authoritarian stasis of your choice.

Three words: Florida under Ron DeSantis

The objection is that this is a country that guarantees freedom for individuals. Freedom encompasses economic freedom, you can't have a free nation without economic freedom.

Every nation in the world, including the US, has a vast public sector, some form of industrial policy, and several libraries worth of economic regulations.

Would you say that most people in the US have economic freedom, or has its limitation just been outsourced from the official government to the shadow government of cronies?

> this is a country that guarantees freedom for individuals

It does a piss-poor job of that for the majority of individuals

> Freedom encompasses economic freedom

That's a relatively recent, capitalistic, construction. See, e.g. The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market, by Erik M. Conway and Naomi Oreskes

....However good (or bad) an idea this might be, it's pretty much guaranteed to go over like a lead balloon on a news site operated by a venture capital firm.

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