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Are Venture Capitalists deforming capitalism?

Earlier this week, The New Yorker wrote a scathing piece on the VC industry with the above title, looking at VCs through the WeWork debacle. If you were a cynic, you could write it off as cherry-picked writing in the “tech Vs media” battle that’s plaguing the Valley.

But it does highlight some issues with VC pretty well. Yet it isn’t saying anything new. The problems in VC are quite apparent — concentration of big capital with fewer funds, a power shift towards maverick founders, VCs becoming less confrontational to be seen as founder friendly, lack of principled & authoritative boards, a growth-only gospel, and an undying hope that continuous scale will trump everything else.

For me, the last one is probably at the heart of it all. If seed angels to late-stage VCs are all looking at “still more scale” to get “still more capital from someone” in the hope it’ll solve all issues, including unproven business models & grey company/founder behaviour, we’re collectively not drawing a line that is needed. Someone should be telling founders at some point that “it should’ve been working by now”, and it cannot be the job of retail investors on Wall/Dalal Street.

But should investors take more responsibility?

Venture capital is very important to the tech ecosystem. It’s almost impossible to build many transformational businesses otherwise. But we shouldn’t get blinded with this romance and ignore the problems in front of us.

“You can’t blame Adam Neumann for being Adam Neumann. It was clear to everyone he was selling something too good to be true. He never pretended to be sensible, or down to earth, or anything besides a crazy optimist. But you can blame the venture capitalists.”

You could call me ignorant & say that this is the game. But I believe time is a great leveler & the law of averages eventually catches up. For every hugely unprofitable unicorn, there’s a Zerodha, Zoho, or even Calendly. If despite scaling to hundreds of millions of users or hundreds of thousands of businesses, a venture can’t sustain itself, then most probably there isn’t a viable business model. While all the blitzscaling looks good in near-term, it’s all vanity if our “fund-returning winners” are also not viable businesses at the end of it. We might make our financial returns but not have much to boast about a decade if those winners subsequently combust. No investor touts Webvan as a portfolio company today.

But what more can we do?

I’m not sure, but maybe we simply help develop more & more good habits, for founders, their companies & for ourselves. If the founders are filing needless defamation cases or becoming bullies, ask them to focus on winning the battle by product leadership. If our team members are being unethical against founders, rein them in or fire them (cc: Shanti Mohan). If the founders have learnt to be jerks with their team, pull up their collars. If there’s grey area stuff going on, take a firm stand as the Board. If we’re seed investors, invest in companies that can have both scale & viability. If we’re in a late-stage fund, learn to take our companies public.

Maybe our mission should be to elevate our own consciousness, not the world’s.

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