There are three parts to this essay, He doesn't explain this point adequately until the end of the second. But you still won't get what he's saying unless you're already a follower and have digested the ideas in his blog.
Venkat trades in big, hairy concepts. The one he's using here is legibility. It's when information is structured in rigorous ways, defined by those using it as an instrument of power. It is the primary tool governments use against the people. An example is making every person have a current address listed on their driver's license. Governments stack these legibility requirements up so as to control commerce and extract rents. (taxes)
Venkat's argument is that investors won the game by forcing founders to be legible, reducing the information advantage they enjoyed historically. While it may look like founders have never had more power, in reality they've lost a crucial ability, to hoard critical inside information. It's really the only advantage they have, without it, they're at the mercy of investors. The ability to dictate terms is really inconsequential, more a function of fashion than actual power. Who cares if you get 2x the money you should have gotten? With information asymmetry, founders could easily wrangle 100x.
So, the opportunity to swindle investors, the Market for Lemon Startups that created the dotcom bubble is gone. How is that a bad thing? Assuming, of course, that you are trying to infuse capital into a real business and not run a Ponzi scheme.
Intuitively, a deal in which investors have reduced risk should have more favorable terms for the founders, too, since investors don't have to discount for the risk of the business becoming another gigantic flop. Maybe you are losing the extremely remote possibility to become a billionaire and leave a trail of very disgruntled millionaires behind you, but that sounds like a good trade-off for me.
EDIT: I've read the three parts. What I took from them is that, as creating a startup becomes a "science" that you can learn at school instead of an "art", entrepreneurs become something close to outsourced product managers, and frankly, I still don't see the problem.
Why take all the risk of designing, building, and marketing a product if all it gets you is a mediocre dead-end job in a big company? Entrepreneurship used to be where the brightest could make fortunes, now that ship as all but sailed. It might not bother you, but it should. All that talent is now going to seek opportunity elsewhere, rather than building useful products and services. Is this a good outcome for society?
Here's the thing: you can always take the risk of building a product in the frontier. But the web is no longer the frontier. You can estimate the size of your market in two weeks, spending a few thousand dollars. You don't have to build a product from scratch; in fact, you could build a whole webapp running on S3 and connecting to pluggable services.
Is this a waste of our best and brightest? Frankly, I don't know. But how many brilliant, young entrepreneurs got burned out after a catastrophic failure in the old model and never recovered?
Are there historical (in the last 20 years) examples of founders who wrangled 100x investment from investors, who would now not be able to do this because this supposed information asymetry no longer exists.
His main example was Facebook. But really, you should read the essay in its entirety and get his arguments directly.
Looking further back, Bill Gates managed to steal the future right out from underneath IBM through information asymmetry. Venkat is drawing large arcs here, and he would consider IBM an "investor" for the purposes of the discussion.
Facebook's leverage was growth, not information asymmetry. Zuckerberg's personal strengths are that he is savvy, and he had knowledge gleaned from Sean Parker et al. If anything YCombinator and others help make acquiring that knowledge easier. YCombinator's strengths are as much in its alumni sharing information within the network, much the same as Sean Parker shared information with Zuck, as in anything else that happens physically at YCombinator.
I have no idea how YCombinator, the lean startup movement or any of the other miscellaneous "villains" Venkatesh identifies would prevent a new Zuckerberg from raising money at the such favorable terms again.
Re: IBM/Microsoft - As Jobs did with Xerox, as Jack Dorsey may do with Visa one day. Savvy players beating non savvy players is a trend that has happened throughout history. I do not see how any recent developments preclude that. Venkat is framing this into an elegy for the savvy entrepreneur when there is no necessity for that.
I did read the essay - all 3 parts of it. There are some interesting points about return to city states and an understanding of politics being a huge strength for entrepreneurs towards the end, and several valid points about acqui-hires becoming more and more mainstream towards the beginning. I wish he had stuck to making those points instead of trying to weave a grand theory of entrepreneurs as the new labor which does not hold.
I do agree that he's unnecessarily harbingering and that the future is brighter than he paints it. But I also think that if really smart, savvy founders aren't already starting to keep away from incubators like YC and the acqui-hire path, they will pretty soon as they all start to get branded as alternative education paths.
I know I wouldn't apply to any incubator if I had a startup, I've felt this way for awhile now. They just don't seem to offer much value, rather being just a grand distraction, YC being the only one worth anything and even that's arguable. Capital isn't as valuable as it used to be, why give up control when you can generate it yourself? But it's really the only value an incubator adds.
> If anything YCombinator and others help make acquiring that knowledge easier.
Err, I seriously doubt that. He talks about these sorts of power dynamics in his Gervais series, and personal experience leads me to believe that it can't be taught. It can only be learned by making real power plays with real stakes, and losing. If you're really sharp, as Zuckerburg was, you can develop savvy early. Otherwise it takes lots of hard lumps. YC in my estimation wouldn't be any better or worse for learning power than just going it alone.
I'll assume you are not intentionally mis-stating my argument. I separated Zuckerberg's strengths into two parts: (1) savvy and (2) knowledge of how investors operate. (1) is intrinsic or learned through experience and nothing external in the current milieu precludes it's use. (2) can be taught, as it was to Zuckerberg.
Even if you assume that this is generally true, it doesn't mean that increased founder "power" has really come at the expense of investors.
The coordinated money printing by central banks around the world has injected trillions of dollars into the global economy, and the greatest beneficiaries of that have been a) firms in the financial sector and b) individuals who have significant exposure to financial markets.
This, of course, has a direct and indirect impact on Silicon Valley:
1. It's easier to raise a venture fund when LPs are doing well. Fed action has incentivized investment in riskier asset classes. Appetite for risk is broad-based and not concentrated in venture capital, but venture capital has certainly benefited.
2. Thanks to QE Infinity, the fortunes of many publicly-traded Silicon Valley companies have risen with the stock market and the IPO window is open. A handful of tech companies even sport 1999-like PE ratios. This has created enormous wealth in the Valley, much of it liquid, which has produced an angel (and super angel) boom.
Founders, particularly those with a track record and/or traction, may be able to negotiate better terms today than they could have even a few years ago, but that's largely because the dollars being invested in their companies are so cheap.
Who would you rather be: an entrepreneur who thinks he's getting a good deal because he got a higher valuation and retained more control, or the investor who gets to invest with Monopoly money?
They need to have the power to compel founders to believe that they need outside investment, and they need to trade significant amounts of equity for that.
Today, with everything available it's become easy for small companies to bootstrap their way through all stages of growth without any conventional investment. Begin with personal savings and maxing out credit cards to allow a tiny handful of founders to build an MVP that gains credibility and perhaps even generates some revenue. Then use things like crowd funding to scale up to bigger projects, mitigating the risk of burning through savings during development and of failing to get market traction at the same time. Then hit the ground running with a product that's already built and already known to be valued by the market and simply rake in revenue. Or go back and hit another cycle of crowd funding.
You don't even need a merchant account to charge people money for things. Compared to the way things were even 10 years ago the scales have shifted a great deal in favor of founder autonomy.
Today, with everything available it's become easy for small companies to bootstrap their way through all stages of growth without any conventional investment.
Can you name a large startup that hasn't taken investment? Oculus, maybe.
Begin with personal savings and maxing out credit cards to allow a tiny handful of founders to build an MVP that gains credibility and perhaps even generates some revenue.
That's incredibly risky. If it doesn't work, then you won't be able to make another attempt for years while you try to recover. The value of VC investment is that it insulates you from those risks. I've seen firsthand just how ravenous the effects can be when the "avoid investment" philosophy is taken to its extreme. So the question becomes, why not take VC investment from VCs who aren't interested in company control?
"Today, with everything available it's become easy for small companies to bootstrap their way through all stages of growth without any conventional investment."
Try building a bridge or an opera house or a car factory without outside investment. There is a whole world outside our small bubble.
Those things aren't startups, just construction. Construction works on traditional lending, which provides an incremental rate of return. VC investing is about getting a small company off the ground and snagging a piece of it in the process, in the hopes that it will become a huge company in the future.
I agree. And I believe the author does and just doesn't realize it.
"Those who are attracted to true entrepreneurship are figuring out new ways to work around the traditional investor class."
Seems to me if the investors had won, this wouldn't even be possible. But as long as innovation (in any industry, not only tech) exists, people will find a way to work around any obstacle.
Well from the context of the subject of the article, YC serves as the university (this site can be seen as serving like the social environment of such to discuss things relating) to feed the "New Bankers" or the Google/Apple/Facebook's.
However what this author fails to talk about in his haste of this new order to shape up because of the fracturing social order in developed world (note not developing world because most people in the developing world have nothing to lose because they did not gain much of the fruits the developing world has), is the war that usually happens during these periods (look at what is shaping up in Spain, Greece and spreading through europe). I expect 3-d printed weapons (Hat tip to Defence Distributed and the pollitically aware hacker-culture that very much includes the so called "Pwnd" developers) to shape some role.
Developers are the "new engineers" aren't "Pwnd". The "new system" relies on them for the new working class: the Robots. And the "old system" relies on them for pretty much making technology practical to use for their whims.
The people that are "Pwnd" are going to be the people who aren't shaping the new system at all: most people in the societies of the developed world.
"If you don't become an actor, you'll never be a factor."
>Founders have never had more power relative to investors than they do now.
Easy to say coming from the new middleman getting between start-ups and funding.
If you really believe this prove it. Accept me into YC (or anyone who was not invited into YC but has a launched product), I/they will not receive YC funding but be a "mole" and go through YC and present at demo day - I promise I/they can secure funding - which means the power is not relative to Founders but shifted to YC.
Only if they have read all and not just some of your essays and groked them.
In the country where I live the startup scene is terrible - only buzzwords thrown from all sides and no substance at all. Engineers in startups expecting salaries and benefits of a big company but with nothing from the downsides. In this situation the guys with the hard cash hold a lot of influence.
Good, smart founders do. Technology and open source have reduced the power of investors. Though I know more good founders that don't take investor money, than those who do.
Founders with breakout successes get the best terms ever now; that is true. On the other hand, investors have more power to fuck with founders' careers (even years after the venture dissolves), and founders who fail are more desperate to get back into conventional careers due to the disgustingly high housing prices that exist now. Venkat talks about the old-school serial entrepreneur: the 10x hustler who learned a little bit from each failure and finally had a huge hit on his 5th attempt (usually around age 40, at which point he'd be unfundable by contemporary VC-istan standards).
That person is gone now. In contemporary VC-istan, no one gets a 3rd startup, thanks to the collusive and almost certainly illegal reputation economy that exists there. You might get a second shot if you come back to your VC bosses with your tail between your legs.
That's because VCs have set themselves up as the executives of the first post-modern company: VC-istan. "Entrepreneurs" are hustling project managers. The investor/founder separation exists to hide the Effort Thermocline (the level at which jobs become easier with increasing rank, not harder) because it exists between two companies, with a distinct power relationship of one over the other.
Hell, most VCs won't even talk to you if you were lack-of-fit for a regular corporate job. They want to fund banker kids who did Analyst -> Private Equity. (This is the MBA stereotype, but it's the 2nd tier of those who do MBAs. The top tier skip MBA school and become parasitic PEtards two years early.) True hustlers and technologists are second-class citizens; they work too hard and don't have the social polish to exploit "just like me" chickenhawking of their backers.
I might be the only person on HN who has a lower opinion of VCs than you do (I credit them with killing the first company I started) but this reads batshit to me. VC's want to fund MBAs who "did Analyst -> Private Equity"? That describes nobody I know who's raised a round, but ironically describes a couple people I know who failed utterly to raise.
I'm calling this comment out. I think you made that up. Show me I'm wrong.
Your bit about about "nobody getting a third startup" is also directly contradicted by people I know who have done exactly that, and raised in their 40s. In fact, I think it's likely that more people raise real VC rounds in their 40s than do in their 20s, and that you're just paying attention to a small niche of social media startups.
My 100% non-scientific study has been that the biggest hurdle towards getting funded is getting funded the first time. Even if you failed three times, as 0-3 you are more likely to get funded than the guy who is 0-0 and trying to navigate the system for the first time.
I'm calling this comment out. I think you made that up. Show me I'm wrong.
I won't, if only because:
(a) some of these people I like, even if I find private equity (and, thus, the company they kept in their career-building years) distasteful. Associating innocent people (by name) with a problem just to make a point is something I'd rather not do.
(b) the ones I hate I know well and identifying them would give information about my career history that I've chosen not to share. For example, I worked for a truly evil (management-wise; the engineers were fine) startup in 2011-12 and I've thus far kept the world from knowing which one. I have strategic reasons for keeping that way. I could probably destroy that company if I wanted to, but I'd prefer not to do so. If they succeed, it makes me rich. (I don't have equity, but I have dirt.) However, anyone who is considering working for an NYC startup can ping me and I'll do a yes/no on whether it's That One. (I have convinced a lot of people not to work for them.)
You can believe me, or conclude that I'm drawing a conclusion based on limited experience and not believe me. I'm not making it up, but I don't have longitudinal data, just a large set of observations because I talk to a lot of people. I'll admit to that.
Now, I will admit that all of my direct experience comes from New York VC-istan. I haven't been to California in almost 5 years. For all I know, it could be totally different out there but, based on the people I talk to on a regular basis, it seems to be same shit, slightly different stink.
> "I could probably destroy that company if I wanted to, but I'd prefer not to do so. If they succeed, it makes me rich. (I don't have equity, but I have dirt.)"
This is not the right move long term. If they've wronged you move on, maybe blow the whistle if its complete BS. Resorting to extortion is not going to make you any friends who take pride in their ethics and who therefore won't screw you over in the long term.
When I blew this whistle on Google, I pissed off a lot of engineers even though I never had a problem with them. And, in that case, it didn't really hurt them at all because a single whistleblower can't take out Google. The worst it has to fear is mild embarrassment.
The lesson I learned is that whistleblowing often angers the wrong people. In a better world, only wrongdoers would suffer, but that doesn't seem to be the world that exists. Google's horrible management is still horrible; its otherwise disinterested engineers (who I'd be inclined to like) seem to be the ones upset about it. Which might suggest that it wasn't the right course of action, since the wrong people feel attacked while the deserving targets don't seem to have changed.
If I blew a whistle on this startup, I'd probably end it (unlike Google, on which I had no real effect). Unfortunately, it'd be engineers who'd suffer (losing jobs, when the company folds) but management would be OK. That's the problem. The good guys are more vulnerable to that sort of thing than the genuine malefactors. The CEO's independently wealthy and has flat-out said he doesn't care if that startup fails (since the investors took it away from his original vision-- to something much better than what he started with). If I blew a whistle on him, I'd just take that firm off his books and he'd move on to some other project.
Now, if they have a huge success, then that changes. In that case, engineers get their payoff no matter what I do, but managers risk personal embarrassment (as they deserve, because that company's whole management team is unethical). So, then it might make sense to divulge. Right now, though, I'm just nervous that it would hurt the wrong people.
In fairness, they all founded Justin.TV. It's significantly easier to get a third startup if your second startup was a success, and I think the OP was talking about having two failures in a row.
I have nothing but respect for the justin.tv people and product, but may I ask what criteria you're using here to define it as a success? I would have called it a pivot, albeit a great one.
Success = has traction in a market large enough to be of interest to a VC. Usually that's the hard part of entrepreneurship; if you can demonstrate you've attained that once, getting funding for subsequent endeavors is a lot easier.
VC's are a tiny slice of the economy and have little impact on the vast majority of companies.
In the wider world there is a near surplus of capital that has been driving down investment returns for hundreds of years. Not that long ago 15% ROI was considered a poor investment now your doing good to make half that. So, if anything capital is losing most of it's power.
PS: Also, VC's are managerial not capital. You don't need any mony to start one just convince a other managers that are investing still other people's money that you know what your doing.
Sure, but that's all there is left for a lot of people, once they're trapped in high-COL areas and unable to properly bootstrap.
Bank loans want personal liability, which rules out anything that has more than a ~5% chance of failure. Even the mid-risk/mid-growth tech companies (derided as "lifestyle businesses" by VC-istan) have 10-30% 5-year failure rates. So they're out. There really isn't anything to fund these mid-risk/mid-growth companies. VCs don't like them, because the company's goal is to be independent, not an overwhelming corporate megalith.
Savings/bootstrapping work if you have them, but I challenge you to find a 30-year-old in SV who (a) has appreciable savings, and (b) wasn't lifted by a connection ("acqui-hire" welfare checks count as "lifted"). Such people are fairly common outside of SV and NYC, which might surprise you. I know a few programmers out in PA who, even though they make (just slightly) less than I do in salary, they're my age and worth half a million. They were able to actually fucking save money.
Perhaps I am a moron for chasing the prestige of the VC-istan and Wall Street jobs, throwing me into a city where landlords win and talent struggles. My "savings" is the career benefit of having spent my 20s in NYC, but it's questionable how much that matters. I'd rather have the autonomy that comes with money and the credibility that comes with having higher-quality work experience.
VC-istan (and, to a lesser degree, Wall Street with its bonus system) are economies where, instead of savings, you put everything you have (time, money, energy) into this weird system that distributed outsized rewards, intermittently, to a lucky few. Wall Street is more decent than VC-istan, I feel like. Wall Street is some part meritocracy (esp. prop trading) and some part connections, but it's honest about what it is. VC-istan is a who-you-know economy that pretends to be a meritocracy, and if you call the lie by it's name, people fuck with your career in the worst kind of way.
How is anyone trapped in a high-COL area? I understand it can be difficult to leave an area, particularly one with lots of jobs, but sometimes you don't have optimal options in life and you have to figure out which one is the least worst. In this case, the hypothetical person you're talking about is trapped by his inability to make a difficult decision. Nothing more and nothing less.
> Savings/bootstrapping work if you have them, but I challenge you to find a 30-year-old in SV who (a) has appreciable savings, and (b) wasn't lifted by a connection ("acqui-hire" welfare checks count as "lifted").
I am in my early 30s, live in SV, have a liquid net worth in the low six-figures and have never been "lifted" by an acquisition or acqui-hire. I was nearly broke twice in my 20s.
> Perhaps I am a moron for chasing the prestige of the VC-istan and Wall Street jobs, throwing me into a city where landlords win and talent struggles.
You were not thrown into a city, you chose to be there. As you said, you chased "the prestige of the VC-istan and Wall Street jobs."
And please stop this ranting about landlords. People who earned money, invested it in property and generate income by renting said property out are not gaining at your expense, at least no more than the farmer who grew the food you eat.
If your rent is too damn high, move.
> VC-istan (and, to a lesser degree, Wall Street with its bonus system) are economies where, instead of savings, you put everything you have (time, money, energy) into this weird system that distributed outsized rewards, intermittently, to a lucky few.
I'm not seeing what you're seeing in the parent comment. Which of his points were incorrect? If the answer is "none", I might consider apologizing for implying they wrote that comment in bad faith.
It's not unusual for a 30-year-old in tech in SV to have half a million banked, even without a previous acquisition or acqui-hire. How do you think companies like YouTube and GitHub get founded?
The author seems to pick surface level similarities between completely disparate things and claims they are the same.
>>The transformation of fund-raising activities from genuine negotiations between evenly matched parties to “pitch cultures” that hew to ritual “know your place” expectations on the part of investors
Someone invite Venkatesh to a YCombinator demo day so he can get an idea of what the real dynamics are like. He fails to understand that there are still genuine negotiations between investors and startups but instead of having 1, 2 or may be 3 possible investors as founders did before demo day, founders now have potentially 500 possible investors. What impact does he think that has on those genuine negotiations? Who does he think has an upper hand now? The idea that founders have been degraded and must "know their place" is such utter bullshit.
>>At least in the early stages, investors entirely run the game.
Nothing could be further from the truth. If he looked below the surface at what the standard investment templates actually do for example, he would realize that entrepreneurs now have more control than they ever did. If anything, early stage entrepreneurs now have more power than they have had in a long long time.
>> founders now have potentially 500 possible investors
This speaks directly to the OP's central point of "legibility". The process is open, anybody can participate. You don't need secret knowledge or connections to do these deals; all you need is a worthy pitch or money to come to the table.
You can get good terms. That`s the point. It`s much more difficult for investors to squeeze you; it`s also much more difficult for you to pull off a coup like the one Bill Gates did on IBM.
I think you`re reading the article wrong. Not surprising given the title and our forum. Obviously hacker news sympathizes with the entrpreneurs.
The title implies that the investors have won and the entrepreneurs have lost.
In fact, it makes a quite convincing argument that Wall Street & the traditional investment class are among the losers. It`s saying that the big winners are Google/Facebook/Apple/Microsoft, et cetera. They made 10's of billions.
The era of making 10's of billions is over. The rest of us are part of the "new middle class". But it seems that the "new middle class" consists of those who are either pulling in salaries over $150K working for the winners or those who make millions through aqui-hires, fairly priced venture deals or bootstrapped "lifestyle" companies. Sounds good to me.
Another thing that sounds good to me is the decline of the "entrepreneur as scoundrel". Bill Gates made 50 billion by exploiting information asymmetry. Todays entrepreneurs make 50 million by building better mousetraps. The biggest winner is the consumer.
>>>> founders now have potentially 500 possible investors
>>This speaks directly to the OP's central point of "legibility". The process is open, anybody can participate. You don't need secret knowledge or connections to do these deals; all you need is a worthy pitch or money to come to the table.
500 investors, means that the Investors become interchangeable. The investors become legible.
I never cared about that shit. I'm fine with financial mediocrity, defined as capturing a small percentage of the value delivered to society. At some point, you have to call it enough. Once you can raise a family in good conditions (granted, in New York that's about $500-600k because of the insane cost of living and education) you are a bit nutty if you keep playing the money game. If you genuinely enjoy your job, that's different. But playing the money game beyond upper-middle-class is insane, because (a) the people get worse, and (b) returns diminish.
Financial mediocrity is fine. It's really competitive to get into the true upper tier and, even though I'm smarter than the fuckers who are winning that game, they have a 30-year head start on account of being born ruthless assholes, whereas I'd have to learn it. I'm willing to let those assholes have their private jets. Enjoy.
What I can't stand for, and never will, is being made to do mediocre work. If you're going to get $2 million out of me each year and pay me only 10% of what I deliver, then fine. We'll do it that way. I won't stand to be assigned mediocre work that is essentially evaluative. If you don't trust me already to do great work from the first day, then I don't trust or like you so get the fuck out of my way.
Hacker news should be renamed to Peasant news. Just how the reality is. Not really new but didn't expect mainstream media to write about the reality of it. Guess a rare one. Personally I will never go for an investor in a pseudo-economic market which we live in. It's like begging to become a new age peasant.
You'll have more freedom living as a wildling in the woods or become a small-scale farmer. Oh right you need that latest hi-tech gadget which they use to enslave your mind. Well enjoy it.
I'm not sure this theme will survive much longer. It seems no coincidence that the founders of the two most successful YC companies, Dropbox and Airbnb, weren't interested in any "big exit". (Drew remarked on his YC app that he'd find it difficult to turn down a million dollars for 6 months of work, but even that reads like he probably would've passed on such an offer.)
The most promising founders seem not to be interested in exiting.
Exactly. You only go to a VC when there is a real need for capital to purchase equipment or pay salaries. Though the vast majority of "startups" can be done by one or two people coding and selling part-time. Hell, I've managed to develop businesses with less than $50. Profitable businesses.
Yeah that sort of thing makes sense, in the same way that Facebook taking VC did, however, it makes little sense to take VC for a prototype with no users.
That article is wordy and hard as hell to parse. I wish the author would just speak plainly. What's he mean anyways? 'The entrepreneurs are the new labor'
I share that sentiment. I read the first page, and thought "Shit, this guy just used a whole page full of words and hasn't expressed a coherent argument yet". I quit reading at that point. Life is too short.
A proper analogy which i have shared with my smart friends for reading articles of a wordy nature, including said article, is best understood by reflecting on the late 19th century philosopher Friedrich Nietzsche, who besides being a prototype of current wordy article authors also articulated an interesting theory of good and evil, and who said that which does not kill us makes us stronger.
Let me give it a try. Venkat is brilliant but he doesn't hold back from using hard-to-catch metaphors and $5 words.
There's a cartoon from Hugh MacLeod that shows the corporate pyramid with three layers: Sociopaths at the top, Clueless in the middle, and Losers at the bottom. Venkat has done one hash-out of this on his blog; I've done another with a slightly different approach. Let's talk about what these tiers are.
Sociopaths are strategic and dedicated but not subordinate. They work hard, will make things happen that most of society thinks "shouldn't", and they get rich or famous when what they build advances human life. However, most of them are also egotistical assholes. Steve Jobs is the uber-Sociopath. In general, they love risk, because they view low social status and mediocrity as indistinguishable from death (and therefore favor high-risk lifestyles). Many of them aren't Sociopaths. I'm probably closest to this of the 3 tiers (although I mix them up).
Losers are not undesirable or unpopular people. They're losing in an expected-value sense. They disfavor changes (in management, ___location, jobs) and tend to sell off their upside in exchange for risk-reduction. That's the insurance trade of modern employment. They're subordinate and strategic (they know what's worth working on, but will also subordinate on a dead-end project if it keeps them comfortable) but not dedicated. At 5:01, they're gone.
Eventually, the company is no longer defined by economic competition to excel on the market, but by political competition to capture the rents of a smooth-running machine. You get a caste of entitled, lazy executives who replace the old entrepreneurs. Then, the symbiosis between risk-seeking Sociopaths and risk-averse Losers dies out. The executives negotiate worse terms for Losers (lowered risk reduction, fast-firing) and use their superior social polish to push out the "good Sociopath" entrepreneurs who started the thing.
When this happens, Sociopaths need a ready supply of rubber gloves to use for their dirty work and then discard, because they're no longer holding up their end of the trade with the risk-averse Losers. They carve out a contingent of eager upper-tier Losers and failed-to-become-executive lower-tier Sociopaths and forge the Clueless. Clueless are dedicated and subordinate but not strategic. They often have no idea what's worth working on, or what's happening at the big picture.
Clueless are the middle-management buffer class. Since they work the hardest (to clean up messes left by disengaged Losers and malignant Sociopaths) they often end up propping up the Effort Thermocline, which is the level at which jobs become easier (a switch-over from pay-for-work to executive rent-seeking) rather than harder with increasing rank.
By the way, how do you get someone to be subordinate, strategic and dedicated? That only happens in a true mentor/protege relationship where the mentor is fully trusted to deliver a great career to the protege. That existed in guild cultures but it's never found in modern employment.
VC-istan, with the collusive and illegal reputation economy driven by comparing-of-notes and co-funding, is the first postmodern corporate organization. The Effort Thermocline exists between companies. It's fucking brilliant! The Sociopaths are the true executives (VCs, tech press, "popular kids") and these "startups" are all-Clueless endeavors. If you haven't figured it out, "lean startup" is code for "no Losers".
Obviously, this contention (that VC-funded "entrepreneurs" are out-of-work PMs parlaying backers' money into acq-hires and fast promotions) is controversial so he spends a lot of verbiage backing it up.
Worthwhile read, though note this was written in September 2012.
A quote from the article that captures the apparent shift of power to investors:
"...one can hardly imagine a Carnegie or Rockefeller anxiously fretting over what bankers might want to hear at a pitch meeting or anxiously studying how-to books on pitching and business plans; they’d have just walked into the room, hours late, with blackmailer swagger"
His point is that many "entrepreneurs" are actually not; rather they are a new labor class building features and negotiating for funding or acqui-hire...
"Investors have won" sounds a bit premature. If the SEC didn't drag its feet, we'd have lots of new people entering the startup market on the investor side, and presenting much more supply of investment money (and competition from the investor side).
People at the SEC, however, (such as Mary Schapiro, who since left), are concerned about protecting non-accredited investors who may be affected, and the agency has even taken heat from many members of Congress for taking so long:
If they would at least drop the ban on general solicitation -- as they were expected to do last August -- then many entrepreneurs with large user bases could solicit investment through messaging those users, and inviting them to introduce their rich (accredited) investor friends to the company.
With the rise of crowdfunding, the days of angel investors are numbered. This new model will permit to the "be useful" mindset gain terrain from the "get rich" mindset and I think this is a good thing. Following and rewarding social profit is wiser then the currently wide spread, egotistical personal gain strategy.
For all the historical blather in the article, the one simple thing that is ignored is why there only super powerful investors and weak entrepreneurs. There is more wealth available via the non-super rich than anytime in human history. Average people should be able to invest their money to fund ideas/companies.
This used to be possible in the US. You didn't have to seek ultra rich investors to get started. You could take an idea and sell shares in the company via a stock exchange. But now regulation has made that impossible for all but the companies that have grown so large that they ironically don't need to raise any money and it is all about the early VC's time to cash out. (see Facebook)
Instead, the only new avenue we have are things like Kickstarter. But you don't get to invest thanks to over-regulation. You can only "donate" and hope to get a "gift" (fingers crossed pre-order/purchase).
I feel like he got this utterly and completely 180 degrees wrong. There has never been a time when it was easier to start a company and easier to get peer to peer advice.
We are our own investors in this new bootstrapped world and we don't need the VCs or other supermonied classes.
"...Investors have won, and their dealings with the entrepreneur class now look far more like the dealings between management and labor ..."
What the heck? I read a ton of startup-related news, and if anything, we now live in a time where bootstrapping huge businesses are possible, people are enjoying "lifestyle" opportunities, and investors are complaining they just don't have as much oomph as they use to have.
Sometimes I think you see what you want to see in these things. If you're already keyed-up with some kind of marxist/labor theory of the universe, everything conveniently fits into your model no matter what the actual data is.
From the outside looking it, I would say it just looks like a rational model is being imposed on a chaotic system as a means to control and understand the risks. Can we take it for granted that the primary motivation of investors and entrepreneurs is to make money (aka prestige/power/status), and things like changing the world, enjoying their work/team, creativity and other motivations are secondary? If so, since investors start with the money (prestige/power/status), they have the upper hand in a rational model, where successful investment always pays back dividends.
The cause of this situation is the accepted superiority of money (prestige/power/status) and the way investments are structure to ensure the return of more of it to the ones making the investment. The only alternative would be a kind of philanthropy, where investors gave money (spent as capital and income on necessities), without asking for a return, to those they believed would do the most good with it.
Personally, I think that there are other ways to acquire/demonstrate social status other than money, but they aren't as easy to use in algorithms and economic models, so they aren't given as much attention. I think people need to spend more cycles on considering these other ways of measuring status. Certainly we can't dispense with money, because it makes perfect sense to use a common way of measuring the value of most everyday things. But in terms of how you measure a person's significance and contribution to their society, I think it's very limited.
EDIT: some examples of alternatives to money which bequeath status, and which can work as currency or to enhance bargaining position: unique or protected (patented) knowledge, talent (artistic, athletic), beauty, perceived wisdom (spiritual), nobility/heritage. All of these are familiar, but subverting bankers/investors seems to always involve having access to some amount of one or more of these, because it can be translated into followers (audience, buyers).
The growing pool of entrepreneur/labour may have some amount of hustling skill, but if it's not unique, then it is doomed to be commoditized. Anyone who is trying to emulate a Gates, Jobs, Zuck, or other uber-hustler is automatically not unique, and therefor expanding the replaceable pool. Anyone who can acquire followers independently of capital is on to something new. They can escape the dictates of the imposed model and set their own terms, because they have a different sort of capital.
This i think is the very key point the author was making.
An 'entrepreneur' would look at investors as bags of resources, which he will leverage to enrich himself. To an 'entrepreneur' investment funding is not intrinsically an more important a resource than say the right labor team, etc...
The mindset of the investors have the money so obviously by rationality they must have the upper hand is a key fundamental world view difference between an 'entrepreneur' and a high paid labor.
So by entrepreneur he really means non-tech hustlers working on tech-centric companies, the kind that are hard to get to the traction & cash-flow stage without meaningful development. It's not so surprising that those would have less leverage with investors - they're basically dependent on their money once they max our their savings & credit cards.
Go figure, I never knew there was a competition between capitalists and entrepreneurs. I always figured that they needed each other. Marketwise, this "win" could shift back when entrepreneurship drops and investment picks up due to the asymmetric fluctuations between supply and demand of the two commodities.
As an example, here is an itemized breakdown of why my project NEEDS a $100,000 investment.
$2000 - Back wages and small debt (past year)
$4000 - burn rate of founders (1 yr)
$1500 - equipment and hosting (1 yr)
$7000 - outsourced labor (1 yr)
$85500 - necessary because you are not interested in a $12.5K investment, even if we are the next Google. Therefore, this is added to convince you to invest in the company. This portion will simply remain on the books.
The last portion is necessary because you, the investor, would not take a $15K investments seriously. That's why we need a $100K investment.
It is not an optional line item: without it, we do not get the investment. It is crucial.
Ehhh the point I think he is trying to make is a 'entrepreneur' in this situation would take out a personal loan, or hustle to get the 12K instead of giving up a significant portion of his venture.
Congratulations, after ten thousand years of struggle, the ruling class has finally won for good, permanent victory has been declared by - Venkatesh Rao.
Marx says in the Communist Manifesto - "The history of all hitherto existing society is the history of class struggles. Freeman and slave, patrician and plebian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes."
Marx had a point here about the long time span. In the Epic of Gilgamesh, written several thousand years ago, rulers are advised to capture new slaves from far-away, rural areas, as these slaves tend to be more passive. These issues have been around for a while - from that time, to the time of Pisistratus, and Spartacus and the Roman Servile wars, and the struggle between the optimates and the populares, to the German Peasants revolt of the 16th century up to this modern day - one may have noticed how large and militant the May Day rallies in Spain and Greece (unemployment is 26% in both countries) were. US drones in Afghanistan, Pakistan or the Boston marathon bombings - these struggles carry on over time.
If one reads a lot of Marx (something John McCarthy said was a sign of a wasted youth), you see the point that just when some system is said to be completely victorious, it has usually peaked and is on a long downhill slide until something new comes along. Louis XIV was called the Sun King and is quoted as saying, L'Etat, c'est moi, but less than eighty years after his death, Louis XVI was guillotined in front of a crowd of revolutionary sans-culottes.
Final victory is here for the investor...well, we will see about that...
I think you and Venkat agree. Venkat is saying that the current balance of power has tipped towards the investor class, and we are seeing the emergence of a new middle class while the old one disintegrates. He's not saying that this new balance is permanent, and in fact spends a lot of time developing the thesis that these shifts are always happening.
...and evolution is directed toward a more perfect form? History isn't moved by invisible forces towards a precognitive goal any more than an invisible hand of a creator directs evolution, or deities direct kings to make divinely sanctioned choices.
