1/ Thread: "A Silicon Valley Ponzi Scheme"
Thanks to @chamath for laying this out in Social Capital's 2018 annual letter.
I've always appreciated his outspokenness.
This is creating a big bill that will soon come due...
But it's not who you think (that does), and the dynamics we’ve entered is in many ways creating a dangerous, high stakes Ponzi scheme.
Someone has to pay for the outrageous costs of this style of growth. Will it be VCs?
Likely not.
Eg: VCs habitually invest in one another’s companies during later rounds, bidding up rounds to valuations that allow for generous markups on their funds' performance.
if you’re a VC with a $200 million dollar fund, you’re able to draw $4million each year in fees.
Most funds never return enough profit for managers to see a dime of carried interest.
If u can show marked up paper returns & then parlay those returns into a newer, larger fund—say $500 million—you now have a fresh $10 million a year to use as you see fit.
There’s some deep misalignment here...
Partly why American healthcare is so expensive is bcos insurers, who play a key middleman role in setting prices for medical care, have a 2-sided biz model:
High costs allow them to charge higher premiums, allowing them to pull steadily more and more money out of patients’ and payers’ pockets.
In the end, both, patients and payers are the ones who end up as bag holders footing the bill.
The same thing is happening in today’s venture world.
Just as insurers’ biz model translates to higher costs of patient care,
So if its not VCs, who ends up holding the bag?
It’s still not who you’d expect.
In some cases, high prices may even work to their advantage.
Unlike the other pass-the-buck schemes
The real bill ends up getting shuffled outta sight to 2 other groups.
The 1st as u may guess are early stage funds’ limited partners, particularly future limited partners investing into the next fund.
Marking up Fund IV to raise money for more mgmt fees out of Fund V is so effective bcos fundraising can happen much faster than the long & difficult job of building businesses & creating real enterprise value
The second group of people left holding the bag is far more tragic: the employees at startups.
Although originally helpful as a way to incentivize and reward employees for working hard for an uncertain outcome,
Overall, you can understand how this arrangement endures:
Those companies then go spend the money on more user growth, often in zero-sum competition w/ one another.
What is the antidote here? Its 2-fold.
The 2nd is to break away from the MLM scheme that the VC-LP-user growth game has become.
It’s time to wait patiently, as the air is slowly let out of this bizarre Ponzi balloon created by the venture capital industry.
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Interestingly, this thread below has been written by that.
Let me show you how it looks like. 👇🏻
Recently I just refunded all Poster's sales from Gumroad. Being that said, I decided to not using that service anymore.
— Wilbert Liu \U0001f468\U0001f3fb\u200d\U0001f3a8 (@wilbertliu) November 19, 2018
Here's a little story \U0001f447\U0001f3fb
When you see localhost up there, you should know that it's truly an experiment! 😀

It's a dead-simple thread writer that will post a series of tweets a.k.a tweetstorm. ⚡️
I've been personally wanting it myself since few months ago, but neglected it intentionally to make sure it's something that I genuinely need.
So why is that important for me? 🙂
I've been a believer of a story. I tell stories all the time, whether it's in the real world or online like this. Our society has moved by that.
If you're interested by stories that move us, read Sapiens!
One of the stories that I've told was from the launch of Poster.
It's been launched multiple times this year, and Twitter has been my go-to place to tell the world about that.
Here comes my frustration.. 😤
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