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.
More from Tech
1/ 👋 Excited to share what we’ve been building at https://t.co/GOQJ7LjQ2t + we are going to tweetstorm our progress every week!
Week 1 highlights: getting shortlisted for YC W2019🤞, acquiring a premium domain💰, meeting Substack's @hamishmckenzie and Stripe CEO @patrickc 🤩
2/ So what is Brew?
brew / bru : / to make (beer, coffee etc.) / verb: begin to develop 🌱
A place for you to enjoy premium content while supporting your favorite creators. Sort of like a ‘Consumer-facing Patreon’ cc @jackconte
(we’re still working on the pitch)
3/ So, why be so transparent? Two words: launch strategy.
jk 😅 a) I loooove doing something consistently for a long period of time b) limited downside and infinite upside (feedback, accountability, reach).
cc @altimor, @pmarca
4/ https://t.co/GOQJ7LjQ2t domain 🍻
It started with a cold email. Guess what? He was using BuyMeACoffee on his blog, and was excited to hear about what we're building next. Within 2w, we signed the deal at @Escrowcom's SF office. You’re a pleasure to work with @MichaelCyger!
5/ @ycombinator's invite for the in-person interview arrived that evening. Quite a day!
Thanks @patio11 for the thoughtful feedback on our YC application, and @gabhubert for your directions on positioning the product — set the tone for our pitch!
Week 1 highlights: getting shortlisted for YC W2019🤞, acquiring a premium domain💰, meeting Substack's @hamishmckenzie and Stripe CEO @patrickc 🤩
2/ So what is Brew?
brew / bru : / to make (beer, coffee etc.) / verb: begin to develop 🌱
A place for you to enjoy premium content while supporting your favorite creators. Sort of like a ‘Consumer-facing Patreon’ cc @jackconte
(we’re still working on the pitch)
3/ So, why be so transparent? Two words: launch strategy.
jk 😅 a) I loooove doing something consistently for a long period of time b) limited downside and infinite upside (feedback, accountability, reach).
cc @altimor, @pmarca

4/ https://t.co/GOQJ7LjQ2t domain 🍻
It started with a cold email. Guess what? He was using BuyMeACoffee on his blog, and was excited to hear about what we're building next. Within 2w, we signed the deal at @Escrowcom's SF office. You’re a pleasure to work with @MichaelCyger!
5/ @ycombinator's invite for the in-person interview arrived that evening. Quite a day!
Thanks @patio11 for the thoughtful feedback on our YC application, and @gabhubert for your directions on positioning the product — set the tone for our pitch!

You May Also Like
1/“What would need to be true for you to….X”
Why is this the most powerful question you can ask when attempting to reach an agreement with another human being or organization?
A thread, co-written by @deanmbrody:
2/ First, “X” could be lots of things. Examples: What would need to be true for you to
- “Feel it's in our best interest for me to be CMO"
- “Feel that we’re in a good place as a company”
- “Feel that we’re on the same page”
- “Feel that we both got what we wanted from this deal
3/ Normally, we aren’t that direct. Example from startup/VC land:
Founders leave VC meetings thinking that every VC will invest, but they rarely do.
Worse over, the founders don’t know what they need to do in order to be fundable.
4/ So why should you ask the magic Q?
To get clarity.
You want to know where you stand, and what it takes to get what you want in a way that also gets them what they want.
It also holds them (mentally) accountable once the thing they need becomes true.
5/ Staying in the context of soliciting investors, the question is “what would need to be true for you to want to invest (or partner with us on this journey, etc)?”
Multiple responses to this question are likely to deliver a positive result.
Why is this the most powerful question you can ask when attempting to reach an agreement with another human being or organization?
A thread, co-written by @deanmbrody:
Next level tactic when closing a sale, candidate, or investment:
— Erik Torenberg (@eriktorenberg) February 27, 2018
Ask: \u201cWhat needs to be true for you to be all in?\u201d
You'll usually get an explicit answer that you might not get otherwise. It also holds them accountable once the thing they need becomes true.
2/ First, “X” could be lots of things. Examples: What would need to be true for you to
- “Feel it's in our best interest for me to be CMO"
- “Feel that we’re in a good place as a company”
- “Feel that we’re on the same page”
- “Feel that we both got what we wanted from this deal
3/ Normally, we aren’t that direct. Example from startup/VC land:
Founders leave VC meetings thinking that every VC will invest, but they rarely do.
Worse over, the founders don’t know what they need to do in order to be fundable.
4/ So why should you ask the magic Q?
To get clarity.
You want to know where you stand, and what it takes to get what you want in a way that also gets them what they want.
It also holds them (mentally) accountable once the thing they need becomes true.
5/ Staying in the context of soliciting investors, the question is “what would need to be true for you to want to invest (or partner with us on this journey, etc)?”
Multiple responses to this question are likely to deliver a positive result.