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
A common misunderstanding about Agile and “Big Design Up Front”:
There’s nothing in the Agile Manifesto or Principles that states you should never have any idea what you’re trying to build.
You’re allowed to think about a desired outcome from the beginning.
It’s not Big Design Up Front if you do in-depth research to understand the user’s problem.
It’s not BDUF if you spend detailed time learning who needs this thing and why they need it.
It’s not BDUF if you help every team member know what success looks like.
Agile is about reducing risk.
It’s not Agile if you increase risk by starting your sprints with complete ignorance.
It’s not Agile if you don’t research.
Don’t make the mistake of shutting down critical understanding by labeling it Bg Design Up Front.
It would be a mistake to assume this research should only be done by designers and researchers.
Product management and developers also need to be out with the team, conducting the research.
Shared Understanding is the key objective
Big Design Up Front is a thing to avoid.
Defining all the functionality before coding is BDUF.
Drawing every screen and every pixel is BDUF.
Promising functionality (or delivery dates) to customers before development starts is BDUF.
These things shouldn’t happen in Agile.
There’s nothing in the Agile Manifesto or Principles that states you should never have any idea what you’re trying to build.
You’re allowed to think about a desired outcome from the beginning.
It’s not Big Design Up Front if you do in-depth research to understand the user’s problem.
It’s not BDUF if you spend detailed time learning who needs this thing and why they need it.
It’s not BDUF if you help every team member know what success looks like.
Agile is about reducing risk.
It’s not Agile if you increase risk by starting your sprints with complete ignorance.
It’s not Agile if you don’t research.
Don’t make the mistake of shutting down critical understanding by labeling it Bg Design Up Front.
It would be a mistake to assume this research should only be done by designers and researchers.
Product management and developers also need to be out with the team, conducting the research.
Shared Understanding is the key objective
I\u2019d recommend that the devs participate directly in the research.
— Jared Spool (@jmspool) November 18, 2018
If the devs go into the first sprint with a thorough understanding of the user\u2019s problems, they are far more likely to solve it well.
Big Design Up Front is a thing to avoid.
Defining all the functionality before coding is BDUF.
Drawing every screen and every pixel is BDUF.
Promising functionality (or delivery dates) to customers before development starts is BDUF.
These things shouldn’t happen in Agile.
There has been a lot of discussion about negative emissions technologies (NETs) lately. While we need to be skeptical of assumed planetary-scale engineering and wary of moral hazard, we also need much greater RD&D funding to keep our options open. A quick thread: 1/10
Energy system models love NETs, particularly for very rapid mitigation scenarios like 1.5C (where the alternative is zero global emissions by 2040)! More problematically, they also like tons of NETs in 2C scenarios where NETs are less essential. https://t.co/M3ACyD4cv7 2/10
In model world the math is simple: very rapid mitigation is expensive today, particularly once you get outside the power sector, and technological advancement may make later NETs cheaper than near-term mitigation after a point. 3/10
This is, of course, problematic if the aim is to ensure that particular targets (such as well-below 2C) are met; betting that a "backstop" technology that does not exist today at any meaningful scale will save the day is a hell of a moral hazard. 4/10
Many models go completely overboard with CCS, seeing a future resurgence of coal and a large part of global primary energy occurring with carbon capture. For example, here is what the MESSAGE SSP2-1.9 scenario shows: 5/10
Energy system models love NETs, particularly for very rapid mitigation scenarios like 1.5C (where the alternative is zero global emissions by 2040)! More problematically, they also like tons of NETs in 2C scenarios where NETs are less essential. https://t.co/M3ACyD4cv7 2/10
There is a lot of confusion about carbon budgets and how quickly emissions need to fall to zero to meet various warming targets. To cut through some of this morass, we can use some very simple emission pathways to explore what various targets would entail. 1/11 pic.twitter.com/Kriedtf0Ec
— Zeke Hausfather (@hausfath) September 24, 2020
In model world the math is simple: very rapid mitigation is expensive today, particularly once you get outside the power sector, and technological advancement may make later NETs cheaper than near-term mitigation after a point. 3/10
This is, of course, problematic if the aim is to ensure that particular targets (such as well-below 2C) are met; betting that a "backstop" technology that does not exist today at any meaningful scale will save the day is a hell of a moral hazard. 4/10
Many models go completely overboard with CCS, seeing a future resurgence of coal and a large part of global primary energy occurring with carbon capture. For example, here is what the MESSAGE SSP2-1.9 scenario shows: 5/10
