Devin Matthews and Jim Milbery write at the Private Equity Funcast which I just discovered after seeing this article about the “venture capital trap”. I’m still working my way through their blog archive, but it’s fairly fantastic so far. Cogent arguments and a take-no-prisoners style of writing. I recommend it.
The article which led me to their blog talks about the Venture Industrial Complex which Devin defines as follows
I have seen a dramatic increase in the influence of the Venture Industrial Complex (VIC) – that loosely (not so much?) knit group of venture capitalists, bloggers, mentors, advisors, seed funds, accelerators and conferences that feed the American fascination with entrepreneurship for their own gain.
It’s no doubt a pretty skeptical view and definitely one you hear very infrequently as most of the discussion about startups and VC tends to be sugary sweet and wrapped in platitudes about “changing the world” and “build something people love”.
And being a co-founder of a company that sells data to VCs, many of whom I count as close friends, I don’t think there is some grand conspiracy to create the VIC, but nevertheless, elements of what Devin talks about are quite real.
And to some degree, this is all natural.
The stories of VC-backed companies are often more interesting and media outlets naturally need a narrative. Growing 10% week over week, founder in-fighting, pivots, pitch decks, investor-company mis-alignment, Series A crunch, billion dollar exits, etc.
And the investors in these companies need big wins given the economics of their funds and so it’s natural that they’d push for certain types of companies to be built and fund only certain types of companies that might deliver on what they’ve told LPs.
But what really feeds this system or any like it (Hollywood or professional sports for example) is the survivorship bias in the accounts and recounting of it.
There are tons of high school and college athletes who never go pro or actors who never get beyond playing a dead body on Law & Order. Similarly, for every Instagram, there are hundreds of companies that don’t work. For every VC who invests in a billion dollar company, there are 100s of VCs who never invests in even one.
For those companies who are not part of the VIC for whatever reason, I do think a new type of financing vehicle for tech companies needs to emerge.
I think this is part of the reason that our startup failure post mortem posts did so well. Beyond morbid curiousity, people never hear really here these stories of failure and so are drawn to them. Of course, I imagine everyone who read them thinks that they’d never be stupid enough to repeat these mistakes.
For those unfamiliar with the picture, Lake Wobegon is said to be “where all the women are strong, all the men are good looking, and all the children are above average.”