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Every single stupid, loathsome, and ugly story in tech is a result of the fundamentally broken relationship between venture capital and technology. And, as with many things, it started with a blog.
In 2011, Marc Andreessen made a subtle comment that would define the entire tech ecosystem for over a decade: “... too much of the debate [around tech companies] is still around financial valuation, as opposed to the underlying intrinsic value of the best of Silicon Valley’s new companies.” At the time, Andreessen’s “Software is eating the world” was lauded as revolutionary, in part because it successfully framed how software was invading most of our lives, and in part because it was a very long and thoughtful piece about technology at a time when the tech industry had very little scrutiny.
If it had, somebody would’ve noticed what Andreessen was advocating: a growth-at-all-costs tech ecosystem divorced from financial valuations, defined not by the quality of its businesses but by what “the broader consequences are for businesses and the economy” and the need to “expand the number of innovative new companies created in the U.S. and around the world.”
Had anyone scrutinized (or chosen to follow up) on the statements in this piece, they’d see that the fundamental tome of startups — the oft-referenced but poorly-read magna carta of Silicon Valley — was a specious tantrum. Andreessen wasn’t advocating for “good” tech companies. He was actively marketing a nihilistic lens through which to view software companies differently from the rest of the world, not because they were good businesses, but because they were special snowflakes that deserved to be treated differently. His mealy-mouthed screed repeatedly trumpets “revenue” as the gauge of a company’s success, and names investments like Zynga, Twitter, Foursquare and Groupon as “building real, high-growth, high-margin, highly defensible businesses.”
Foursquare, a location-based social network company that would eventually move into flogging location metadata to big firms, would merge with Factual in 2020, another company that aggregates data, laying off an indeterminate amount of people in the process. Though they would claim to have their first profitable quarter in Q4 2020, there has been little information since, other than a 2021 blog post from founder Dennis Crowley that said they’d do “well over” $100 million in 2021.
Andreessen cited Zynga as one of “the fastest growing entertainment companies,” saying that “traditional videogame powerhouses like Electronic Arts and Nintendo have seen revenues stagnate and fall,” a historically-accurate statement that may end up being one of the dumbest things he’s ever said: Nintendo had $630 million in net profit in its second quarter earnings this year, and Electronic Arts had $399 million in net income in Q3 2023.
Zynga, however, would go public in December 2011, and would end up posting a net loss of 435 million dollars in Q4 2011, followed by a net loss of $85.4 million in Q1 2012, a net loss of $22 million in Q2 2012, a net loss of $52.7 million in Q3 2012, and a net loss of $209 million in Q4 2012. In the next decade or so, Zynga would have exactly three profitable quarters, and then merge with Take Two Interactive in 2022 at a valuation of $12.7 billion, a bizarre transaction that turned Take Two, turning it from a company that made $111 million in Fiscal Year 2022 to a company that lost $610 million in Fiscal Year 2023. While venture capitalists like Andreessen did very well on Zynga’s IPO, any investor that stuck around would, at best, would have made a smidgen of profit on its initial $10-a-share listing.
Groupon went public in November 2011 (just over a month after Andreessen’s post), and would have exactly one profitable year in the public listing history of their unsustainable, cash-burning “group deals” platform. Groupon was worth $17 billion when it went public. Today it’s worth a mere $369 million, with a CEO that lives in the Czech Republic despite the company being headquartered out of Chicago.
Andreessen Horowitz didn’t even hold onto their shares for a year.
Throwing Up
“Software is eating the world” and the returns that followed minted Andreessen Horowitz as a firm that saw the future, rather than advocates for a rot economy that has killed 3,200 startups in 2023 alone. And these plans were in the works before software ate anything. Andreessen’s co-founder Ben Horowitz would note in “The Case For The Fat Startup, (a piece I found thanks to Elizabeth Lopatto of The Verge)” published a little under a year earlier, that “you cannot save your way to winning the market” and framed not being the number one company in the space as “purgatory,” scoffing at companies that were cash-flow positive but had “zero chance of becoming a high-growth company.”
There is an obvious incentive for venture capitalists to push this kind of unsustainable growth model — a tech industry that is built on a dependency on venture capital. While venture capitalists like Mark Suster and Fred Wilson advocated for slower investment cycles where deeper relationships were built, the venture community mostly followed A16Z’s hawkish guidance, investing fast and loose, with VC funding ballooning from $35 billion in 2011, to $58 billion in 2014, to $107 billion in 2019, to nearly $330 billion in 2021, before dropping to $225.5 billion in 2022, with 2023 on course to close out somewhere in the region of $140 billion.
What’s important to remember about venture capital is that the majority of their money has historically gone into later-stage companies. As far back as 2011, seed stage (the first money, and arguably the only time I’d call something a “startup”) investments were dropping (down 48% year-over-year in 2011), a trend that has continued to the point that seed-stage deals make up less than ten percent of investments. Venture capital predominantly invests in “early-stage” (a term that can mean anything from Series A onward, when a company is already established) and “late-stage,” yet frames itself as some sort of financial daredevil making wild bets as it doubles and triples down on companies.
What I am saying is that Andreessen Horowitz isn’t a “media company that monetizes through VC,” but a form of financial cult. The belief system that made the valley rich is the exact same one that is currently killing it, in part because Andreessen’s views and goals were anti-technological at their core. As I noted when digesting his “techno-optimist manifesto,” Andreessen is a deeply cynical man intent on spreading monetizable software into every crevice of the economy, building sickly, unsustainable companies that continually return to the carrier to relieve themselves of the disease. Andreessen’s focus on hyper-growth companies was not intended to make the world better, but to create more dependencies (like Uber and Lyft destroying local transit, or Doordash eating the margins of every restaurant it serves) under the auspice of “disruption.”
The reason that the growth-at-all-costs rot economy creates such evil companies is that their only goal — as incentivized by venture capitalists who want to see “growth” but not “profit” — is to consume market share. There is a world (a very different world) where Lyft, Uber and Doordash could have created a true employer-employee relationship with drivers, but the company would have cost too much and grown too slowly to make venture capitalists willing to invest, even if said companies would have likely been worth significantly more and avoided the labor crises that dogged them throughout their existence, along with the subsequent regulatory and political backlash.
Andreessen’s nihilism and the tech industry’s tendency to follow meant that instead of using software to elevate labor and better society while making money, venture capital incentivized companies that could spit out big, stupid numbers, to hell with the human and financial costs.
And that industry has begun to wilt, terrifying those who got rich and powerful from the exploitation and rot.
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Defective Accelerationism
Venture capital has, in building a dependent startup ecosystem, created a dependency on a constant flow of cheap or interest-free money, as a growth-at-all-costs ecosystem is inherently lossy, with investors making bets on how long they can keep something alive until it sells or goes public rather than seeking sustainability from day one. They dressed these destructive businesses up as “disruptive,” because they had a massive competitive advantage over industry incumbents — massive amounts of capital and the incentive to dominate a market rather than compete on a qualitative basis by creating a functional business. In many ways, venture capital hasn’t incentivized creating companies at all, with genuine early-stage businesses sidelined in favor of pumping dollars into vehicles to consume market share until they can be sold.
As this model dies, its advocates have become desperate, framing those who don’t believe we should spend billions of dollars to prop up unprofitable non-businesses as “decels” that believe the tech industry should “slow down.” These people call themselves “effective accelerationists” (otherwise known as e/acc) and are led by a Guillaume Verdon, a former Google engineer that goes by the agonizing Twitter handle “Based Beff Jezos,” where he posts increasingly large amounts of word salad for dimwits to scoff down in the name of praying to the gods of growth.
This is, of course, an attempt to turn hyper-growth into a religion, bringing further nihilism in an already grim ecosystem. It’s partially driven by right wing academics like Nick Land, who advocates for, to quote Mother Jones’ Ali Breland, “accelerating the world toward eventual destruction - a future he welcomed,” as well as something called “hyper-racism” that I refuse to learn more about. Land, of course, was cited in Andreessen’s Techno-Optimist Manifesto as one of the “Patron Saints of Techno-Optimism.”
Sidebar: It’s insane that Andreessen — a man who, through his investments and public profile, has cloaked himself with a veneer of respectability — cited Land in the first place. Land, for the uninitiated, is an English philosopher and one of the largest advocates for the “Dark Enlightenment,” which (I’m simplifying, because the manifesto is written in the most dense way possible) identifies liberal democratic values as a primary barrier to progress. Land’s writings also show an affinity for eugenics. He is — to put it mildly — not a very nice man. He’s also most decidedly not an optimist.
As Breland notes, e/acc is intellectually hollow, and I’d argue it’s also inherently childish. These people aren’t complaining about “decels”; they’re complaining that resources, governments, and society itself will not move every roadblock and ethical concern out of the way so that Daddy Venture can make another billion dollars. Though they dress themselves in the trappings of the manosphere’s “tough guy” mantra, they build their beliefs on a weak, manipulative, and limp ethos where they cry and squeal every time they’re faced with a thing that they don’t like. They claim to loathe privilege, yet they crave a privileged existence where society doesn’t get in the way of anything they want to do.
Effective Accelerationists are not builders; they’re crybabies that won’t accept the world as it is, desperate to build rickety empires with total awareness of the short and long-term consequences that they assume they’re immune to.
Despite complaining about nobody wanting to work, this cult is inherently built on half-assery, growing things as fast as they can and fearing any movement that might force them to build something fundamentally sound. Anything that they perceive as counter to their narratives is a product of “big government” (who they happily cried to for a bailout when Silicon Valley Bank collapsed) or “the mainstream media,” framing themselves as victims of society rather than arguably some of the more privileged and entitled people I’ve ever had the unfortunate pleasure of encountering. They are romanticizing being a robber baron, using money and power to acquire other people’s ideas because they lack any real creativity. Generative excites them because it allows them to LARP in the creative arts without the troublesome task of learning or doing something.
They are anti-responsibility, anti-accountability and anti-consequence, yet dress themselves in the trappings of rugged individualism and hard work. They live in a world of hypocrisy, where regulation — societal conditions built to protect people — is an unfair force, but the effects of their actions (which create the societal conditions that demand regulation) are somehow justified, because the tech industry is special.
Curing The Rot
We have still yet to have a real reckoning with the reckless tech investment of 2021. Billions of dollars were burned in overblown valuations because the entire industry couldn’t help but follow the big firms, all while ignoring very basic questions like “does this make money?” and “will anyone give money to this company for a service?” It was a deeply shameful year for the industry; one that should have had major firms fire their principals rather than deprive the ecosystem of investment in the name of a “bad economy,” which was less of a statement of fact and more of an excuse to widen the share of capital allocated to unsustainable “high-growth” companies.
And that’s before you consider the damage done from the past decade’s existence. What companies didn’t get built because most of the money flowed to the top? What great ideas didn’t happen, or will happen much later, because billions of dollars got pumped into cryptocurrency or vaguely-described “AI” products? How many functional businesses didn’t scale because being profitable isn’t that attractive to venture capitalists? These are unanswerable questions, but ones that I think about a lot.
The result of these excesses is a startup ecosystem where loud, rich and powerful men are actively trying to burn as much money as possible, and thousands of people will applaud them.
There is, of course, a better tech industry that could (and should) grow out of this economic panic; one where venture capital realigns to creating longer investment timelines and focuses on businesses that have actual business models. At this point, it’s hard to even see venture capital as a force for funding startups. As noted above, the vast majority of startup capital isn’t put into small companies, but growing larger ones into something that can be flogged to the public markets or other companies.
A better tech industry would be one where the majority of capital stays in the seed and early-stage parts of the ecosystem, taking risks on interesting companies to get them off the ground with the understanding that any further financing will be based on actual, real profitability and would have to involve a road to long-term sustainability. This would incentivize actual risk-taking and innovation while squashing the tendency for companies to grow too fast. This would, in the eyes of e/acc, be “decel thinking,” but the actual result would be a stronger, better tech industry that contributes something to society rather than finding ways to add varying tolls to our lives.
If the tech industry’s venture capitalists must invest over a hundred billion dollars a year in the name of “innovation,” they should do so by betting on people with new companies and new ideas rather than creating the inevitable stagnation of investing billions in the same late-stage companies everybody else is. If you want to “accelerate” the tech industry, incentivizing young, smart people to create new things is the way to do it, not shoving more money into established founders like Elon Musk and Adam Neumann.
Musk, like e/acc’s cultists, deeply fears the end of the free interest party, and as Linette Lopez at Insider said, his entire fortune was built on “a placid economy where interest rates were near zero.” The Twitter deal is already certain to go down as one of the worst acquisitions in history, and I’d argue it’s symbolic of tech’s top-down rot. Andreessen Horowitz put $400 million into an already-unprofitable company that was being acquired by somebody that had waived due diligence and had no plan beyond his concerns about “the woke mind virus.” In a just tech economy, the venture elite would have told Elon to pound sand, forcing him to find other funding or otherwise prove, like a regular founder would have to, why he was capable of making this a profitable deal.
Worse still, Lopez reports that Musk is “curiously cash poor,” with 63% of his Tesla shares “pledged as collateral to secure certain personal indebtedness,” a man that grumbles about lazy workers while keeping himself afloat in a combination of loans and government subsidies. While Musk is lorded as a visionary founder and canny businessman, his empire is as rickety as the venture capital firms dependent on a constant flow of LP capital to keep pumping money into “late-stage startups,” otherwise known as “regular companies that should have worked it out already.”
Musk really is the grotesque symbol of the rot in venture capital — the doubling, tripling and quadrupling down on founders you like rather than good ideas or sound businesses.
Over the last 14 years, venture capital made the tech industry dependent on equity fundraising, then redefined words like “startup” and “disruption” to lionize market dominance through the nakedly unfair competitive advantage of not having to build a business that makes a profit. And while this also created a booming tech labor market, the cost is the continual binge and purge of hiring and firing that led to nearly 250,000 tech workers losing their job in 2023 alone.
Saving Silicon Valley
Whatever Andreessen and his ilk are, they are not “optimists.” These are not people fighting to make the world better, or smaller, or more connected. Their war is one where software poisons and monetizes every corner of society, with the costs flowing back to rich and powerful people that can, in turn, add even more tolls to your everyday life. Their influence has turned the tech industry away from making software that deepens the human experience; that empowers us and enriches us through streamlining annoyances, forges connections and makes our lives fundamentally better.
Those that fight for the growth-at-all-costs cause are anti-innovation, anti-labor and anti-creativity. They see ChatGPT and Midjourney as ample replacements for writers and artists because they fundamentally lack any creative energy, existing as joyless vessels hoarding more capital and attention in the hopes it makes them forget that they’ve fundamentally created nothing.
It shouldn’t surprise anyone that some venture capitalists worship a machine that can create soulless facsimiles of other people’s ideas. It’s how they built billion-dollar empires without ever having any ideas of their own.
Real techno-optimists — people actually interested in a better tech industry — should campaign for a venture capital industry that doesn’t sit on its cash and focuses it on funding new ideas and new founders. The tech boom grew from accelerators like YCombinator (which produced several boring and societally useful billion-dollar companies like Stripe, Dropbox and Gusto) that almost exclusively focuses on seed-stage companies, and I believe this is where the actual future lies rather than in the hands of right-leaning demagogues that tell you that workers are lazy and artificial intelligence is god.
A better tech industry is youthful, vibrant, focused, and fun. A better tech industry creates products for real people rather than symbolic vehicles for venture capital to market and sell. A better tech industry creates financially-sound companies, and it is absolutely possible for venture capital to be part of the picture (Sequoia funded Nvidia back in 1996, for example) — and if they’re going to take risks, they should take them on big ideas that have societal prospects, not the boondoggles of men on their third or fourth con.
The Valley needs to return to building the future rather than miring the tech industry and the world in reimagining the present. It’s the only way to turn the page on the malignant presence of the growth-drunk software industry — and the last two years of tech’s failure to stay relevant without causing harm in the process.
To My Readers:
This newsletter will more than likely be my last of the year, and the last episode of 15 Minutes In Hell will run this week. I’m taking a break through the week of January 8 2024. Handling my PR firm while also writing the newsletter is a challenge (and one I deeply enjoy!), and I need a little time to recharge.
I also wanted to thank you for your support - while tiring, this has also been a tremendous year for the newsletter, which is now approaching 22,000 subscribers, and 15 Minutes In Hell, which has over 165,000 downloads. I feel very lucky to have so many people willing to read my work, visit the Discord and listen to the podcast - it’s my pleasure to write for you, and I am grateful for every one of you.
There are many different things you could read or listen to instead, and I am honored that you chose my work. All I ask is you keep sharing it with people, though I totally get if you don’t.
Happy holidays. I’ll still be online on Twitter, Bluesky, and of course email (ed@ezpr.com) if you need anything.