VC-istan 1: What is VC-istan?

This is the first part of a series that was originally intended as one post, but will take more. For obvious reasons, I’d rather run five 1000-word posts than one 5000-word post. This assumes that I can keep a post short, brevity not being my strong suit. So, let’s just go into it. What the fuck is VC-istan?

I’ve used that term a lot, and many take it to be pejorative, as if there were something negative about “stan”. That’s not correct. I frequently use “stan” to describe one metaphorical space of people, and it can be a group that I’m fond of (e.g. “Nerdistan”) or one I dislike. After all, “stan” only means a place where people live. The name, itself, is utterly neutral.

So what is VC-istan? It’s not just a snarky name for venture capitalists and the toxic technology ecosystem that some of them (some, I reiterate, not all) have created. VC-istan means something, and I’m going to explain just what.

The VC-istan Hypothesis

The VC-istan Hypothesis is that the leading venture capitalists, the “cool kids” in that set who all know each other, have created a postmodern corporate entity– possibly the first of its kind. It functions as one company at the top echelon, but has recognized that corporations themselves are disposable (much moreso than projects or departments within a company, which are more difficult to cut). This insight isn’t new (shell companies are disposable by design) but the VC startup is a fully-fledged, single-product enterprise designed entirely to take on a specific high-risk business gambit (usually in a red ocean where first-mover advantages dominate, making VC “rocket fuel” especially powerful). The disposable company inside VC-istan is a true startup, almost free-standing if you don’t see the strings.

The “marquee” investors function as the executives of this larger, shadowy, not-exactly-a-corporation entity that I’ve described. Middle managers, maligned as inefficient, corrupt, and often stupid, have been replaced with founders and startup executives who inhabit about the same economic and social stratum as their gray-suited forebears, but have sexier job titles: Senior VP of something no one outside California has heard of, as opposed to Associate Director at a household name. (In truth, I think those founders are no more virtuous, as a class, than the maligned middle managers of the old companies.) The tech press are a bizarre HR organization, as are the fully-corporate bean-counters who sign of on acquisitions (the bonus committee). To attract top talent, one has to pay for it; the generous annual compensation for which banking is known has been replaced by less generous (but possibly more variable) lottery-ticket allocation given the name of employee equity.

The “one corporation” dynamic is held together by the collusive– and almost certainly illegal– reputation economy that the venture capitalists have created. As a group, they decide whether they like a company or not. If appropriate laws were enforced, stopping all of that anti-competitive note-sharing and forcing them to think independently, the VC-funded world would behave much more like a fair market. Then, there probably wouldn’t be a palpable entity or “scene” that one could call “VC-istan”. There would be a much more heterogeneous array of new businesses, not all concentrated in one sector or geographical area.

Like the Efficient Market Hypothesis, the VC-istan Hypothesis is neither fully true nor fully false. There is truth in it, but it is not absolute. It seems to be mostly true, now. Its truth might change as conditions do.

Why is VC-istan bad?

I find it important to describe VC-istan and why it emerged because, to be blunt, I want to kill it. In order to defeat it, we must know it. I want to bring truth forward, because its particular truth is ugly and, if proper information percolates, it will render the VC-istan route a second-tier career, starving it of talent unless it changes its ways. Every time a smart person learns what VC-istan truly is, its position becomes weaker, because it becomes that much harder for its established caste to peddle unreasonable dreams and broken promises.

It’s not that I want to end venture capital as a financing process. To the contrary, I think it’s a very good concept, if poorly implemented now. So, what went wrong? The feudalistic reputation economy of VC-istan has a simple (and disgusting) rule: the VCs are your owners. They are not partners; they can destroy your whole career by picking up a phone. If you say anything negative about a venture capitalist, much less sue one in the (admittedly, fairly rare) even that he robs you, you’ll never raise money again. This sort of blacklisting could not exist on a fair market, because a small set of people taking the “protect our own at all moral costs” approach could only exclude their enemies from a small social circle, and not preclude venture investment outright.

It is, of course, this collusion that enables investors to establish themselves as theexecutive suite, to which even the most talented entrepreneurs and technologists (who are too numerous and unruly to hold any kind of collusive arrangement together) are subordinate. On a fair market, investors, entrepreneurs, and technologists would not separate so cleanly into these distinct strata with the bottom of one still above or near the top of the next. Rather, the talented technologists would outrank the untalented investors. The parties involved would have to find mutual respect for one another as doing fundamentally different, but important, jobs.

Investors have always been the top jocks in VC-istan, but the distribution of power between business founders (i.e. people offering connections to investors) and technologists (i.e. those doing the actual work) seems to have evolved out-of-favor for the technologists. Of course, there are plenty of computer programmers (myself included) who frequently turn away solicitations from “idea guys” who “just need a programmer”, so it might seem that tech is hot right now. Not quite; most of those are cases of “8″ technologists turning down “5″ business guys. If you compare at-parity, the business side has much higher status. A Business 8 is on the partner track at a top-5 venture firm and can raise a six- or seven-figure seed round on an idea; a technology 8 cannot afford to buy a house in the Bay Area.

This lexicographic rank-ordering replicates the old industrial regime in which being an “8 worker” just didn’t matter, because a 2 manager outranked you. That led to a collapse of motivation at the bottom, caused a bilateral loss of trust, and produced the Theory X culture of a hundred years ago. It wasn’t pretty. I hope that the software industry doesn’t go that way and, to tell the truth, I don’t think that it will; I take it as obvious that technology is much stronger than VC-istan and will resurrect itself no matter what goes down in the Valley.

That said, VC-istan has replicated all of the worst aspects of corporate life, but almost none of its virtues. The old corporate regime was bureaucratic, slow, and prone to corruption and inefficiency, but there were good things about it. Companies invested in their people, and job losses were a rarity, taken as a sign of business failure, rather than an artifact of the mean-spirited “stack ranking” for which companies like Welch’s GE, Enron, and Microsoft have become notorious. The negatives of the old corporate regime were conformism, short-sighted profit-seeking behavior (externalized costs, mostly), subordination, political corruption and inefficiency, and the emergence of an exclusive, sexist and classist “old boy’s club” at the top. That those failures existed (and continue to exist) in many powerful corporations is not controversial.

Most VC-istan companies, as it turns out, have all of these negative traits as well! Startups who no-hire (or fire) over “culture fit” (often, synonymous with “being old, female, or of low socioeconomic origin”) are taking conformity to a far worse extreme than a 1970s-era corporation, which would make much more of an effort to find a place for a “nontraditional” but talented person. The evidence, in truth, is pretty strong that the stodgy bureaucracies of yesteryear were will much fairer (if frustratingly impersonal, since that is usually a prerequisite for fairness) than the new VC-funded “lean” regime.

Sure, there are excellent startups that are free of the above-mentioned ills. They exist, no doubt. However, it’s no easier to find one of those than it was (or is, now) to find a bullshit-free niche of a large company. On the whole, I think having traded in the large companies of the 1960s and ’70s for VC-istan has not been a good deal.

Then, there’s the issue of age discrimination. This will fuck all of us in the ass, and sooner than most of us think, so we need to address it head on. More importantly, ageism is just terrible for technology. Yes, the modeling profession has an expiration date as well; it’s not only programmers who face that. On the other hand, models get to start working in their teens, and there isn’t much of a learning curve, so the loss to the industry is minimal. In technology, on the other hand, it takes years of dedicated full-out work-your-ass-off experience to get any good. It’s an insult to programmers and technology as a whole that a group of talentless, superficial people who have no fucking idea what it takes to be any good at this work, have decided to impose age-grading that begins to close opportunities almost as soon as one has developed a passable level of skill.

In a later essay, I’ll reveal the true and secret cause of VC-istan ageism. It’s not lower wages or some belief that younger people are more creative. It’s far more damning. Here’s a hint. Watch The Office, pay attention to Michael Scott and Ryan Howard.

I don’t know if I will succeed in killing VC-istan. I don’t know what will replace it if I do. I do know that the guys at the top need us more than we need them. I’ll cover that in a future essay, as well.

What is not VC-istan?

Having described what VC-istan is and why I don’t like it, let me give a few comments on what it’s not. First, it’s not all of venture capital. I don’t consider biotechnology or clean energy to be part of VC-istan. The rules in those industries are different, because one actually has to know something about biology, for example, to launch a medical-device startup. The superficiality, ageism, celebrity culture, and lack of respect for hard work that characterize the current bubble crop are not found there; in fact, it’s the opposite, because there are objective goals to be met. VC-istan is focused on light technology, which I use to describe the marketing experiments using technology that, in 2013, seem to outnumber and outcompete (for funding and attention) true technology companies. In light technology, the sole technical challenge is “scaling”, which can be back-filled once flush with cash and able to hire the Valley’s best engineers; but the glory goes to the investors and founders who “had the vision”. So perhaps I might say, “venture-funded light technology” instead of VC-istan; the former sounds less pejorative; but VC-istan has fewer characters and it’s 10:40 at night so, fuck it, brevity wins.

What is it that marries VC-istan to light technology? After all, shouldn’t profit-maximizing venture capitalists go in search of meatier ideas that actually need the investment? Well, many do, and I’m not writing about them. I’m writing about the starfucker types who want to be profiled in business magazines, the ones who want social access more than success on the market, and who thereby sell out not only their own chances at success, but also human decency by creating the collusion and celebrity culture.

Where this ultimately leads is the Parable of the Bikeshed, or what Freud called the narcissism of small differences. People (even those in power) are generally willing to defer to the experts on the big, infrastructural, but usually aesthetically unpleasing (due to their complexity) matters, like how to design a nuclear power plant. “Just bring me the sausage; don’t tell me how it’s made.” On the other hand, on those matters that seem accessible, people form strong opinions. There is little power in the complex and objective, where those who are blatantly wrong will be punished regardless of who they are, and those who have knowledge generally got it through that rank-middling practice of working very hard; but much more power in the simple and subjective, over which simply having made the decision is victory. (The association of arrogant simplisticism with power seems to be present in literalistic religion, too. Notice how many historical deities had strong and explicit opinions about mandatory metaphysical beliefs and about gender roles; but said not a damn thing about how to make antibiotics, which would have actually been useful.) The consumer-oriented light technology that’s in vogue in modern VC-istan is a realm where it’s easy to debate what color to paint the shed, and that’s why it attracts the biggest narcissists.

Venture-funded light technology is, to put it bluntly, a multi-billion-dollar bike shed. In biotech, one can only fund companies whose founders actually understand the science, and pumping money into smiling, stylish idiots is equivalent to incinerating it. For a contrast, the upshot of VC-istan light tech is that any idiot can come up with a plausible scheme, which is much to the benefit of sad-but-established men who “see things in” mediocre but superficially attractive suitors.

One might prefer that this arrogance remain in light technology, which would render it fairly harmless and, in fact, useful. Light tech isn’t a bad thing. Often, it does a much better job at marketing real infrastructural improvements than the inventors ever could. It also can disrupt established and parasitic rent-seekers. I’m not a fan of Uber, a service used mostly because it confers the value of being able to say one uses it (i.e. is able to afford it) but I do welcome anything that threatens to take down the Medallion Mafia. The problem with light technology’s bubbles is that they overreach and, when they get beyond their natural territory, the marketing wizards become devastatingly incompetent. We see a once-great city ruined by absurd rents due to the complete inability of the supposed wunderkinder to solve the city’s biggest problem: housing scarcity. We see that horrific, Aspergerian foray into politics that is Mark Zuckerberg’s (which I call “fweed-oos” because I refuse to call it “forward” anything). We see a whole society beginning to hate technology because a few hundred overprivileged celebrity jackasses (most of whom haven’t written code for decades, if ever) are going out and making a bad name for all of us. That’s bad for the future of technology. It’s bad for those of us who are coming up.

So… fuck it, let’s see if we can end this shit on our own terms, or at least take it down a peg or few. My job is to bring truth, and then it’s up to us as a group to decide what to do with it.