FINTECH SNARK TANK OBSERVATIONS
Now is the perfect time to be a venture capitalist. If you have thick skin, it is.
Why is this a good time for VCs? According to CB Insights, the third quarter of 2021 has been an excellent quarter for VCs in terms of:
- Funding. Global venture capital funding reached $ 158.2 billion, an increase of 105% year-on-year. US companies have raised $ 72.3 billion in more than 3,200 deals, the most on record.
- Mega-towers. The 409 mega-towers over $ 100 million were an all-time high for the 5th consecutive quarter. The $ 91.3 billion in mega-towers in the third quarter of 2021 was double that of a year ago.
- Licornification. In the third quarter of 2021, 127 new unicorns were created, the second highest number after the unicornification of 140 startups in the second quarter of 2021.
And why the need for thick skin? Some people aren’t impressed with these numbers, including:
- Rohit Chopra, Director of the Consumer Financial Protection Board (CFPB). In his order to terminate the startup LendUp to cease its lending operations, the agency director noted that “LendUp was backed by some of the biggest names in venture capital,” and mentioned private equity firms. venture well known as Kleiner Perkins, Andreessen Horowitz and QED Investors.
- Jack Dorsey. The New York Times reported that the Block chief “exposed a deep internal divide over the direction of crypto and opposed some of the industry’s wealthiest backers” and “warned that Web3 belonged to really to VCs pouring billions into crypto ventures. “Dorsey tweeted that Web3” will never escape their inducements. “
Other passengers on the VC demonization train include:
- the new york magazine. The author of a November 2020 article titled How venture capitalists distort capitalism said that “for decades, venture capitalists have managed to define themselves as shrewd meritocrats who direct money to those who will use it best. But examples like WeWork make it harder to believe VCs help balance greedy impulses with informed innovation. On the contrary, VCs embody the cynical form of modern capitalism, which too often rewards cunning middlemen and bombastic charlatans rather than hard-working employees and creative businessmen.
- TechCrunch. An August 2021 article titled Venture capital undermines human rights cites an Amnesty International investigation which found that none of the world’s 10 largest venture capital firms had a human rights due diligence process that met the standards of the United Nations Guiding Principles for Business and human rights. The author of the article concluded: “This lack of due diligence means that a large majority of venture capital firms are failing in their responsibility to respect human rights”.
Jibbing Jack’s Jeremiad
Ari Paul, CIO and Founder of BlockTower Capital, intervened Twitter defend the venture capital community:
“When it comes to hatred of VCs, it’s not as if VCs have simply decided to hold big stakes in the web3. They bought the positions. Why were they able to buy so much? Two main reasons:
1. Regulators. As many have pointed out, teams are legally required to fundraise from AML / KYC investors, and it is much safer and cheaper to fundraise from accredited investors only. While there are ways around this, they are either expensive and ineffective or legally risky.
2. Venture capital firms allocate capital reasonably well. In a meritocracy (ie free markets), the best beneficiaries will end up owning everything (absent taxes and other redistribution mechanisms).
A few years ago Jack and many bitcoiners said that all of this Web3 stuff was just scams. Now that it works and [has] generated hundreds of billions of dollars in value, he complains that VCs own it.
Dorsey’s claim may not even be correct. As Mike Dudas, Managing Partner of Red Pill Ventures, points out on his blog:
“Typically, [Web3] symbolic holdings are much less concentrated in the hands of capital (investors) and management (team) than in traditional Web2 models. In most cases, more than half of the network, sometimes much more, is reserved for protocol users and for future treasury and growth efforts.
In her complaint that VCs own Web3, Dorsey conveniently forgets or omits the fact that in 2015, Twitter created its own venture capital arm. Quartz’s article covering its launch doesn’t include Dorsey’s complaints about VCs owning too much of anything, by the way.
Chopra’s low shots
Chopra’s comments are also selective and inappropriate criticism – inappropriate because the VCs who have invested in LendUp bear little responsibility for the company’s breaches of regulatory compliance, and selective because we never hear from a government official. publicly commend a VC for making an investment in a business that continues to create jobs and value for the company.
The rants of the two publications against the VCs are also heinous.
The New Yorker article claims that VCs “too often reward shrewd middlemen and bombastic charlatans over hard-working employees and creative businessmen.”
How often is “too often”? If once is “too often” then the New Yorker is right.
The reality, however, is that the overwhelming majority of venture capital funds go to founders and companies who work hard and are creative. Throwing out hardworking, creative babies with the bombastic bathwater doesn’t do the New Yorker.
TechCrunch’s review of VCs is a real headache – it’s a post that is practically licking the boots of the venture capital community. The review of the article suffers from a few problems:
- The United Nations is hardly a model for the protection of human rights. The book by former UN Ambassador Dore Gold, Tower of Babble: How the United Nations fueled global chaos, criticized the UN for its occasional support for genocide and terrorism.
- Weak logic. Concluding that VCs do not respect human rights because they do not use an organization’s “guiding principles” does not prove that they do not support human rights.
The empty demonization of venture capital
The demonization of VC is ingrained in psychology and our need to have an enemy to blame for results we don’t like. A research report with an indigestible title An existential function of the enemy: evidence that people attribute influence to personal and political enemies to compensate for threats of control States:
“Seeing yourself as having powerful enemies can perform an important psychological function. People attribute exaggerated influence to enemies as a way to compensate for perceptions of reduced control over their surroundings.
A study by the authors showed that people attribute influence over life events to an enemy when the social system as a whole seems messy.
Blaming venture capitalists for enslaving Web3 to its inducements or systemic human rights violation or even for pushing a single fintech startup to deceive investors is nonsense.
Jack Dorsey and Rohit Chopra would do well to remember the words of Pogo, Walt Kelly’s comic book character, who said, “I have found the enemy and this is us.