Why are venture capitalists so deranged on Twitter?
A boot strap theory of bad takes
While I was writing this this afternoon Matt Levine’s newsletter came out which is on basically the same thing, but it’s written by someone who is actually competent. So maybe read that instead/also.
Most venture capitalists, I have decided, are deranged. Either that or they engage in a socialized process of performative derangement to get attention, which, let's be honest, is an indicator of derangement in itself.
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I have thought this for a very long time, because, like, look at the stuff they post on twitter:
The worst variant of this is absolutely the would be philosopher kings who think either that they are world-historic experts on subjects or that they’ve discovered never before thought of truths that are covered in like, the second week of Introduction to General Philosophy 101 lectures:
My long time belief in their derangement was absolutely and irreversibly cemented when this week a Business Insider article came out about how VC’s are actually paying to have this sort of stuff written for them:
“Ghostwriting tweets for venture capitalists is my side hustle. Last year I made about $200,000…. If a VC feels they're not getting enough attention, they can just tweet, "You have to work 80 hours a week to be successful." Everyone will come out to tell you that you're canceled. It taps into money, privilege, class, ability to sacrifice. People have a lot of emotions about those subjects.”
“We've been living in the metaverse for 15 years. We live in a technology-mediated reality. There are no facts. Narrative is the only thing that matters. Everything is propaganda. That's the world we're living in, and we're not going back.”
Even more deranged!
Like, first of all all of these half-cocked pseudointellectual opinions about epistemology and the fall of civilizations or whatever are wrong. But also, what does all of this hustle culture faux intellectual nonsense actually have to do with the job of investing capital in startup businesses to get returns? The answer, I think, is that some VCs aren’t actually good at their jobs maybe? Like, insofar as you think their job is to identify companies worth investing in?
So, caveating that I don’t work in tech or investing and don’t plan to, I think there are basically three ways we might think being a VC who makes money works.
You are a person with a large pot of money. People with ideas like “What if we put solar panels on roads?”, “Tinder but exclusively for Republican’s, apparently” or “WeWork again, including the same founders, but this time with apartments” come to you and ask for money. You think about whether this is a good idea or not and only give money to the ones you think have a good chance of working out. How much money you make in this world is basically a function of how good you are at guessing where capital will be productive. This is pretty good for society, because your returns are based on increasing the efficiency of capital allocation.
You are a person with a large pot of money, and also connections to things startups need like employees or enterprise businesses. You might partially make bets on which companies succeed, but you also help them to succeed. You connect them to the things they need to be productive and grow. This is also good for society and another scenario where you are bringing skills to bear to create value.
You are a person with a large pot of money. Instead of people pitching you ideas like “Uber for washing machines” or whatever and you thinking about whether that is a good idea or not, you go out and find as many startups as possible and unload the money cannon on them. If the expected value of startups generally is positive, you do this to any you can find. If, in the less extreme scenario, it’s just that there is a set of startups basically everyone agrees are going to go to the moon, you compete as much as you can to invest in those. In this case, you aren’t really doing anything productive for society. You aren’t making bets or connections that generate value, you are just trying to leach out returns from being the first person to get in on the deal. Your work could basically be replaced by an ATM that only dispenses money to people who have worked at FAANG or graduated from an Ivy League school.
Obviously, in the real world it's going to be a combination of making bets on startups, helping startups, and competing for the good options that gives a VC alpha, but that combination is going to vary from person to person.
And in the case of deranged tweets, the Business Insider article is pretty explicit that it’s about option 3:
“Then something changed. Software companies got a lot bigger. When Uber went public, you had a group of VCs who made a billion dollars — each. That was a kind of growing-up moment for venture funding. You start with a bunch of men who all knew one another in a kind of cozy country-club setting. Now they all have more money than they know what to do with, and they're trying to go bigger. There's friendly competition. The stakes are getting higher. The guys who made a billion aren't retiring; they're trying to do a $10 billion fund. The competition means the deal flow is faster and more cutthroat. Today, the best deals are closing within 24 hours after they go on market. And there's no way to get in early, as you could in the old days, because founders won't take a meeting with you before the funding round is closed.
Now what does that have to do with Twitter? It matters because funders have to build parasocial relationships with founders. A founder might read a tweet from a VC and say: "Wow, he's a cool guy. He's in on the joke. I want him on my board." Establishing yourself as a funder is no longer a one-to-one format where you're building meaningful relationships. It's a one-to-many format. You're broadcasting. I'm writing the content that will get the attention of young founders, to establish the credibility of my clients, the VCs.”
So, twitter VC’s are banking on the third route for returns, which is, you know, fine I guess. Like, I suppose it is increasing the amount of bad opinions on things like “Why Lord of the Rings means you should be a facist”or whatever other nonsense de jour from the Thiel Philosophy Complex in the world, which is definitely not great. It’s also not, you know, productive for society overall. But it’s not the single greatest societal ill I suppose.
What does annoy me about this (though the amount of facist-adjacent philosophizing does too), is that I think this has a potential to be sort of circular? People listen to VC’s bad takes at least partially because they have a track record of success. If I have made a billion dollars, it's probably a reasonable heuristic to think that I might have some wisdom to impart on at least some topics. But, when I have made a billion dollars because of bad takes on twitter and that drives me more deal flow which will in turn make me even more money that will then cement me even more as a thought leader and so on, we have basically just created an infinite regress of rent-seeking takehavers who never actually demonstrated the acumen from options 1 and 2 that suggests they should be listened to in the first place.
I don’t have stellar evidence that this actually happens — though I do have one or two VC’s in mind who I will not name, because they have a lot of money and expensive lawyers and that scares me. I was going to do a deep dive into the academic literature on returns to venture capital to look at heterogeneity in returns to specific firms with the hope of some circumstantial evidence there, but pretty quickly realized none of the studies have a control variable for, like, # of posts on twitter, so none of it was super relevant. It also may not be the case that a pure archetypical case exists of someone pulling off a complete option 3 bootstrap, but I think at least some VC’s are experiencing a variation on this dynamic and realize it, hence the willingness to pay very high rates for tweets.
I don’t have any solutions or whatever to make this sort of thing go away, but I would very much like it to stop, as I can only handle so many tweets that look like someone fed GPT-3 nothing but LinkedIn hustle grindset posts and a copy of Beyond Good and Evil appearing on my feed in a day.
Lest I be accused of being too much of a negative nancy on this, I am keenly aware that I have cultivated a small but loyal social media following based on my posts about, uh, Gandalf’s armory and the economic details of ghost pirates and am more than willing to shamelessly cash in. So, if you are reading this and are a tech founder, I am willing to throw in the considerable sum of approximately $500 into your cap table with the solemn promise that I will not do annoying tweets (unless you want me to). Alternatively, if you are a VC reading this, I am so down to write stuff like “Just woke up my founders at 3am for a face to face. We can sleep when we’re done creating value. #hustling” or “What Mongol logistics during the 1241 invasion of Hungary can teach founders. A thread 1/x” if you pay me money.
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Some Stuff I’m Reading:
The Field and The Forge - John Landers
If you actually are interested in Mongol logistics (or how pre-modern war and economies worked generally)
Siting Bank Branches - Patrick McKenzie
Interesting deep dive into how banks decide to invest in real estate.
Lion’s Pride - Chris Charlton
Way more than you ever wanted to know about the history of professional wrestling in Japan.
Inside National Health Reform - John E. McDonough
Goes section by section through the entirety of the Affordable Care Act explaining it.
Of course, huge selection bias here. Normal people don’t post on twitter.
I’m not linking to this because I feel weird doing so, but it exists and isn’t hard to find