How Venture Capital Tries and Fails To Rewrite Reality
Venture Capital - investing in earlier, riskier private companies in the hope that they’ll be worth something more in the future - is inherently built on trying to see the future. The “great" VCs are graded not just on their ability to put money into companies, but on the advice that they give and the connections they make to other people - ranging from simply making an introduction to directly having a hand in hiring a C-level person. A smart VC is someone that’s able to see a trend before everybody else, and put in a good amount of money so that an exit - say, selling the company to someone else or taking the company public - nets them a massive return.
It naturally plays into the idea that once you’re rich and famous, it’s easier to make more money - you have the connections to get in on deals earlier, as people know who you are and that you have money, as well as the social networking clout to pump the asset in question and make it seem bigger than it really is. One of the funniest examples of this have been the numerous pieces about incredibly successful actor Ryan Reynolds being able to “build a business empire,” each full of childlike wonder about how a handsome, rich, well-connected and extremely popular actor could possibly make something popular. Reynolds bought Aviation Gin for an undisclosed sum and then sold it for $610 million - an absolute coup, make no mistake, but something that should not be considered remarkable based on the fact that Ryan Reynolds is a huge star.
Nevertheless, at least gin has a value. If you drink enough gin, you will either forget about your current problems or create new ones in the process of consuming it. Marketing alcohol is basically “hey, loser, you wanna be COOL?” and thus Reynolds buying it and standing around doing jokes in commercials naturally works, and also isn’t selling you anything based on a spurious ideal - this is alcohol, drink it.
Serena Williams and her husband have done something similar by using their wealth plus star appeal to push a book about their kid’s doll on national news, because they’re able to. They’ve got enough money and clout that they can simply will something into being - would anybody care about this if it was a regular person? No. But because they’re wealthy and famous, doors simply open - not just the media attention that Serena and her husband can get, but the natural willingness of publishers to publish whatever it is they do. And it’s a symbiotic relationship, too - the publishers know people will buy this because it’s from Serena Williams and Alexis Ohanian. On a whim, people who have the power and money can decide to have more of it - it’s not bad, nor does it mean the product is bad…just that these things, largely, do not matter as long as you already have that wealth and influence.
To be clear, in both of these cases these are people with mass appeal. Alexis Ohanian is a rare example of someone who has a great deal of clout within both the tech community and the real world (through Reddit, through Serena, and also I genuinely do not think I’ve heard anyone ever say anything negative about him). And that makes him unique, as one of the most common problems I see with tech products in particular is their inability to break into the real world - and, on some level, to be “cool.”
Venture Capital and the Lathe of Heaven
In the too-many-years of doing this job, I’ve seen a lot of rich people - venture capitalists and otherwise - attempt to turn their ideas into reality and fail miserably. I’ve seen plenty of them succeed, too, but I don’t remember - before last year - anyone really taking something genuinely stupid and bereft of value and brute-forcing it through the media using their social media clout.
I am, of course, talking about two major things - Clubhouse and crypto. Clubhouse launched to some of the frothiest press I’ve ever seen, coupled with seemingly every venture capitalist and their fans posting about how it was the biggest deal, that this was the future of social media, and so on and so forth. Every string was pulled to get celebrities on the platform, hoping to gain positive press for the platform long enough for it to get acquired or to reach mass adoption and basically run itself.
The problem is that Clubhouse was (and is) at best a feature and at worst a very bad product, which is why it was so easily copied and beaten. Nevertheless, there was a several-months-long pump of media (social and otherwise) attention for the platform, not because it was actually good at anything, but because celebrities and rich people were involved. The underlying asset wasn’t very good, which is why its user numbers are in free fall and those who are on the platform are miserable - and I’d imagine that in the next two years you’ll see it acquired for an undisclosed sum and wrapped into another social audio product.
As I previously noted, we are experiencing the capitalist lathe of heaven “where the sheer force of rich people’s dreams have started to alter our perception of what is possible.” In the case of Clubhouse, I believe that Andreessen Horowitz and anyone else involved in investing in the company were trying exactly what Ryan Reynolds tried - to use their vast social presence and connections to attempt to make their dreams reality, and while it worked for a while, they realized that isn’t a particularly good strategy for something that is fundamentally, qualitatively bad. The required investment of time and energy into a product like Clubhouse is a lot to put on a user, and the initial experience is still bad. While the “I’m famous and I endorse this/own this” thing works with simpler products - booze, books, and so on - it doesn’t work with a social media product with a questionable onboarding experience and an extremely variable product.
They thought that if they talked on Clubhouse, talked about Clubhouse, talked about how being on Clubhouse was cool…it’d work. But they fundamentally misunderstood their place in the world - that while this may seem cool to venture capitalists and tech people, very few people in the real world consider tech people cool, and even fewer of them consider them “real people.” Even though movie stars or other celebrities are quite literally protected from regular people talking to them, they are still considered “real” people - and thus their endorsement matters.
That and they tend to not ask too much of their fans - buy some booze! Buy a children’s book! They’re not asking you to join a social network where you may or may not hear someone say something interesting if you wait around long enough. That’s a lot to ask.
They’re also likeable, approachable people, and when I say that Aviation Gin smells and tastes bad, I don’t have to worry that Ryan Reynolds is going to lead a harassment campaign because I attacked his investment.
The deflation of Clubhouse is a great example of tech simply misunderstanding the real world, or understanding it but believing that they had the power to bend the world to their will through sheer force. It was a naked attempt to push something that lacked utility and value and make it “real” - and so many people within the tech community and their circles acted as if Clubhouse was the next Twitter, or Facebook, or Snap because they wanted to look cool - except the rest of the world didn’t give a shit. Only 23% of adults use Twitter, and of those people, 25% of them account for 97% of tweets - and Clubhouse’s existence, like many things, lived and died through Twitter.
The irony - considering my career and what I know - is that this proves that simple promotion is not enough. Something genuinely bad might be popular, but it still has to have some value proposition - there has to be an endearing reason to use it. Poparazzi attempted to do this through some sort of growth hacking thing to shoot to number 1 on the app store, raising a round at a $100m valuation a few days later…and now appears to be languishing in the App Store rankings at 34 in Photo & Video as of writing. And it didn’t work, because it’s an app that doesn’t allow selfies.
In both of these cases, their failures are apparent not just on a qualitative level, but because they’ve attempted to sell something “cool” that “everybody will use” without finding any real people that would actually use it. Discord grew out of the team wanting to have a convenient, feature-rich way to talk to their friends while gaming, and like almost every success story it grew slowly through making itself perfect for many, many niche communities. Its grow was natural, because it took all the things that you’d want from a platform and built it sustainably. Dropbox grew from basically every person in tech using it - but it still did the thing (easily upload and download and access your files) that a lot of people would want - and became a darling of the tech community because it did the job well. Same with Figma, same with Box, same with all sorts of successful companies - they built for a clear audience and grew out of that.
This isn’t to say influence and media attention didn’t help - Dropbox was covered so many times by TechCrunch in their early days that it hurts my brain - but that there was a clear-set value proposition for the end user. There was no need for venture capitalists to defend their investment from all and sundry, nor was there a desperation to try and prove that this “was the future.”
And that’s why I’m such a wet blanket about Clubhouse and the crypto industry - they feel as if venture is attempting to make the future through sheer force of money and influence, without a single consideration of whether anyone will actually like them. While that’s not uncommon, what’s new is the sheer amount of defensiveness and evangelism of these products, and their confusion when the media (and customers) says that something is silly, or isn’t going to change the world.
It’s not that venture backing for solutions in search of a problem is new - it’s just that we have entered a new post-truth economy where these VCs won’t simply put in the money, but go to war to defend both the companies and the concepts that underly their investments. Their new-found distrust of the media isn’t about the media “becoming” bad or anything else they say, but a miniature version of the menace and distrust that the Republican party has adopted - oh, you won’t give us effusive, uncritical coverage? Well, we’ll publicly attack your reporting and your reporters and discredit the entire idea of journalism. Why worry about the truth, when you can make your own and intimidate those who disagree with you?
This also hasn’t worked, because A) the entire idea of “every company is a media company” is wrong to its core and B) they may not (or think they may not) need the media, but their portfolio companies and friends certainly do.
It’s not just about greed, though - I think a lot of this comes down to arrogance and insecurity. While VCs may be very rich and powerful within their own sects, the rest of the world doesn’t really know or care. The world they exist in one that is by definition pre-mass appeal, and it’s easy to mistake prior successful investments as evidence that you automatically know the future before it’s going to happen. Those who are currently losing their minds over the “possibilities of web3” (like Chris Dixon, who blocks all dissenters) are likely greedy, but also want to believe that everyone else is simply stupid for not understanding the future, and that time will prove them right.
You’re seeing it again with the metaverse. It’s a concept that VCs love because it’s future-facing, it has a sort of mainstream appeal to it (lots of people have seen Ready Player One?), and to be “all in” on it “early” is the kind of thing a venture capitalist is meant to do. Their defensiveness over the concept is because they know - as we all do - that the metaverse as they’re discussing it is not possible, and selling snake oil. And try as they might, there really isn’t anything good that they can push a real person toward.
Their insecurity around these investments and concepts is because I believe, on some level, that these concepts are flawed, but because they have seen the future before, every call they make is correct, and every dissenter is just someone who doesn’t understand things on that fundamental level. One might think their previous successes and unquestionable genius would make them secure enough to not fly off the handle when somebody rightly questions the fundamentals of an investment. One would be wrong.
Then again, it may be very simple: many, many people become filthy rich without truly enjoying anything, and thus all that really matters is being told they’re smart and having more money. When they’re questioned on the validity of their investment, it isn’t just a professional concern, it’s a personal insult and a suggestion that their Big Successful Brain isn’t the biggest of them all.