VC is inherently flawed
The world has been mostly centralized up until the last few years. With the release of bitcoin and its utilization of revolutionary blockchain technology, humanity finally saw an opening for decentralization. While much of the world is still unaware of just how integral the release of bitcoin was in bringing us into the decentralized future, that doesn’t mean decentralization isn’t here now.
One of the major industries ripe for decentralization is venture capital. We see this with the proliferation of micro-VC firms, among other indicators. Venture capital is an industry built on a similar model of the music industry, whereby the super successful companies pay for all the others. If a VC firm is able to invest in a Facebook or an Uber, it brings them enough returns to justify placing bets on other companies that might not make it. The only problem with this, however, is that the VC industry has a financial incentive to invest in monopolies. They want to have a major stake in a company that dominates a market, and this causes companies to squeeze out every ounce of profit that they can from the people that they claim to serve, as well as to dilute themselves to entice major VC firms to want to work with them.
Take Facebook as an example; being that Facebook makes the majority of its money from ads, the data of the consumer is what they have to offer to advertisers, without full transparency to the user. Consumers think that they are getting a wonderful product for free (many now know this is in fact not true), but really, all of their data is being monetized by Facebook, with no monetary benefit to the user. This business model arose out of a need for Facebook to return value to their shareholders, and not the customers (or stakeholders) that built up the platform in the first place. Not only that, given the platform has so much power, it makes the rules for everyone else, meaning that if someone using the platform doesn’t abide by the rules set by Facebook itself (as well as the people it employs), they can be removed and excommunicated from the Facebook community, without a real need for reasoning. We see this today with the immense amount of censorship, specifically against conservatives, as well as anything that is considered “hate speech.”
I laid out Facebook as an example, but the same can be said for any one of the major tech giants or other industry leaders. There’s only so much equity that an investor can have in a company, and because it hasn’t been the most liquid for the investor, they want to know that their investment will have a large return (and who could blame them?). While this has been the model for quite some time, times are finally changing.
As a huge fan of innovation, it’s exciting to hear about all the amazing projects that are being launched each day. While all won’t necessarily “make it,” many will, and they will positively alter the course of humanity and the planet. One such project that comes to mind is Fairmint. Fairmint recognizes that VC is flawed and seeks to decentralize VC by “enabling founders to turn their equity into their most powerful tool to engage with stakeholders.” By changing the way VC has traditionally been done, it opens the door for more people to have a say in the companies they want created, rather than relying on what the centralized VC companies say. With all this crying out from the VC/startup community over diversity in VC, enabling people with diverse experiences and opinions to have a say in the companies created is exactly what we need moving forward.
The next major step, however, is empowering people to want to know about what companies are being created, and to make investing in the future we want to create more popular than buying material items or following the lives of the rich & famous.
This newsletter is called cultured for a reason. The only way for us to move forward as a better world is to change the culture that we exist in for the better. This starts with changing ourselves, which will then initiate a change in our environments. Why should centralized companies and industries continue to decide what our world will look like in the future? They’ve had their time to do so, and it’s gotten us to where we are now. If we want our results to change, we have to change our actions. It’s up to us to recognize our faults, and channel our energy-whether that’s money or hard work-into companies and projects that align with the world we want to create; as individuals with common concerns.
Monopolies should never be the goal. Monopolies end up having way too much power, and do more harm than good, especially when they can silence people they don’t like (as in the Facebook example). As a society, we really have to question where many of our issues derive, and how they can truly be solved. In some regard, we must put the blame on Facebook, but we must also put the blame on the system that created Facebook.
From here on out, we must look to decentralized systems as a means to solve many of our problems, not the legacy systems that have no incentive to change what they’re doing. While VC has clearly made some awesome bets on companies that have changed the world, we as a society can make bets as well; on companies that we don’t need to become a monopoly, in order for us to reap a reward.
Let’s incentivize the creation of companies that solve real and localized problems in a decentralized way. Bye-bye traditional VC, and hello decentralized VC!
Originally published at https://cultured.substack.com.
