Venture Capital seems to be shifting, towards a more structured, disciplined and data-driven model, with a focus on ambitious, hard problems.
Auren Hoffman wrote a piece on Quora about how VCs never do what they tell their companies to do. Here are some points he highlights : (though I recommend the original)
- They have different governance structures. VCs are partnerships, but companies have CEOs.
- They are well-paid in cash (salaries), but ask employees to get equity.
- They focus on profit, while asking companies to focus on growth.
I figured this was because VCs have a different business model. But the overall point was right – this model should, and maybe will, change.
Auren then made another extremely informative post about how it will change. He mentions four companies as the future of Venture Capital – Y-Combinator, Social Capital, Companies by Peter Thiel, and AngelList.
I have been following the last 3 of this list and seeing on some patterns. Two dominant patterns are – decentralization, and meaningful goals.
Decentralization = pockets of value instead of concentration in a few places.
Chamath Palihapitiya, founder of Social Capital says that that in his vision of the future, instead of few big companies, there will be many smaller companies. He wants to make that vision a reality. There are passionate creators all over the world and they should be empowered with capital which is now limited to much fewer people.
“.. instead of having 4-5 mega companies, you could have millions and millions and millions of smaller, better run companies.” – Chamath Palihapitiya
In 2017, blockchain got tremendous attention. Speculation on the price of bitcoin drove it, but at a deeper level the interest in blockchain was the promise of decentralization. Peter Thiel mentioned that the crypto movement is decentralizing while AI is centralizing. Blockchain promises individual freedom, privacy,and fairness which are outcomes of decentralization.
“Crypto is de-centralizing, AI is centralizing… ideologically, I would say that crypto is libertarian, AI is communist.” – Peter Thiel
It boils down to this. Today’s capitalists envision a world where anyone who wants to create something valuable, will have access to capital. She could be of any race, located in any place on earth, of any orientation. Passion and commitment is the only thing which would matter. (This also ties into the decreasing importance of Silicon Valley.) While this sounds idealistic, their energy will ensure that it happens to some extent, and that itself will be valuable for humanity.
Ambition, Long-term thinking, the Hard Problems
Peter Thiel has been talking about how the world has stopped thinking optimistically and definitely. There is a lack of ‘definite optimism’. Big ideas are zero to one, and there are less of these happening. We are not curing cancer, we don’t know where quantum computing is, we don’t know if there is something beyond string theory in Physics. This has led to stagnating median wages and probably also led to people favoring someone who could bring back the optimism to make America great, again.
Here is a screenshot from the Founder’s Fund website which highlights their strong position.
Peter funded big projects like SpaceX, and Elon Musk is the ‘definite optimist’ – someone who has a clear vision of a good future ahead, and is executing on that vision.
In the same vein, Chamath mentions:
“I don’t use this [social media].. and then I go focus on diabetes and education and climate change.”
The narrative? Somewhere along the way, venture capital started focusing on dopamine hits of ‘likes’ of social media, and food delivery apps, and other trivialities. But now the focus should be on the important problems of humanity on large multi-decade time horizon of 30 to 50 years. We still can go much farther with solving problems of education, climate change, and disease eradication, not to mention space colonization.
For me, this is new and I don’t know if this focus will morph again. Five years ago, it seemed clear to bright minds that Silicon Valley the place for innovation, and that China was copying and never innovating. Consumer internet and food delivery was in vogue. So it’s hard to say what would happen at the very large time horizons these people are aiming at.
But this intent and passion towards things which matter makes me very optimistic about our future.