I talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds. So they decided to just start hiring everyone they could from paypal, to move into "blockchain payments". They paid huge sums. The directors there had no experience ever managing huge teams of people. It was a giant mess of unqualified people funded by cheap capital.
She also said the money movements on the blockchain facilitated by BlockFi were done manually by blockfi employees. The software was a facade and wasnt trusted for large sums of money
This seems to be largely what is going on. I think also, there are a few startup ideas considered to be "the future", and VCs are basically just choosing which horse they will bet on for that idea. So they pick through different founders chasing that market, and invest. Then all the other VCs pile in on those chosen horses, regardless of the due diligence.
As a naive and younger outsider I always thought these people were all very competent. Clearly there is something very different going on here.
> I think also, there are a few startup ideas considered to be "the future"
This. I’m getting annoyed with my jQuery/Spring app with ~million of revenue that I can’t get sexy for employees nor for funding; sometimes I want to throw away ethics and say we’re building “a blockchain of solar-powered AI european-central-bank ledgers”. It would be so much easier. Nah, we’re just storied field data in 7 tables, and customers love it.
But the tide is turning. I have a friend who mentioned the blockchain on his funding papers and he can’t even get an office in my city (France). I’m happy the tide finally turns for the blockchain, to value it for what it’s worth: A good idea for 1% of the present usecases, and bad idea for everything else. Even though not being able to sign an office lease for insurance reasons is quite comical.
99% of the time when someone can’t hire the problem isn’t the tech or the product-space, it’s that they aren’t paying enough. If you pay me a million per year I will build boring crud apps and web integrations for you all day.
This is exactly the answer. I've worked on one very old codebase in my career. I was paid well for doing so.
The graph of investment in software starts high with greenfield projects, drops over time to an all-time low as optimizations take hold, and as the software continues existing will rise to the greenfield (or more) levels of cost. The interesting thing to me is what substantiates the rises; for instance, in greenfield experimentation and iteration is what costs the most. In old software it's usually the employees.
You won’t get a million per year from my revenue since I’ve built it and I’ll still be there come hell or fire; but you can get 10% at the beginning and I don’t hesitate to increase employees as they maintain the existing one or contribute to increasing the revenue. In fact I generally give them more than they contribute, and I’ve increased my employees 30% this year in average, unprompted.
But there is always this HN comment with, no matter how much you pay, they put exclamation marks about how little the compensations are in France and how 35hrs is too long or having to be in office a few days a week is the bane of their existence. I’m always wondering whether we’re unionized here, it looks like a systematic complaint, no matter the conditions.
Well, I don’t know, create your own company I guess.
1) has several layers of middlemen that all take cuts along with 2) and 3). Typical LPs for VC funds are often institutional investors like university endowments and pension funds, or they are hedge funds that are themselves funded by university endowments and pension funds. So when #5 happens, the loser is oftentimes not an individual rich person (though family offices participate in this ecosystem as well), but a collection of not-very-rich people that have entrusted their money to a professional money manager.
Here’s a true story: a friend and former startup coworker got verbal agreement on funding a startup. His business pitch consisted only of a list of names of people he’d worked with in the past who could execute well.
So where is the due diligence that the VCs talk so much about, especially in the case with FTX, which supposedly didn’t have any appropriate financial management?
Having been through due diligence with several top VC funds (Softbank Vision Fund and others) I would say that due diligence generally focusses in on a few key areas which are crucial to the upside and risk factors in the specific business. For example, is the financial model broadly accurate (ie there’s nothing in the finances that would cause the investment hypothesis not to work out), if they’re a software or saas company, do they own their software or are they exposed to IP litigation risks etc[1], what’s the cyber risk like, etc. Then they will deep dive on anything that gives them a spidey sense tingle during that first phase. It’s not a general seal of approval of all the controls in the company, they know for a startup you’re building the plane while you’re trying to fly it, they don’t expect perfection they just want the plane not to crash into the mountain before they hit their exit.
On that basis, the FTX thing is kind of baffling because the financial controls would seem to be core to the thesis. Having read some of the things sequoia said about their original meetings with SBF it seems they were dazzled by him personally and allowed their greed to overcome basic prudence.
[1] So for example for SVF I had to go through all the transitive dependencies of all our software (which for JS and python is generally a lot), check the licenses and actually track down authors of a few packages in the node ecosystem and ask the authors to explicitly license their software so we knew we had a right to “depend” on it.
The TLDR of the above which I never actually state is you should never think because X investor is in a situation that you don't need to do your own diligence/research. You should always do your own research and satisfy yourself before putting your own money at risk.
You are missing the key point. It's not hard work, skill and luck.
The Fed has been on a money-printing spree since 2008 [0]. The idea was that it would create jobs and stimulate economic activity. In reality, it lowered the bar for things considered investable, so the Ivy-educated VCs were trying to tap into that stream of cheap money, while paying themselves handsomely. Either get acquired (using cheap debt that will also be used to pay the acquiring execs) or IPOed (using the excess money from the public). Profitability was out of question for at least a decade.
Not directly, sure. The low interest rates, and the overall increase in money in the system, made VC investing less risky compared to other options. Now that changes.
Interest rates are for banks borrowing from the Fed, affecting interest rates on loans issued by banks, and the rate of bank lending. But I don’t think VCs fund themselves by taking bank loans.
These crypto companies are primarily capitalized by VC and selling crypto.
Alternative "assets" like crypto gained more credence when rates were low. Bond returns in such a regime were not attractive, equity markets rallied to elevated levels, and there was little incentive for debt issuers to use free cash to pay down debt that could be rolled out into perpetuity.
The Fed essentially held the cost of money near zero and that had far-reaching effects.
It prints money, that money flows into institutions and chases returns. Much of it flows to VC, guaranteed. That’s what the Fed was literally created to do.
The fed was created to be an intermediary between banks so all banks form a network that in aggregate cannot be insolvent because if one bank is insolvent, another bank has plenty of money to lend to the insolvent bank. When you withdraw into cash, then you are basically banking with the Fed which means banks borrow from the Fed.
New money is created through bank loans, or monetizing government spending, or emergency asset purchases by the Fed – none of which are the typical source of VC funds.
From https://hackernoon.com/the-macroeconomics-of-venture-capital...:
"when the Fed engages in quantitative easing, it goes a step further and attempts to keep returns for longer-term bonds down as well. In the United States, this meant the purchasing of mortgage-backed securities and government bonds. (In Japan, central bankers have had to utilize even more extreme measures, going so far as directly buying not only government bonds but also stocks on the public market). By bidding up the prices of long-term bonds through quantitative easing, the Fed forces investors to seek returns in even riskier assets, such as equities.
As investors flow into the equity market, stock prices are bid up to the point at which expected returns for stocks also become unattractive. At this point, the logical next move for global, institutional investors is to move to more risky investment options such as private equity and venture capital. This is exactly what we’ve seen."
I once heard that a well-known gig economy company would open up new cities by giving employees essentially-unlimited credit cards and telling them to buy whatever they thought was needed, with no controls or multi-person approvals.
It'll be interesting to see how VC changes in the modern environment - will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth, or will they begin looking more for experienced operating teams who reach and maintain profitability (or a rapid path to get there at all times)?
Super Pumped: The Battle for Uber is the most well-known tell-all book. I think they also made a TV miniseries based on the book but I haven't watched it yet.
Wild Ride: Inside Uber's Quest for World Domination is mostly a summary of the headlines involving the company rather than a tell-all but it's accurate enough if you want to familiarize yourself with the subject.
I don't believe anyone has written a book about the technology team specifically which is sad because they actually made some really great technology, especially in the monitoring space, and I would love to hear the story of how that came to be.
Ubers lie was it would be profitable at scale. They were never profitable at all while growing, but always claimed that if they just had a few more markets they'd finally be profitable.
Turns out unsurprisingly, if your revenue is negative and you multiply it by 1000000 it's really negative.
Option A- you task some employees with buying office furniture and equipment and then waste everyone's time by having some extra meetings and emails and bureaucracy where someone asks "is that a good price for 50 desks? Did you get multiple quotes?" and the employee says "yes" and then they approve the expense.
Option B- the same employees make the same decisions, but without the extra meetings and emails and paperwork.
Being more efficient, giving employees more autonomy and focusing on what actually matters is why startups displace incumbents. These are good things.
> will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth
From some previous experience, outside of crypto - which was DIFFERENT™ - this already started changing in 2019 or so. Softbank was one of the most infamous players, and when they started to pull back, so did some others.
Not that there aren't still some "huh"-inducing things - like the new thing from the WeWork guy - but it seems a bit saner-paced on the ground, and now even crypto will get its reckoning.
This happens because of the boom-bust cycle we see in capitalism. I was a child in the 1990s when the Netherlands went through a boom that looked like the Japanese bubble and lasted 20 years.
I don't expect anything to change because it never does.
With all of the capital they have, you would think they would hire competent people from big tech. Instead they just find some stanford grad with a few years of experience to manage 50 people. It doesnt even make sense
I’ve seen that in practice. A non-crypto fintech I was at was acquired by a traditional lender and a number of staff took off immediately after the acquisition. A bunch went to FAANG (or FAANGish) places and a bunch jumped to crypto shops. In general the ones who jumped to crypto were either pure promoters or were able developers who had no understanding of finance, economics or the payments system.
Give us your money to invest in this new, fresh face that's going to change the world.
If you're an old face - why haven't you changed the world already?
The story isn't as catchy.
It has nothing to do with what makes sense. For a large subset of VC (obviously not all) - it's more about what you believe you can sell to others than what you believe is actually going to succeed.
Competent people will tell leadership what's wrong which leadership perceives as a threat to their egos/power. Incompetent people will tell them they're doing great while simply cashing their checks.
I've seen a couple startups with ~10 people and no market fit paying $500k/y to hire a FAANG VP. That's even more damaging than a fresh grad kid managing 50 people!
Getting the FAANG VP is usually critical to landing the next round of funding. If sending $500K/year [1] out the door brings in $50M for your next round of funding, it's well worth it. Particularly if you recognize that your enterprise is a Ponzi scheme [2] and that getting that next round of investors is how everyone gets paid.
[1] seems ridiculously low BTW, that's a line manager or extremely skilled software engineer at a FAANG, VPs make multiple millions per year.
Thinking about it, market fit would be the latest point to hire an experienced adult. Preferably from one to two levels below the role a start-up is hiring for, e.g. director level for a VP position.
Maybe hire earlier, as soon as an adult is needed to set up proper structure, processes and operations. If a company screws this up, e.g. when inexperienced founders hire former COOs and senior VPs from big names for those big names only, things can turn south pretty well.
> talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds
So was SBF (MIT) and raised from Sequoia and Blackrok and his GF was a Stanford'ite with a Math degree and is responsible for the largest loss of funds from that cluster**.
Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works; as a fintech boot strapped founder with over a decade in the Bitcoin community its been fairly obvious for at least 7 years since Blythe Masters and all her cronies from traditional finance got involved this was the case.
Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
Pretty clear some ivy league degree holders are raising money with no product/no qualified background. While others are slaving away to get "product market fit" before a VC will touch them
> Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
This may just be me because I from CA and was inspired to work in tech as kid in the 90s and saw the drastic and detrimental culture changes that have come over the years/decades: many of you keep attributing these scamming events to us when in reality you FAANG/SV/VC insider types likely went to school or worked with them and turned a blind eye to this very obvious behavior that bred this culture; if you worked for or with them you likely even enabled this behavior in order to clout/status chase for a 'disrupter's' reference or network connections for funding. I've seen it far too often, and somehow for calling it out we become 'persona non-grata' in our homes because trnsplants who only came to SV for the money and status rather than make remarkable tools and disrupt legacy gate-keepers 'want to get theirs' all while all playing some odd cosplay to the contrary.
The truth is that the tech that underlies cryptocurrency's like Bitcoin have it's roots in SV and has been advocated by Cypherpunks from the late 80s-90s and many of it's most notable people in this space were around in that time (eg Hal Finney worked for Phil Zimmerman during the Crypto wars and took on the US Government and risked prison). And it's a slap in the face to be told how we're not wanted or just scamming people with our focus and pursuits in tech because of this gross over-generalization that is based on an immense blind spot that who you are talking about is within your side more often than amongst out own--I admit we have had scams but the most notable are due to incompetence and ignorance in dealing with new tech (MTGOX) in real-time rather than an outright desire to scam.
Bad players have existed in Bitcoin, I've seen it plenty of times, but as is the case with the biggest ones like FTX and BlockFi it tends to be from your ilk, not ours.
> May want to add Do Kwon (Stanford) and 3AC (Columbia) to further solidify your case.
But it's more fun when other's help drive the point further for me!
I would also include conbase (not a typo) ties to Goldman Sacs and YC, but unless you've seen its horrible descent over the years you wont know why they should be included.
SBF and his girlfriend Caroline Ellison were also both traders at Jane Street after graduating. Being hired as a trader at Jane Street is no easy feat and more impressive than attending MIT/Stanford I would say.
> SBF and his girlfriend Caroline Ellison were also both traders at Jane Street after graduating. Being hired as a trader at Jane Street is no easy feat and more impressive than attending MIT/Stanford I would say.
I guess I have to quote myself here, and re-emphasize that they are all part of the same group of insiders:
>>Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works
I worked at a megacorp pushing 'blockchian not bitcoin' BS and it was only because they realized they couldn't co-op it and instead ran with alts that ended up getting investigated by the SEC.
Let me makes this very clear: I've been on both sides of this equation and I can assure you even though we didn't have much if any money on the BTC side until very recently (most traditional and VC money went to these insiders) those of us that built companies had to knew how this tech worked and often had to built the infrastructure from the ground up.
I personally couldn't even code until I got into BTC despite having several opportunities to do so, because this space demands that you do since it moves so fast and the pace of innovation requires you to know how it all works otherwise you get left behind. And because of this it becomes very clear who knows what they're talking about and who doesn't when you start to hear the merits of a 'private blockchain' and realize what they're describing is essentially just a SQL database with different branding but totally not that bitcoin thing or why the Byzantine General's problem was thought to be unsolvable by Computer Science prior to Bitcoin, let alone how the mempool works or what a UTXO is.
Only 1 of the BlockFi founders (Flori) has an ivy league degree (from Cornell). Zac is a moron who made his wealth playing poker and through a scam loans startup (Zibby).
>Only 1 of the BlockFi founders (Flori) has an ivy league degree (from Cornell). Zac is a moron who made his wealth playing poker and through a scam loans startup (Zibby).
It's much, much harder to make millions at the poker table than it is to get a degree from an Ivy.
It's also much harder to make millions from the lottery than it is to get a degree from an Ivy. There might be a few hundred winning the lottery every year.
So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
If you have an open mind, I encourage you to look in to poker theory. It's far deeper than you appear to think, requiring a competent understanding of statistics, good mental maths, and an ability to perform under pressure. There's a reason many consistently successful modern poker players have some math pedigree. Many pro players go on to work at trading firms, Jesse Martin and Vanessa Selbst come to mind.
If you do truly think it's no different to the lottery, I'm interested in your explanation as to why these people (a) come from the background they do (a high schooler with decent maths can tell you why the lottery is -EV) and (b) go on to the careers they go on to.
> So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
Poker is played competitively both online and in the casinos of every country all over the world 24/7. There are a phenomenal number of players compared to Ivy league students.
Unlike the lottery, it is also largely considered to be a game of skill based on a combination of statistics and social manipulation.
GP is generally implying that because the ratio of players to successful players is so small for a game so widespread that is is very difficult and requires a huge amount of skill to make a significant amount of money playing poker.
Those pension funds have a small part of their portfolio chasing high-yield investments. I don't cry crocodile tears when they overperform the SP500, and I can't say I'll be crying them when they underperform.
... Although given how frequently the Ontario Teachers' Pension fund has made the 'Pension funds invests into an incredibly dumb startup' news cycle, I suppose grifters, thieves, and conmen might consider them to be an easy mark.
VC is a very small component of a pension fund; it's money that's often deliberately invested in weird decorrelated shit, for portfolio-theoretic reasons. There are lots of reasons to have a problem with crypto and defi! But the safety of pension funds vis a vis institutional VC is probably not really one of them.
(You can imagine batshit pension funds that invest directly in crypto/defi stuff; that's extremely problematic.)
I regret to inform you that it was not isolated to "crypto funds". A lot of VCs mish-mashed them together with their other investments and slapped a Cathy Wood style name on it like "future innovation fund". VCs are mostly just salespeople, and so are founders. VCs sell to organizations such as pension funds, and founders sell to VCs. Most VCs lose money, especially in an environment full of froth, and most VCs don't know what they are really doing. From what I have observed, a lot of laypeople have a ton of respect when they hear the word "VC".
There is a lot of literature on how much pension funds are chasing exotic and high-risk investments due to the unexpected longevity of pensioners and persistence, until recently, of low interest rates
Implemented the “facade” for a services company a dozen years ago. Request comes in and sales agents manually find a good local in the area.
Got it the point where we were ready to scale nation wide.
Leadership decided it was useful to have as something to prove we knew had great tech. But really wanted to do manual sales of other services. They were only looking at next quarter profits. Not seizing the industry.
Finally left in disgust. They gradually faded as manual wasn’t scalable.
Was years before I saw comparable competitors.
I think part of it is non technical people not trusting their technical people/not willing to give them the keys to the business. They can "see" the manual parts and control it.
Theranos had all the financial backing they needed, and a coterie of ex-gov, ex-military elites playing defense for them against the FDA for years. Their plan was explicitly to lie, mislead and obsfuscate for as long as they could.
BlockFi is just incompetence without the SBF-like malice.
Theranos was exceptional in its industry, where most actors sell valuable products, have existed for decades if not centuries and will continue to do so for the foreseeable future.
BlockFi is just your typical blockchain company, a complete waste of money if not a scam, see FTX, Terra, BitConnect, MtGox and so on. An exception to the rule would be a company that's not a complete disaster run by ignorant, arrogant scammers.
She also said the money movements on the blockchain facilitated by BlockFi were done manually by blockfi employees. The software was a facade and wasnt trusted for large sums of money