This is how I see it: The startup scene is like a big mall where one quarter have shops selling stuff that people are looking for, and the other 3/4 are borrowing money to buy lottery tickets. Every now and then, one of them will win the lottery, driving the others into an even greater frenzy.
And people like Arrington and Graham are on the sidelines with megaphones cheering on the lottery ticket buyers because, it turns out, they are earning a 6% cut on ticket sales.
I don't know much about Michael Arrington, but what you're saying about PG is a crock. Money is just not the main motivator for the YC partners.
Also: "a 6% cut on ticket sales"? So... PG and MA get a slice of the money startups spend? Or of the money invested in startups? I think you mean they get a cut of the lottery winnings. Try petitioning the Firefox team to add AnalogyCheck.
It seems like a lot of YC startups have more partners than competitors, but maybe those are just the ones most visible to me, e.g. disqus, clickpass, tipjoy. Snipshot, one with a lot of competition, still has more than twice as many partners as competitors. The only YC company I know of that was stopped by competition was Kiko, and its competition was not a small startup.
I like the post - loved the presentation as well - the longest presentation that I have ever sat through on the web.
I realize his arguments are sort of drummed up for effect, but I thought the analogy between VC and patronage was weak. Its true they were both systems whereby rich people would pay talented poorer people to make things for them, but the further connection - the reason for the payments and the building, doesn't hold up. Do VC's really want to build companies to feel good about themselves, or to show off, or to look better? Only if those companies make money. Pets.com was a stupid idea and if anything the VCs that invested in it have probably never lived it down. Not too successful as a vanity project. Also, the VCs aren't investing their own money, so they are responsible to do more than look good, while those whose actual cash is invested (angel's aside) aren't well known - nor do they appear to seek out reknown.
Anyway - I figure this wasn't a legal case he was pleading, just my .02
"Do VC's really want to build companies to feel good about themselves, or to show off, or to look better? Only if those companies make money."
I think you misunderstand the VC business. They charge a fee for managing money. Therefore, their business is attracting investment. This is exactly how mutual funds operate as well.
Now, they stand to make money when their funds make money through various incentives and so forth. But by far the biggest incentive is that if they have a home run, they get more money invested, which means more management fees.
So aren't they incented to make money for their investors?
Not really: if they have a string of modest investments, averaging out to making money, they will not attract a lot of capital: the money will flow to the VCs that have name brand hits.
Whereas if they have a ton of total and otherwise embarrassing failures but hit one out of the park, they will get a ton of new money when they start another fund.
Or if their portfolio companies are the darlings of the press, they will get a ton of new money when they start another fund
So...
Their strongest incentives are to own companies that get a lot of press and hopefully get a few really press-worthy hits.
I have to agree with goodgoblin: VC is not quite like patronage.
Patronage is gift culture; its message is: "Look how much I can afford to give away!" A patron patronizes something not merely with a risk of losing money -- losing money is the expectation and practically the goal. VCs, on the other hand, invest in something with the hope that they will eventually have more money than they started with.
You point out that ambitious VCs will invest in riskier propositions to increase their chances of a big hit. But their motivation for doing this is so that the big hit draws more money for the next round. This feedback loop (money -> fame -> more money -> more fame) is not present in patronage, because a patron's fame is not expected to lead to significantly more money.
There is room for both of the expressions "a lot like patronage" and "not quite like patronage" to be true.
The big question about using patronage as a metaphor is whether discussing the ways in which Venture Capitalism 'is' and 'is not' like Patronage leads to greater insight.
You are correct -- the insight is what matters. But in this case, I do not think the patronage analogy is helping.
Giles brings up patronage as an explanation for why VCs -- who are otherwise interested in money -- are not interested in hearing about a profitable microloan business. From the patronage analogy he gathers that they are more interested in power than money, hence their class hierarchy and why microloans are beneath them.
I feel the patronage analogy misses the point because it implies that VCs are somehow not interested in profit. If you follow this logic through, you'd conclude that startups are profit-losing ventures kept alive only for the power trips of VCs. While this may be true in a few cases, I think it is an incorrect conclusion, since VCs are interested in profit (or, at least, their investors are), and there is apparently enough return in startups that investors do not go elsewhere.
There is a simpler explanation for why VCs are not interested in microloans: it is far enough out of their geographic and technical areas that they don't think they could do very well at it.
When he brought up Grameen Bank as the kind of thing that TechCrunch wouldn't bother reporting on I became incredulous and thought "um, Kiva?" So I went to techcrunch.com to find their post on Kiva. Which doesn't exist. Not only have they never written directly about Kiva but when they mention it they characterize it as a p2p-lending site rather than as a microfinance organization.
omfg. This is from the CrunchBase description of Kiva:
"Kiva is alone in their business model of online p2p lending to entrepreneurs in developing countries as a nonprofit entity. Other p2p lending sites, like Prosper, Zopa and Lending Club, make lower-risk loans to people in the same country as for-profit entities. Online p2p lending is new and it is hard to maneuver around financial regulations to make higher-risk, international loans as a for-profit entity, which is partly why Kiva formed as a non-profit."
Dead insightful and well put. About the only thing I read TechCrunch for is to get invites to beta start-ups. I don't care about MA's perspective on Silicon Valley.
I agree. It could be a false perception, but it seems there used to be a far greater amount of start-up reviews. What was a great way to discover new and interesting products/services seems to have changed into editorial on the valley, technology issues, and financials.
I liked this when it started, as it was a little bit of the "behind the scenes" of the products/services I liked learning about. I think it has since gotten a bit out of hand.
The fact that a person's name often makes a lousy search term is the very reason we have brands and branding, it's one of the reasons internet semi-anonymity or pseudonymhood can be so interesting and useful, and it's one reason to question the future of businesses that assume we all wish to consolidate the shards of our multifaceted online identities.
Indeed. The primary metric by which bloggers are judged is popularity, which we long ago dismissed as being a terrible measure of value. Popular books, popular music, popular movies, popular television -- these are rarely our best works.
It's as though we've forgotten this on the web though, and re-instituted a hierarchy of who matters that is based on meticulously engineered stacks of grade-A bullshit, which, surprise, surprise, favors peddlers of distraction and get-rich-quick schemes of all sorts. We've replaced "Old Media" with "Tomorrow's Old Media".
Technorati even equates machine-estimated popularity with "Authority", a dangerously loaded word and wholly inaccurate besides. Certainly popularity means something, but it doesn't say much at all about whether any person, even someone in the ostensible target audience, should pay any attention at all.
Also, Blogger is fucking evil, and it eats the > from quoting e-mails, which sometimes is a very time-consuming bug.
By the way mad apologies but I'm actually banning my own blog from my view of Hacker News, using a Greasemonkey script in Firefox. I would seriously kill people to defend my right to post gifs instead of cutting and pasting text, even though I realize it's ridiculous. Reasonable people can disagree, but for the rest of us, there's Greasemonkey.
Try this: ban yourself from commenting on anything on HN. Just opt yourself right out of the forums. I tried this on reddit, and it was an incredibly liberating experience.
Michelangelo did get one of the most prestigous jobs of his time, but what about the rest of the now-recognized great artists - were they more popular than the hacks of their day?
I didn't understand what this was about. Cory Doctorow and TechCrunch are bad, because TechCrunch doesn't like Rails and never wrote about Grameen Bank? plz advise.
And people like Arrington and Graham are on the sidelines with megaphones cheering on the lottery ticket buyers because, it turns out, they are earning a 6% cut on ticket sales.