The next time a fast-rising startup spectacularly implodes, look past the founder to discover the real villain: the VC who encouraged unfettered growth in the first place.
Investors get a serious kicking in World Eaters: How Venture Capital is Cannibalizing the Economy, a new book by American activist Catherine Bracy, who argues that a desperation for scaling at “breakneck speed” has stirred bad behaviour and prevented good businesses from thriving. “VC has killed more value than it has created” and the system is “distorting our economy for the worst,” Bracy writes.
Too often, she argues, VCs are trying to reverse-engineer solid businesses into winning lottery tickets: “Starting a business that dies trying to achieve behemoth status is a far more respectable outcome than simply building a small but sustainable business.”
Many of these arguments will resonate. Venture-backed businesses are a grind — it’s called the VC treadmill for a reason — and can feel like “a game of convincing investors instead of convincing the market.” Tales of founder frustration over VCs pushing them to take too much money, or pushing their business into unwanted directions, are not hard to find.
Bracy has examples — albeit not enough — of companies that have suffered due to VC.
Take Detroit-based app LocalData’s ill-fated pivot. The company collected data on properties so the local government could prioritise their upkeep. But VCs convinced founder Alicia Rouault to widen her focus, so that the product served real estate companies, rather than governments.
“It pushed us further and further away from the actual use case we had validated with real people,” Rouault says. I sympathise, while a terrible part of me wanted more drama from this story.
Another example is San Francisco-based Good Eggs, which connects customers with local food producers. Bracy argues that VCs forced scale and speed on the business with a variety of consequences, including employees who lost their jobs while the company figured out how to grow as fast as possible. It was bumpy but the business survived — so not a slam dunk case of how VC brought ruin.
‘Distorting the economy’
“World Eaters” isn’t all anti-VC.
Bracy concedes investors’ contributions to developing Covid vaccines but that’s about as far as the olive branch extends. The book might have benefitted from acknowledging how growth-obsessed VCs have created tens of thousands of jobs in their pursuit of growth-at-all-costs tech champions.
But while the book failed to prove its core thesis — namely that VC kills more than it creates — it did convince me that tech’s fast growth addiction is distorting the economy.
One of the best chapters highlights the ways in which VC-backed startups erode job protections. The scourge of “gig economy” companies misclassifying workers as independent contractors, and the uncertainty this creates for livelihoods, is clearly articulated. Bracy is adept at explaining fast-growing companies’ preference for temporary hires over “growth slowing” full time staff.
“Because of a narrow focus on product and growth that investors demand, many startups ignore the culture-building aspects,” Bracy writes. Startup HR teams run lean and “don’t have time to focus on things like diversity or developing programmes that make for a healthy work environment.” Bracy has a figure for tech’s diversity problem: a $46bn increase in America’s “racial wealth gap”.
Ultimately, it’s not just VCs pushing this growth fetish. Employees want the value of their equity to go up. Journalists who “unquestionably lionize founders who achieve huge valuations at light speed, ignoring the slow and steady companies” don’t escape criticism either.
Reining in VC
Can VC’s monoculture be fixed? After diagnosing the system’s failings, the book is less equipped to offer imaginative solutions.
Most important, Bracy writes, is appealing to the better angels among the LP community — the cultural institutions, universities and private foundations — to use their influence to reform VC. “They must use their resources to seed a more robust ecosystem of Indie-style investors, and their platforms to change the hearts and minds of other limited partners.”
Moving LPs to action is no small undertaking, though I’d be hard pressed to think of a better proposal. Certainly, I share the author’s doubts that policy can create a more equitable industry. “I’m not naive enough to think that the forces of capitalism won’t find a way to prevail regardless,” Bracy writes.
In many ways, the book feels ill-timed.
I don’t sense a big appetite to re-work VC. Quite the opposite, everyone’s worried about falling behind on AI and are urging acceleration, acceleration, acceleration.
Bracy offers thoughtful analysis on venture’s contribution to crappy jobs, but this may prove a trifling concern compared with what AI has in store for us. What would it mean for workers if powerful AI agents are capable of replacing millions of jobs? Now that feels truly world-eating.
I’m struck by Bracy’s bio. In 2012, she was director of Obama for America’s Technology Field Office in San Francisco. Creating a direct line to Silicon Valley was novel for the time and marked Obama as an ultra-modern politician.
In a characteristically absurd reversal of late capitalism, one of Silicon Valley’s most divisive figures, Elon Musk, today spends a great deal of time in the Oval Office.
Tech has firmly pitched up in Washington — I doubt Bracy finds it reassuring.
