The Great Competition to Give Away Money


The Wall Street Journal has deemed it the “golden era of venture,” and it’s not hard to understand why. By almost any metric, life in the venture capital industry looks better than ever. “We’re in record territories for everything,” said Jeff Clavier, the founder and managing partner of Uncork Capital, a seed-stage venture firm. “The fear of missing out right now is extreme.” Money is pouring into venture firms, and those firms are doling out millions to inspired startups that are changing the world. Many investors and founders (and some employees) are becoming filthy rich in the process, as a continuous number of high-profile firms go public, turning theoretical stock options into cash.

“We all look smart right now,” Villi Iltchev, a partner at the early-stage firm Two Sigma Ventures, told Motherboard. “Anything we have done over the past few years is looking great.”

As a result, a feeling of limitless potential pervades much of the venture capital and technology space. “People are feeling everything is going to be successful,” said Jason Henrichs, a St. Paul–based angel investor and entrepreneur. Job van der Voort, the CEO and co-founder of the HR software company Remote, said that bounding sense of optimism is largely justified. Tech stocks have spent years going “up and to the right,” he noted. “It’s almost like a safe investment.” 

The mindset has created a funding environment that van der Voort admits can feel “pretty absurd.” Anyone who’s paying attention can agree. Global venture funding had never passed $100 billion in a single quarter before this year. In 2021, it has surpassed that every three months, climaxing at a record $160 billion in the most recent period, according to the financial data service Crunchbase. Well north of $200 billion has been invested in the U.S. alone through the first nine months of 2021, already almost 50 percent more than last year’s previous high, according to PitchBook, a data and research company that follows the private markets. Startups of all sizes are benefiting. Colossal, a self-proclaimed “de-extinction company,” nabbed $15 million on a pitch to resurrect the woolly mammoth. A fast-delivery service called Gopuff pulled in $1 billion at a $15 billion valuation.  In a poetic moment, the startup Who Gives a Crap grabbed $31 million in venture funding this September. 

Almost by necessity, venture capitalists are an optimistic bunch. They bet millions on products and entrepreneurs they feel have the capacity to change the world, or at least earn an enormous return. Right now, many of them argue that the venture and tech industries are together in the middle of a transformative moment in economic history, creating enough value to justify even their biggest gambles. It’s hard to argue they’re wrong. Investors, founders, and employees have pulled in over $500 billion in liquid value from selling stakes in U.S. venture-backed companies this year alone, more than double the prior record, according to PitchBook.

“People have to make quicker decisions. They have to do less diligence. They have to pay more.”

But even with the half-trillion in so-called “exit value,” whispers of concern creep up in conversations with venture capitalists and entrepreneurs alike. “It’s insanity out there,” said Emily Best, the founder and CEO of Seed&Spark, a film-focused crowdfunding platform. The giant pot of funds and growing number of hedge funds, angel investors, and other power players has led to a situation unique to the upper tranches of society: a competition to give away money. 

This great competition has led to a “frenzied” pace of work that is creating a “fundamental shift” in how many venture capitalists operate, according to PitchBook (and people I spoke with). A small number of top firms mostly get their pick of top investments, which means all the more stress for everyone else. ​​Some venture capitalists say they are finding creative new ways to adapt to the new world. Others say there’s no magic trick, just a lot more ferocity. 

Iltchev summarized the new way of things this way: “People have to make quicker decisions. They have to do less diligence. They have to pay more.”

Many venture capitalists are finding it difficult to complete deals, just as many entrepreneurs are increasingly aware of the power they hold, demanding timelines that disadvantage the investors. There are some who worry that the new pace of work mostly benefits white men, former Google employees, and Stanford business school graduates, for whom the system has always worked. Others believe money is being misallocated to too many businesses with no chance of survival. Even the optimists have their concerns about the state of the industry. Greg Sands, the founder of Costanoa Ventures, a Palo Alto–based venture firm, said he sees certain fundraising rounds so large that he believes “there’s no conceivable use for the capital.”

The word people are most comfortable using to describe the current moment right now is “froth.” But some people are willing to go further in describing what, to a cynic, can seem like irrational exuberance. “The VCs are reacting rationally to the environment that they’re in,” said Martin Kenney, a UC Davis professor who studies the venture capital industry. “But the environment could be irrational.”

Are you a venture capitalist, entrepreneur, or startup employee with information for the reporter of this article? Using a non-work phone or computer, you can contact Maxwell Strachan securely on Signal at 310-614-3752 or email maxwell.strachan@vice.com.

It’s hard to say with much certainty exactly who is right. Private companies need to disclose much less information about their businesses than their publicly owned competition. For a long time, that didn’t matter much. Only a restricted class of rich people could invest in private companies, and private companies were mostly scrappy startups.  But there are subtle signs a shift could be occurring: With seemingly limitless funding, private companies are reaching unprecedented sizes while remaining much more secretive, and there is growing political and social momentum to push more everyday investors into the venture madness. 

The question is whether the broader economy will greatly benefit from entering the mania, or greatly regret it. 

The giant pile of money

 When journalists Dan Primack and Erin Griffith popularized the current definition of a business “unicorn” back in 2015, they reserved the term for a special kind of company: the rare privately-owned firm worth $1 billion or more. 

At the time, they calculated that only 80 companies fit the bill. 

Venture capitalists traditionally make bets on young startups long before they go public, often focusing on tech firms and specializing on a certain sub-sector or size of company. In exchange for their money and mentorship, they often obtain potentially lucrative terms should the company prove a success. The industry comprises one fraction of the broader private equity markets, which have been undergoing a transformation over the last two decades. “Perhaps the single most significant development in securities markets in the new millennium has been the explosive growth of private markets,” Allison Herren Lee, a commissioner at the Securities and Exchange Commission, said this month. The government mostly restricts who can invest directly in private equity and venture capital to so-called accredited investors, considered sophisticated or wealthy enough to play in the big leagues. Nevertheless, private markets have gone from making up 2 percent of the world’s equity assets to 7 percent over the last 20 years. 

The bountiful environment is a result of complex forces, some of which have been at work for decades. The SEC hasn’t even updated the wealth and income thresholds for accredited investors to account for inflation since…



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