I have read from multiple perspective — inlcuding yours, if I am not mistaken — that the whole Startup System is designed to just essentially mirror a high-end casino. This contrast is part of that, too -- you play at a casino, hoping to "make it", without actually knowing what you are making. It's a drug, an escape. And yet, it's also a new kind of a golden cage.
Entrepreneurs are fundamentally people that want to show the world an alternative way of BEING. They create a startup, because they feel inadequate, as if the world around them is not enough, it's all just the same. And for a time, that works like a miracle drug. From one high to another, from one round of investment to another.
Until you realize: it's still the same system, nothing truly has changed. "It's fun until you have to create org charts", another comment said... Like, I've seen many healthcare startups that want to "redefine" the industry, find a "miracle" solution, combine AI to do wonders beyond human imagination. All stemming from a deep desire to leave a lasting change in the history of mankind, to achieve some sense of immortality.
And yet, the healthcare system, fundamentally, can't be changed from a startup perspective. It's a systemic issue, and there are never any startup that want to challenge the current status quo of Insurance Companies paying for medical Services. Billions could be saved, coverage could be massively expanded, quality of health care would increase by heaps and bounds if the whole interaction between the humans and medical facilities could be automated. And yet, no startup ventures into that space. There is a clear limit for the startup scene, one they never dare to cross.
Even the rules that define, who get founding and who doesn't, the words that need to be uttered in order to get that "free money" that seemingly have "little downsides" -- all of these things already require you adopt a certain perspective, that internalizes certain limits that stand opposed to true entrepreneurial system.
And that feels incredibly empty. You are told you are free, yet the line "DO NOT CROSS" is painted boldly in red. If your freedom is fundamentally limited by the fact, that you are inside a playground, it's not freedom. It's a golden cage. And it pays very, very handsomely to direct your frustration into another hype cycle, into another technical innovation, never truly challenging the golden cage.
I don't know, but that's feels like a explanation.
I think I have mixed opinions on entrepreneurs and what makes them do it. I'd argue that a lot of them aren't actually trying to bang a dent in the world or do anything that grand or noble; they mostly do it because it's a way to succeed. Though there that might have these bigger, more pure ideas about it, I'd say that's a pretty rare exception to a much more common norm.
On the other hand, I do think that makes them more susceptible to this sort of "do not cross" line you're describing. If you want to succeed first, and "make a difference" second, following the rules of the game is more important than "doing whatever it takes," because the real prize is the game. If you have to alienate people to make your dent, that's not worth it, because the dent was never the real point.
That said, I'm not sure what that line is? When you say that "there is a clear limit for the startup scene, one they never dare to cross," I'm not sure that I'd see a line as such. What do you see it as?
In my earlier days as a data analyst, I once attended a workshop called "Entrepreneurial Mindset". It was done by a bunch of very inspiring individuals that have seen the a lot of the world. And they told me the original definition of an entrepreneur, which has stayed with me: It's the one that grasps what could be. Coming from the french, "entre-" means between, and "prendre" is to take, to grasp, to seize. In that sense, entrepreneurs are people that are between the world as is, and the world as it could be. And they "seize" the world that could be, making it ours. They packaged it quite nicely, as in, everyone can cultivate an entrepreneurial mindset, and everyone should do exactly that -- that was, in the end, their salespitch. But it stuck with me because of that historical perspective that simply made sense.
That perspective overlaps with this sense of idealism, this hype, this support that people attribute to founders. I.e. the Hype, that you get "money for free", get to work on whatever you want, and all the different things that you listed. It's because they are pillars of hope, that the world CAN be changed, that there are people who do succumb to the world as is, they are striving to improve it. You obviously have the "copycats", i.e. people that simply do it as a way to get rich, or to succeed, or to build their personal brand, or whatever. But it works precisely, because it builds on that assumption, which is real.
And yet, this expectation is unrealistic, because, in many ways, that expectation can never truly be met. A startup is fundamentally a company, and a company is "just" an economic entity, not this cultural revolution that people are projecting and hoping for. And as an economic entity, a company mostly uses technology as a means of transforming the material world. That is a fundamental line, a limit of technology, so to speak. Technology has a hard limit of what it can do in the cultural sphere.
And now you have that mismatch. On one hand, you have people projecting all kinds of hopes, all kinds of (misplaced) expectations onto companies, that have nothing to do with economy per se. They wish for others to show them that the world AS IT IS can be changed into SOMETHING IT IS NOT.
And on the other hand, you have the carriers of hope -- the entrepreneurs that match this spiritual term -- that wish to meet this expectation (and get filthy rich in return); they have the energy, the capacity to imagine, the capacity to realize their visions. And yet, the structure they are channeling their aspirations is fundamentally incapable of matching that aspiration. And the result is: the world continues to stay AS IT IS. The original idea to change it, to shape it, to show that it CAN BE changed -- is gone, and with it, the pursuit of proof, the legacy to have been the ONE. That leads to a immeasurable dissappointment, somehow connecting to the realization of one's own impotence. The Founders thought they can match up to the hype, but they couldn't -- and with that comes the realization that the ressources invested into them was somehow wasted. And that's where this dream job goes from "absolutely mindcrackingly awesome" to "pretty bad, somehow terrible, type-2 fun at best, you actually can't wait for it to be over".
You started out, hoping to show that the world can be changed, only to realize that after being hyper-successful that you are now just part of that world, not the "Between" anymore of what could have been. You have lost your spiritual origin, you have lost your identity, and that's proportionally more terrifying to certain people than others. "You went out to find yourself only to find that you do not exist" - type of way.
I mean, in the end, it simply means the societal machinery invests too much ressources into technological companies, and not nearly enough into "cultural endevours" that would properly "teach" one side to properly channel their emotions into the correct outlet. And as long as we don't have these "cultural endevours", this mismatch will continue to happen -- at least that's my prediction. You have an eye for detail and notice the small things, and these things are fascinating to observe. It's fascinating precisely because people do not have the language to properly say what they expect from life, they don't know themselves well-enough, their own emotional states.
It would be very interesting to me to know what was actually inside of people's heads when they start companies. I was just talking with someone else about this, and the weird gymnastics that people do to convince themselves that they are very passionate about improving sales team productivity or whatever. Do they believe that? Is it, as you say, them not knowing themselves enough or their own emotional states? Do they not believe it and just say it because they think they're supposed to? Do they actually, truly believe it? Do they say because they want to believe it?
I don't know. I am sure there are some people who are motivated by this original spirit, and can't but help themselves try to change the world. Though also, the question I have people who say that is this:
---
A genie shows up in the middle of the night, and offers you two choices. Nobody will ever know that this happened, or believe it if you told them. You have two choices:
1. The world becomes as you want it, but you played no part in that - someone else did it, or it just evolved that way.
2. The world becomes partially the way you want it, and you got full credit for affecting that meaningful but minor change.
What do you pick?
---
I'm not sure how people actually choose option 2. Surely some would, but it seems like a tiny minority of people, in their heart of hearts, would actually do it. Which, is probably a different angle view of the same dynamic you're describing: That you can't escape the system, and you can't escape the incentives that the system creates for you.
This - “Let me get this straight. You’re saying I can start a company around whatever idea I want, hire whoever I want, define my own job, pick my hours, get paid someone else’s money to do it, not have any particularly strong obligation to pay them back, and if it doesn’t work out, I can just do it again, all while being celebrated as an American hero?”
I literally had this conversation yesterday - but from the investor side. Concluding that most non-institutional investors in startups are essentially doing philanthropy.
Which makes it that much weirder, because that also doesn't seem wrong? It's kind of donating to hobbies, but also hobbies people make themselves miserable doing?
"Concluding that most non-institutional investors in startups are essentially doing philanthropy"
Why do you think that though, John?
This is literally what VC is about.
An investor looks at the market, the idea and whether the team can actually build smth and get it out there. If it works, they share in the success)
But when all they care about is MRR (not GMV!!!) and CAC/LTV/chrun, that’s not venture anymore, because that’s just investments an existing business based on its balance sheet.
There’s zero venture risk in that, especially when you look at the kind of LIFOs and exit multiples they’re giving themselves.
That last line seems like a big part of the story here. VCs are a power law business; all that matters is the home run that returns the fund; etc; the VC economics seem broadly pretty well understood by the ecosystem.
But there's a corollary to that, which is that most startups don't matter to the VC. And that starts to look a little philanthropic *in its effect,* because if you're a big fund that gives out $1b a year, $800m or something (and 95% of the companies) is of next to no consequence. Nobody runs any of this like a charity - startups work hard, and VCs definitely try to extract money from the losers as well as the winners - but there is this odd thing where an overwhelming majority of people who take VC money could almost do whatever they want with it, and it wouldn't change the returns much at all.
It's like if a casino gave 1,000 a $100 to gamble, because they knew a few would be rich people who'd come in with the coupon and then end up losing $25,000 each. To the casino, sure, it's a mathematically sound business. But to 995 people, it's kind of a handout?
Casinos have their analysts calculate the wager when they give out freebets just to make sure the maths adds up in the end and their GGR doesn’t take a hit. Same with CFDs and all those investing apps like Robinhood/Etoro.
VCs have their own crew doing LBO/MBO models
There are like maybe <20 funds in the whole world throwing around a 1B a year. And they’re not sprinkling it across a 1000 little startups, they’re dropping 100-300m rounds on unicorns. No one’s doing it for charity they’ve got LPs expecting a solid return on capital
"Phenomenal cosmic powers // itty bitty living space" still lives in (the itty bitty living space of) my brain 30 years later.
It's a solid bit
this is fascinating man, great read, appreciate your thoughts
I have read from multiple perspective — inlcuding yours, if I am not mistaken — that the whole Startup System is designed to just essentially mirror a high-end casino. This contrast is part of that, too -- you play at a casino, hoping to "make it", without actually knowing what you are making. It's a drug, an escape. And yet, it's also a new kind of a golden cage.
Entrepreneurs are fundamentally people that want to show the world an alternative way of BEING. They create a startup, because they feel inadequate, as if the world around them is not enough, it's all just the same. And for a time, that works like a miracle drug. From one high to another, from one round of investment to another.
Until you realize: it's still the same system, nothing truly has changed. "It's fun until you have to create org charts", another comment said... Like, I've seen many healthcare startups that want to "redefine" the industry, find a "miracle" solution, combine AI to do wonders beyond human imagination. All stemming from a deep desire to leave a lasting change in the history of mankind, to achieve some sense of immortality.
And yet, the healthcare system, fundamentally, can't be changed from a startup perspective. It's a systemic issue, and there are never any startup that want to challenge the current status quo of Insurance Companies paying for medical Services. Billions could be saved, coverage could be massively expanded, quality of health care would increase by heaps and bounds if the whole interaction between the humans and medical facilities could be automated. And yet, no startup ventures into that space. There is a clear limit for the startup scene, one they never dare to cross.
Even the rules that define, who get founding and who doesn't, the words that need to be uttered in order to get that "free money" that seemingly have "little downsides" -- all of these things already require you adopt a certain perspective, that internalizes certain limits that stand opposed to true entrepreneurial system.
And that feels incredibly empty. You are told you are free, yet the line "DO NOT CROSS" is painted boldly in red. If your freedom is fundamentally limited by the fact, that you are inside a playground, it's not freedom. It's a golden cage. And it pays very, very handsomely to direct your frustration into another hype cycle, into another technical innovation, never truly challenging the golden cage.
I don't know, but that's feels like a explanation.
I think I have mixed opinions on entrepreneurs and what makes them do it. I'd argue that a lot of them aren't actually trying to bang a dent in the world or do anything that grand or noble; they mostly do it because it's a way to succeed. Though there that might have these bigger, more pure ideas about it, I'd say that's a pretty rare exception to a much more common norm.
On the other hand, I do think that makes them more susceptible to this sort of "do not cross" line you're describing. If you want to succeed first, and "make a difference" second, following the rules of the game is more important than "doing whatever it takes," because the real prize is the game. If you have to alienate people to make your dent, that's not worth it, because the dent was never the real point.
That said, I'm not sure what that line is? When you say that "there is a clear limit for the startup scene, one they never dare to cross," I'm not sure that I'd see a line as such. What do you see it as?
In my earlier days as a data analyst, I once attended a workshop called "Entrepreneurial Mindset". It was done by a bunch of very inspiring individuals that have seen the a lot of the world. And they told me the original definition of an entrepreneur, which has stayed with me: It's the one that grasps what could be. Coming from the french, "entre-" means between, and "prendre" is to take, to grasp, to seize. In that sense, entrepreneurs are people that are between the world as is, and the world as it could be. And they "seize" the world that could be, making it ours. They packaged it quite nicely, as in, everyone can cultivate an entrepreneurial mindset, and everyone should do exactly that -- that was, in the end, their salespitch. But it stuck with me because of that historical perspective that simply made sense.
That perspective overlaps with this sense of idealism, this hype, this support that people attribute to founders. I.e. the Hype, that you get "money for free", get to work on whatever you want, and all the different things that you listed. It's because they are pillars of hope, that the world CAN be changed, that there are people who do succumb to the world as is, they are striving to improve it. You obviously have the "copycats", i.e. people that simply do it as a way to get rich, or to succeed, or to build their personal brand, or whatever. But it works precisely, because it builds on that assumption, which is real.
And yet, this expectation is unrealistic, because, in many ways, that expectation can never truly be met. A startup is fundamentally a company, and a company is "just" an economic entity, not this cultural revolution that people are projecting and hoping for. And as an economic entity, a company mostly uses technology as a means of transforming the material world. That is a fundamental line, a limit of technology, so to speak. Technology has a hard limit of what it can do in the cultural sphere.
And now you have that mismatch. On one hand, you have people projecting all kinds of hopes, all kinds of (misplaced) expectations onto companies, that have nothing to do with economy per se. They wish for others to show them that the world AS IT IS can be changed into SOMETHING IT IS NOT.
And on the other hand, you have the carriers of hope -- the entrepreneurs that match this spiritual term -- that wish to meet this expectation (and get filthy rich in return); they have the energy, the capacity to imagine, the capacity to realize their visions. And yet, the structure they are channeling their aspirations is fundamentally incapable of matching that aspiration. And the result is: the world continues to stay AS IT IS. The original idea to change it, to shape it, to show that it CAN BE changed -- is gone, and with it, the pursuit of proof, the legacy to have been the ONE. That leads to a immeasurable dissappointment, somehow connecting to the realization of one's own impotence. The Founders thought they can match up to the hype, but they couldn't -- and with that comes the realization that the ressources invested into them was somehow wasted. And that's where this dream job goes from "absolutely mindcrackingly awesome" to "pretty bad, somehow terrible, type-2 fun at best, you actually can't wait for it to be over".
You started out, hoping to show that the world can be changed, only to realize that after being hyper-successful that you are now just part of that world, not the "Between" anymore of what could have been. You have lost your spiritual origin, you have lost your identity, and that's proportionally more terrifying to certain people than others. "You went out to find yourself only to find that you do not exist" - type of way.
I mean, in the end, it simply means the societal machinery invests too much ressources into technological companies, and not nearly enough into "cultural endevours" that would properly "teach" one side to properly channel their emotions into the correct outlet. And as long as we don't have these "cultural endevours", this mismatch will continue to happen -- at least that's my prediction. You have an eye for detail and notice the small things, and these things are fascinating to observe. It's fascinating precisely because people do not have the language to properly say what they expect from life, they don't know themselves well-enough, their own emotional states.
It would be very interesting to me to know what was actually inside of people's heads when they start companies. I was just talking with someone else about this, and the weird gymnastics that people do to convince themselves that they are very passionate about improving sales team productivity or whatever. Do they believe that? Is it, as you say, them not knowing themselves enough or their own emotional states? Do they not believe it and just say it because they think they're supposed to? Do they actually, truly believe it? Do they say because they want to believe it?
I don't know. I am sure there are some people who are motivated by this original spirit, and can't but help themselves try to change the world. Though also, the question I have people who say that is this:
---
A genie shows up in the middle of the night, and offers you two choices. Nobody will ever know that this happened, or believe it if you told them. You have two choices:
1. The world becomes as you want it, but you played no part in that - someone else did it, or it just evolved that way.
2. The world becomes partially the way you want it, and you got full credit for affecting that meaningful but minor change.
What do you pick?
---
I'm not sure how people actually choose option 2. Surely some would, but it seems like a tiny minority of people, in their heart of hearts, would actually do it. Which, is probably a different angle view of the same dynamic you're describing: That you can't escape the system, and you can't escape the incentives that the system creates for you.
This - “Let me get this straight. You’re saying I can start a company around whatever idea I want, hire whoever I want, define my own job, pick my hours, get paid someone else’s money to do it, not have any particularly strong obligation to pay them back, and if it doesn’t work out, I can just do it again, all while being celebrated as an American hero?”
I literally had this conversation yesterday - but from the investor side. Concluding that most non-institutional investors in startups are essentially doing philanthropy.
Which makes it that much weirder, because that also doesn't seem wrong? It's kind of donating to hobbies, but also hobbies people make themselves miserable doing?
Isn't golf a hobby people make themselves miserable doing? :-)
"a good life spoiled"
https://www.amazon.com/Good-Walk-Spoiled-Days-Nights/dp/0316277371
"Concluding that most non-institutional investors in startups are essentially doing philanthropy"
Why do you think that though, John?
This is literally what VC is about.
An investor looks at the market, the idea and whether the team can actually build smth and get it out there. If it works, they share in the success)
But when all they care about is MRR (not GMV!!!) and CAC/LTV/chrun, that’s not venture anymore, because that’s just investments an existing business based on its balance sheet.
There’s zero venture risk in that, especially when you look at the kind of LIFOs and exit multiples they’re giving themselves.
I guess there is a subtle difference:
Philanthropy has no expectation of monetary return.
VC has the small potential of a return.
Again unless you are vested across 100s or thousands of startups then your return possibilities goes up.
Has VC always been this way - yes - but I think it’s going to get worse with the number of AI companies that default in the next few years.
No one’s out here doing philanthropy in the modern world
Unless you’re that guy from the “Day in the life of a tech bro” meme:
- I wake up at 7am and immediately acquire capital from an angel investor
- Dad?
…then yeah, you're gonna have to follow proper business logic
Every angel or VC’s got a matrix they stick to.
They’ll put money into around a 50 startups in stages, expecting the whole batch to bring back a solid return.
You throw in 200-400k into about 50 startups.
Then 15-20 of them start doing alright, and you pick 5-7 to chuck 1-1,5m at.
And out of them, 1-2 will be really good and bring back 5х to the fund, while the rest will still give you 2-3x overall.
So if you’ve only backed 10 startups instead of, say, 72, your odds of hitting something big drop off a cliff.
For a VC the real nightmare is not blowing 200k on some pre-seed that dies.
It is missing out on the next Uber/Klarna/Spotify/BlaBlaCar/Revolut.
That one shot that changes everything.
Most tier 1 funds would be seriously deep in the red if you took out 2-3 of their biggest exits from the portfolio
That last line seems like a big part of the story here. VCs are a power law business; all that matters is the home run that returns the fund; etc; the VC economics seem broadly pretty well understood by the ecosystem.
But there's a corollary to that, which is that most startups don't matter to the VC. And that starts to look a little philanthropic *in its effect,* because if you're a big fund that gives out $1b a year, $800m or something (and 95% of the companies) is of next to no consequence. Nobody runs any of this like a charity - startups work hard, and VCs definitely try to extract money from the losers as well as the winners - but there is this odd thing where an overwhelming majority of people who take VC money could almost do whatever they want with it, and it wouldn't change the returns much at all.
It's like if a casino gave 1,000 a $100 to gamble, because they knew a few would be rich people who'd come in with the coupon and then end up losing $25,000 each. To the casino, sure, it's a mathematically sound business. But to 995 people, it's kind of a handout?
Yep that’s exactly it.
Casinos have their analysts calculate the wager when they give out freebets just to make sure the maths adds up in the end and their GGR doesn’t take a hit. Same with CFDs and all those investing apps like Robinhood/Etoro.
VCs have their own crew doing LBO/MBO models
There are like maybe <20 funds in the whole world throwing around a 1B a year. And they’re not sprinkling it across a 1000 little startups, they’re dropping 100-300m rounds on unicorns. No one’s doing it for charity they’ve got LPs expecting a solid return on capital