Against Venture Capital Monoculture
Review of World Eaters by Catherine Bracy
Venture Capital (VC) is an industry that almost all people are aware of. It has captured the attention of authors, moviemakers, consumers, and entrepreneurs alike. Though the industry is seven decades old, it became a household word with the growth of technology in general and the Internet in general, about twenty-five years ago. In the common imagination, VC has become a metonym for the financing of technological innovation.
It goes further than just recognition of the industry. The industry’s investment thesis is now thought of as natural, normative, the best model for spurring and financing risky innovations. In her powerful book World Eaters: How Venture Capital is Cannibalizing the Economy, Catherine Bracy refers to VC’s “Power Law” or “Blockbuster” model, which is based on the idea that most VC bets won’t do particularly well but that a few of these investments will become “grand slams,” that give the overall investment portfolio excellent returns. Extending the baseball analogy, VCs are looking for grand slams and not singles and doubles.
Bracy argues that this thesis pushes entrepreneurs into a “growth at all costs” mentality that ends up diluting their companies’ original ideas and missions. These companies are forced into a monoculture of hypergrowth which is often anathema to the interests of the entrepreneurs, employees, customers, and society in general. She outlines how many companies flout regulations, engage in highly questionable practices, and use predatory behavior (including in pricing) to quickly scale. Further, even companies that are not inherently amenable to such scale are forced down that path, ending up in failure and in many cases dissolution. The collateral damage is fine for VCs who are waiting for their blockbusters to return thirty to one hundred times (or more) the original investment.
In the end, not only are entrepreneurs and society stifled but so is innovation itself is. After all, small can be innovative but VCs have no appetite for small. They would rather cannibalize the market and eat their own children than see a change to the blockbuster model.
She offers real examples. In a particularly important industry- Housing- this has played out with clear, deleterious effects not only on homeownership percentages but also on the race and class dimensions. She documents also how the capital-labor relationship is transmogrified indelibly, with labor being disenfranchised and even gutted by adherence (enshrined in law) to the VC thesis. Finally, and it should be no surprise, the powerful VC industry is run largely by white males and largely in favor of white males.
Bracy does not stop with industry critique. She offers a variety of alternate financial models and suggests a set of clear changes that could make Venture Capital hew not simply to blockbuster financial goals but also to great outcomes for innovation and by extension society. She offers data that suggest that the current model is economically myopic, with money (from those singles and doubles) being left on the table structurally.
World Eaters packs much brilliance into a short and eminently readable book. No previous knowledge of finance or technology is required, though anyone with even a glancingly familiarity with the industry will find herself nodding and occasionally grimacing.
Venture Capital is an incredibly important part of Economy and Society not only because of the funds it deploys but also because of its undue influence on a particular form of the “economization” of society in general. Everyone who strives to understand the world and how it is shaped- and shapes us- needs to understand how it works. World Eaters is a great primer and a salutary corrective to the narrative purveyed by the often-fawning business press.