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The venture capitalist's dilemma

newsletter.mollywhite.net

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Re: The venture capitalist's dilemma

#11

Post by kqr »

lifeisstillgood wrote: post #2

> that those controlling massive amounts of capital and power in our society are not the smartest, or most level-headed, or most altruistic among us. This seems to be the telling quote - and is to me the point. We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look lik…

There are a few employee-owned cooperatives around and they tend to be somewhat democratic, if you want case studies in what that looks like.

Re: The venture capitalist's dilemma

#12

Post by danjac »

ncallaway wrote: post #9
roenxi wrote: post #6

I broadly like the things Molly is bringing attention to, but there are some problems here: 1) This is presenting a bank run like it is a bad outcome for the people involved. It isn't obvious why that would be so; SVB is now one of the safest banks to park money in, and the dust hasn't settled but it seems plausible to me that the bank equity holders and directors are part of some incestuous Silicon Valley relationsh…

> If the game is set up so that everyone rich gets a bail out, you'd have to be an idiot not to take the bailout. But that's explicitly *not* how the game was set up. The game was set up so everyone gets insured up to a limit, and if you're rich enough to be beyond that limit, then you should be paying market rate for insurance on those funds (which is, like, a thing they could have done). They chose to forego insura…

To pull a quote from the article "No atheists in a foxhole. No libertarians in a bank run"

Re: The venture capitalist's dilemma

#13

Post by kqr »

DannyBee wrote: post #7
lifeisstillgood wrote: post #2

> that those controlling massive amounts of capital and power in our society are not the smartest, or most level-headed, or most altruistic among us. This seems to be the telling quote - and is to me the point. We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look lik…

Yes, what we need is more hecklers vetos over more spending. Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done. If the control that already existed produced anything other than total dysfunction, things.…

I think the problem is the other way around: the population's lack of experience with actual democracy is what hampers any attempt at it. If we had more democracy people would learn to be responsible with that power out of necessity.

But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This is usually not a problem with a company that makes a product or renders a service, but it can be problematic for e.g. nation states. I don't think the solution is for a wealthy few to bludgeon the dissenters into compliance but rather split the democracy up into smaller parts, that interface with negotiations and valuable exchange.

Re: The venture capitalist's dilemma

#14

Post by throwawayAsdFoo »

kqr wrote: post #13
DannyBee wrote: post #7

Earlier quoted context omitted.

Yes, what we need is more hecklers vetos over more spending. Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done. If the control that already existed produced anything other than total dysfunction, things.…

I think the problem is the other way around: the population's lack of experience with actual democracy is what hampers any attempt at it. If we had more democracy people would learn to be responsible with that power out of necessity. But of course, a functioning democracy needs some sort of shared goal among its population, to help people compromise on less important matters and agree on that which is important. This…

[flagged]

Re: The venture capitalist's dilemma

#15

Post by cornholio »

Capital is just another name for power and powerful people fight to maintain and accumulate more power - welcome to the world, summer child.

It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market regulation, progressive taxes, they are all forms of limiting the accumulation of capital and power.

And it just so happens that the current system we came up with - a mixed market with a strong, democratically elected public authority, yet freedom for individuals to pursue taxable profits - is the one that seems to work the best, because it pushes powerful people, both politicians and capitalists, to cater to the needs of society if they need to maintain their power. It's not an utopia, human nature has not changed and some would chain other people up tomorrow like in medieval times if they could get away with it, yet it works remarkably well.

It's nothing short of amazing that it works, really, we are privileged to live in a society where the powerful are so limited in what they can do with their power. We can still fine tune & tax more, of course.

Re: The venture capitalist's dilemma

#16

Post by aleph_minus_one »

There can always happen the situation that customers of a bank want their money that they deposited there back.

In the insurance sector, the situation that a singular event (say, a hurricane) causes damages to a lot of customers at once is a well-known phenomenon, named a "cumulative event". Every insurance company has to model this and thus there exist mathematical tools for this such as copulas: https://en.wikipedia.org/wiki/Copula_(probability_theory)

A bank should better the model the event that a lot of customers want their money back, too. If it does not, there is something deeply wrong with the bank's risk management.

Thus, in my opinion, the article victim-blames venture capitalists to be "evil" while the true culprit are the bankers who did not factor in the cumulative event that lots of customers want their money back (which was given to the bankers by the customers to be held in safe custody) into their risk management.

Re: The venture capitalist's dilemma

#17

Post by patcon »

DannyBee wrote: post #7
lifeisstillgood wrote: post #2

> that those controlling massive amounts of capital and power in our society are not the smartest, or most level-headed, or most altruistic among us. This seems to be the telling quote - and is to me the point. We are missing democracy in control over at least half of the spend in society. It's going to be weird, but we need democratic control over companies, as well as government. No idea what it's going to look lik…

Yes, what we need is more hecklers vetos over more spending. Democratic control makes no sense. That's the entire reason the US has a representative government - direct large scale democratic control doesn't get anything done for starters. Heck, even the representative form has scaled to the point it doesn't get anything done. If the control that already existed produced anything other than total dysfunction, things.…

We're in hockey stick growth. Maybe we need to enter a period of "not getting anything done" (by relative standards) in order to start threading the needle and pulling this fraying fabric back together

Re: The venture capitalist's dilemma

#18

Post by offtotheraces »

It’s funny that Molly (a VC) ascribes so much power to VCs that they can literally create bank runs on their own.

No.

VCs don’t make decisions on where a company keeps its cash; the founder/CEO does. And founders freaked the f-ck out. Let’s make sure to remember that founders had 100% agency in the decisions they made about their cash.

Here’s a selection of comments in the Whatsapp founders group Im in - all founders, no VCs:

Thursday 3/8 (36 hours before FDIC takeover):

“I'd consider moving to one of the too big to fail banks..”

“I agree the risk is higher then we thought before, I'm in SVB, with 4% - and looking to understand where to go now.”

“It's a numbers game - if a lot of people do what I do at the moment - it will fall.....”

“Does someone have a contact at Chase for B2B SaaS customers? I'm thinking it's wise to already have an account open there in case it will seem like we need to move off SVB.”

“Let's say we want to open a Chase account and move company funds?”

“for those that have their money in SVB and do not have another company bank account - what are the immediate options?”

“If there is a risk of a bank run, why not take the money out”

“Basically our whatsapp group creates bank runs now... power to the founders?”

“we just moved 85% of our money out”

“I just pulled ours”

It’s not surprising a VC would think she has more power than she actually has, but she also clearly has no idea about the wildfire that was spreading among founders themselves. Founders don’t give a sh-t about what their investors think (generally) - founders make the decisions they think are best because they have the most to lose (or win) from being wrong (or right). And they are much, much, much more likely to trust their fellow founders than their VCs.

Re: The venture capitalist's dilemma

#19

Post by Nevermark »

By the time it gets out that a bank is too illiquid to cover its deposits, the situation is already too unstable for any kind of careful coordination of thousands of parties with real concerns about their valuable resources.

Imagine the results of an email sent to everyone in Silicon Valley:

—

“So the local bank screwed up and can’t cover all its deposits. But let’s get together to see if we can all agree to wait this out as a disciplined block of customers.

How is Thursday for everyone?

(It’s very important that we all cooperate. So if I don’t hear from any of you in the next 20 minutes, I reserve my own right to start withdrawals.)”

—

That’s not going to work!

The bank will be toast before half the recipients get their email.

This has absolutely nothing to do with an “investor class”.

And everything to do with bad bank risk management and timely contingency planning.

Re: The venture capitalist's dilemma

#20

Post by matthewdgreen »

cornholio wrote: post #15

Capital is just another name for power and powerful people fight to maintain and accumulate more power - welcome to the world, summer child. It's woefully naive to expect individuals to give that power up for social-positive goals, it practically never happened throughout human history. We achieve social-positive goals by behaving as a society and limiting what the powerful can do with their power - democracy, market…

We didn’t just “come up with that society”: many aspects of it were deliberately constructed because previous iterations failed badly. Deposit insurance, which is the subject of this post, was a depression-era phenomenon that came into existence because many banks failed catastrophically. Many other aspects of our modern society, from old-age pensions to welfare to our global defense alliances, were also born of similar disasters.

The main objection in this post is that certain members of our society seem to view those developments as “old fashioned” and unnecessary, and would like to roll them back. Some go so far as to advocate for and donate considerable wealth to politicians who promise to do so. But of course when those people are themselves exposed to the exact risks those systems were designed to protect against — suddenly they’re enthusiastically in favor of government protection.

The lesson here is that you should not look at our society and take it for granted. It took work to get us here, and it takes constant work to keep it in place. There are people who would throw it away for a momentary profit, and those people will tell you their beliefs are founded in principle. But for your own protection, you should pay attention to how seriously they take those principles when their money is on the line, and update your mental model accordingly. In this case the answer is: they do not take those principles very seriously at all.

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