VC-backed bragging rights

Every time I see a recruiter namedropping VCs that they’re backed by in outreach emails, I have to let out a small chuckle. Andreessen Horowitz or Sequoia Capital or Y Combinator or whatever. I understand why they do it — it shows that their startup has been vetted and that the product has potential that investors believe in. But the fact that they use VC backing and brag about their company as an attractive place to work is laughable. I get that hiring is tough in this market right now, but personally speaking, seeing a VC-backing does absolutely nothing for me to want to work somewhere. In fact, the more a recruiter brags about VC backing or the more a founder is trying to please VCs, I take it as a big red flag.

Zooming out for a second, the goal for a venture capital firm is to make its return on investment back. They put in some amount and they have an expected ROI. That’s it. They do not actually care about how good the products are and what the day-to-day team dynamics of the people are. They just want the return. Broadly speaking, VCs look for companies that they believe have the potential to impact long-term shifts in consumer behavior. For example, convincing people to make payments online was a really big challenge back in the dot-com boom. The systems couldn’t be trusted, there were lots of scams, and the infrastructure just wasn’t secure enough. There were many people making electronic bank transactions, but if someone put up a product for sale and asked you to pay online for it, you’d still be skeptical.

Amazon changed this with their reliable and trusted delivery network. You paid for something online and it showed up two days later. Just a few decades ago, paying for something upfront that you were just supposed to trust would show up at your house later was a scam that you were actively told to avoid. And yet, Amazon managed to slowly change consumer perceptions about this, especially over the past decade. If the wrong thing arrived, you could return it. If it arrived damaged or was defective, you could easily get a replacement. This slow buildup of systems around the simple act of paying for something online and physically receiving it two days later completely transformed e-commerce. But alas, it was too late to invest in Amazon by 2010 as a VC. They were already full steam ahead with their plans to disrupt commerce and VCs needed to focus on the next big consumer behavior shift.

Enter the gig economy. Uber, Airbnb, Doordash. Consumers were now contracting complete strangers for services that they normally would’ve been told to avoid. This was understandably a crazy concept at the time. You go and stay over at a random stranger’s house? You get into a stranger’s car and hope that they drive you somewhere? You trust a stranger to actually bring your food from the restaurant to you and not keep it for themselves? The big innovation here is the work that has gone into identity verification and validation systems. The companies do the leg work of ensuring that everyone on their platforms are good actors and abide by the laws and policies of their platforms. They immediately deactivate or remove bad actors to keep the system going, they disincentivize bad behavior through star ratings and reviews. This in turn allows consumers to trust that yes, it’s actually safe to stay over at a complete stranger’s place abroad because they know that hundreds of other people have stayed at that Airbnb and have left lots of positive reviews about their experience. Consumers feel fine ordering a ride on Uber today because they see that their driver was given a 5-star ratings by thousands of riders. They know that dashers won’t eat their food because DoorDash is actively monitoring the status of the food, the dasher’s location, and the ETA to the destination (and that a refund would be issued if something went wrong). This is the sea change that has happened in the past decade with regards to transforming consumer expectations.

But again, it’s now too late to get into the gig economy action as an investor. So VCs will look for the “next big thing” that will drive change in consumers over the next decade. Some believe it will be a blockchain-based technology, while others believe it will be in the energy sector. The point is that VCs will quickly fund and abandon companies once this transformative change has happened, but those companies are left to continue providing and maintaining their services to consumers. Uber shaped and defined many consumer expectations in the gig economy, and now that they’ve hit their peak, investors aren’t seeing as many returns. Growth is slow, and many VCs are pulling out to put their money in something new and shiny.

The truth is that you just can’t move as fast once you’ve grown a business or technology for several years. You’ve accrued lots of tech debt and have patched together hotfixes that can’t quite scale to keep up with the pace you want to move at, so you stagnate. You built a Jenga tower where you duct taped your way through problems on the lower levels to prove to investors that you can build the tower really high and really fast. Now when you try to ship something new, your employees will say that they can’t ship it until you ship a “true fix” for those problems on the lower levels of the tower. The tower would collapse if they tried. And the estimate to ship those true fixes are on the scale of months to years. And long-term returns are not something VCs typically like, especially in this economy. So they pull out and the companies are left to deal with their issues themselves with no capital infusion. Layoffs, re-orgs, or selling off the company entirely are on the table at this point.

Netflix is a beautiful case-in-point example summarizing all of the above. They normalized a big change in entertainment consumption through their streaming service. And many players crowded the market. Now they’re too big to move quickly, so they ship controversial things like restricting password sharing and being forced to increase subscription fees to continue growing. Stocks drop, VCs pull out, and Netflix lays off employees. The truth is, VCs do not care a single shred about the business of Netflix. They’ll look back at it retroactively and use it as a case study for some future venture, sure, but they could not care less if Netflix lived or died. To them, Netflix has served its purpose as creating the sea change that they needed and they’ve got their returns. Now they’re looking to put those returns into future investment engines.

This whole cycle of focusing on quarterly returns to determine whether VC funds should continue to invest in that venture or not is extremely disruptive to not only the companies, but also society at large. Companies cannot control what the market decides two months from now, they can only ship products themselves and hope that the market conditions are right when the quarterly results come out. It’s all extremely shortsighted and favors small startups that are able to move very fast to prove their technology. Of course, moving at that pace means that they’re not building to scale correctly and they’ll undoubtedly have problems once they’re bigger. But that’s never reflected in the Income Statement or the Balance Sheet, is it? It never forecasts the future cost of technical debt or experience debt. It only shows profits and losses at a specific time. The people left to deal with those problems are future employees who will inevitably join bright-eyed only to learn that the product they once looked at with reverence and admiration is actually just a bunch of overheating servers barely being held together by cooling fans whose warranty has expired. And they’re being asked to push them even further to their breaking point by making them do new things. So they quit and move on to go somewhere else to solve other shiny new problems, only to see the same problems just with a shiny new paint of coat.

Today’s VC firms very much seem to have a kill-the-golden-goose approach if it doesn’t seem to be laying golden eggs every quarter (the so-called unicorns). So why should I be impressed when a recruiter namedrops a VC firm in an email? What exactly are you selling here, a beautiful working environment where I’m not afforded the luxury to think long-term to ensure that my designs scale as the business grows? A day-to-day that’s incredibly stressful and chaotic because well-researched designs get overridden at the last minute by founders who just want to ship an inferior version, all for it to look good on the quarterly results? They’re either blissfully ignorant of the reality of working at a VC-backed startup, or are intentionally hiding these realities. At the end of the day, you’re at the whim of the VCs making decisions, especially if you’re going to go up for another round of funding.

This is ultimately why so many designers love design but hate tech. The toxic death cult of VC funding kills off many good ideas in the bud before they have a chance to truly blossom and grow. In the end, you’re left with companies that manage to appeal with the least offensive design that doesn’t try too hard to do anything groundbreaking and instead just sort of exists and withers away over time. The design output of the company does not match the actual skills and talents of the designers that they hire. The companies think they can fix their problems by laser-focusing on hiring senior talent only who can push through organizational barriers with their years of experience, but in truth, those designers are simply just looking to escape their existing problems by attempting to solve them elsewhere — just with a shiny new paint of coat. I’m not sure if designing in tech will ever be a sustainable career that doesn’t lead to many of its workers burning out in the current environment of VC-backed funding. It’s short-sighted, exploitative, and unsustainable. And it sure as hell won’t convince me to join your startup just because you pitched to VCs and managed to secure a seed round from them.