VCs Are Sitting On Massive Amounts of Cash Right Now

If you looked at the numbers and the overall sentiment, things seem pretty slow for startups and venture capital right now. The number of deals is down from end of last year (tho still up from 2021) and VCs aren’t raising much funding either. (Though a16z just announced a $500 million fund for its baby weapons companies). Exits, both M&A and IPO, is pretty much at zilch. 

The industry sits, it seems, in something of a suspended animation. 

Yet venture capitalists are, and have been, sitting on about $300 billion of “dry powder” they are able to move into the market whenever they want. ALL venture capital spend last year totaled $238 billion. So they are sitting pretty, actually.

This is the venture capital industry simply deciding, despite having plenty of money, to just sit on it and wait. Which they also did for most of last year, resulting in the draught of funding, or rather its collapse, partway through the year. That hit the startup economy hard, purely caused by VC refusing to put money in the market. During this time, conditions became investor-friendly as opposed to founder-friendly, a key reversal. Just this week, Business Insider dropped the fact that startups are now selling at 80% off. Absolutely perfect for venture capitalists who can now do extremely cheap M&A and consolidation as we head into a new bubble. 

I bet at SVB they were surprised when out of nowhere the flow of money into their bank from their customers was just choked off by venture capital. It was this forced starvation of the startup ecosystem that had less money running through SVB, putting it into that precarious position in the first place. This was also totally predictable from the venture capital perspective. 

It’s hard to build something that will last if venture capital keeps pulling the rug out from under the entire ecosystem just to secure better terms for themselves. And is fine with such extreme consequences as causing bank failures and mass layoffs.  

We have gone 11 months now with venture capitalists sitting on a record amount of money. What the fuck? Why should we accept that this is a reasonable way to manage this industry, as opposed to a glaringly self serving one, that results in the startup market being starved to death, banks failing, massive disruption to tech later leading only to better buying conditions for venture capitalists? This is vastly irresponsible and it has an impact on so many workers in this field, foremost. They talk so much about “building”, words that ring hollow when they are content to let the industry stagnate and twist on the hook. This is anti-building.

The methods for managing the startup ecosystem and the production of technology generally, does not serve the larger market of people or even the “builders” that VCs are constantly crowing about, but rather has to do with venture capitalists perpetually orchestrating market conditions, which are then attributed to some kind of internal weather vane, as if this all on vibes, and not just a very small group of extraordinarily rich people who are manipulating markets, not caring what gets crashed or comes crashing down as long as they continue mindless momentum, mindless eating of the world.  

 Did you know that a16z has 500 employees but only 25 of them are investors? Which means that their critical choice to hold back money, and thus triggering it for the rest of the industry, is relying on just 25 people? And that we see a similar concentration in other firms? 

VC controls the amount of money flowing into the system, turning it off and on. They are the bottleneck between a world that wants to invest in technology and the people who want to build that technology. Like venture capitalists do, they attach concentration points on big systems, allow wealth and power to gather around that, then consolidate around that center. VCs are the gatekeepers into the technology world, and they are the keepers of the industry. They have a much wider array of market manipulation tools than people think, assuming that making smart bets in funding rounds is their main competency; when actually it is in this management of the startup economy, that is their competency. Which they have a number of levers to pull on. Controlling exists and sitting on dry powder are some of the biggest ones. 

VCs have captured the market to such an extent that they actually own all the money flowing in the system, they are the core mechanism of the economy, that there is no “market” operating here, just venture capital ops. Analysts point to “VC caution” in the market, or VC jitters, speculate that perhaps they are worried about the regulatory environment, or the interest rates. VCs are often described as skittish. We treat venture capital as some kind of groundhog for the market, subject to unknowable forces, some innate animal-esque attenuation to the subtleties of the seasons. 

This is a lot of projecting onto venture capital and to the “market” (totally controlled by them). 

One argument proffered for the current slowdown is that they are worried about the central banks and the American economic system more generally. Ignoring the fact that a16z has set up a fully functional financial system that benefits every time trust in the US banking system is eroded, and that they are actively trying to onboard as much of the startup ecosystem as possible onto. Coinbase says they need more capital running through it — where do you think that is going to come from?   

Indeed, crypto shot up following the collapse of Silicon Valley Bank, with a16z’s Coinbase seizing on the opportunity to advertise itself as an alternative and in fact an “update” to the banking system. Improbably, the venture capitalists are getting away with the narrative that they were the victims of SVB and that this, conveniently, supports the argument for Bitcoin (but does it?), as SVB money goes into a16z’s startup bank, Mercury. 

You’ll notice that no one, of all the major hullabaloo about SVB, mentioned EITHER of a16z’s new banks, or that one of them is focused on the same market SVB was. Occam’s Razor! Pretty convenient, because otherwise we’d have to admit that one of the major players who caused the bank run was also one of its primary beneficiaries, both in deposits and also in a marketing war. 

VCs aren’t worried about bank issues, they want more of them. They are prepared for massive scale onboarding to crypto, supported by the many infrastructure deals they made last year, and are fully planning to achieve that. So this is an implausible justification for the 11 month hold out. 

You could make a general argument about what is happening in the American economy and so on, which would mean ignoring that tech’s goals have actually always been orthogonal to the health of the American people and its economy. Web 2.0 started right after the banks fell. Tech increased 2x in power and wealth during the pandemic, while 1 million people died, and a16z extolled the industry to “just build”. Tech doesn’t move to the same rhythms as the American economy and it never has. Crypto actually demands that they move different.

This $300 billion is just sitting there waiting to ignite a new bubble and enter into the exuberant years of this new cycle. You want to know what starts bubbles? That VCs absolutely pour cash on a carefully prepared market and boom. You want to know what these nebulous “market conditions” are that supposedly dictate the venture capital agenda? Very simple manipulations in the amount of money going in there. 

People somehow think that VCs are constrained in financial scope by the availability of funding sources, LPs, which I think is incredibly naive. A16z can pretty much raise whatever amount of money it wants and is already in deep with the Saudis. This is one of the most coveted markets in the world. Everyone wants a piece of Silicon Valley. That’s not the issue here.   

When a16z and the other major VCs, decide to press play, it will be as if the tech industry rises up from draught to dancing. All the other VCs will follow what a16z does. It’s just how it is. A16z = king. They were the ones who made the entire industry dance to the web 3.0 song, switching it all up in a matter of days. An inarguable demonstration of their command of the market. The release of dry powder will be the same.

What venture capital does, and this should be much more widely understood, is that they manage the economy of the industry and of the startup ecology. They control how much money comes in, and how fast, to who and what, when and where. They manage the exits, the IPOs, the M&As. They provide the strategic direction for the tech ecosystem. They manage the evolution of technologies across multiple generations of startups. They are the managers for the whole thing; a position of extreme power and control far from typical notions of the VC as market savants and  innovation illuminates, making smart but risky bets on an ecology that otherwise is full of moderating and competing forces and some kind of natural rhythm of innovation and thus economic distribution. 

Foolish. These are the architects of the entire industry. 

 And yet they are never held accountable for the results of that industry, because no one will admit the obvious truth, that these people aren’t managing money for their LPs, they are managing the entire startup ecology for themselves and whatever other mass scale financial criminals they hop in bed with to fix the market, only some of which are LPs.

This points to one of the biggest problems with how the industry is managed, which is that, this structure is utterly undemocratic, it doesn’t take input from anything outside the system, there are no viable alternative sources of funding, control over the entire technical destiny of humanity resides in the hands of just a few people, and VCs have near and total control over this ecology. There is no actual accountability for the choices that venture capitalists make; everything they do is supposedly a response to some unspecified or specious market event. They are designing the entire economic strategy of the industry. Period. 

I would argue that venture capitalists have also proven themselves to be ineffective guardians of the ecosystem, when you see a pattern like this where we are down, down, down, entirely because they chose to. We shouldn’t be OK with letting this entire field stagnate just so that venture capitalists can best line up their conspiracies and plots. We should be stable and consistent.

We assume that we have the best and most advanced version of the technology industry that it is possible to have; this is a clear case of mismanagement that is actually stopping the sector. VC seems determined to provide only an uneven and precarious hold for everything from workers to startups; I’m only a bit of an expert but I would think that creating a stable financial environment for the industry to grow, would be better than living on this made-up roller coaster of psychopathic ghouls. The goals of humanity are not for a technology market that is allowed to stagnate for 11 months just for the fuck of people worth trillions of dollars while $300 billion of needed capital sits in the coffers instead of being deployed into the startup market. 

They’ve been talking a whole lot about “building”, for people who are making it prohibitive to do by sitting on cash ALLOCATED FOR OUR FIELD like ducks. 

Of course, this is a stable situation… for VCs. It’s the entire rest of the industry including the workers and all other technological projects and entities, that are forced to contend with these unstable and almost totally artificial conditions. 

A venture capitalist would tell you that this is what gets people to perform their best; I argue that we’ve seen enough and we should see how far we can get using a better strategy and one that prioritizes having a healthier economic substrate. The way we are doing it now sucks ass: leaving it in the hands of people who are strategically managing it towards personal greed and artificially creating market conditions for goals that are not directly related to the improvement of life for PEOPLE on earth. 

We often assume that the technology world we have is the inevitable one; that the technology we have is the best technology possible. The fact of the matter is that venture capital has been operating a specific economic model, and we can change that model. Frankly, it doesn’t need to get any more personal than that. 

Other alternatives exist, that involve collective ownership and decision. Avoiding this design pattern where you are generating massive wealth inequality and ending up with wealth hyper concentration, where someone like Marc Andreessen essentially has the entire Valley in his pocket, and he can literally tell everyone what to do. Honestly if he told me to do something I probably would lmfao. We all run on Marc’s clock around here.

So where are we going with this dry powder? Well, it is going to be poured on top of a perfect cocktail of bubble material. New platforms, new developer paradigms, new apps, new databases and new datacenters, plus a strong financial play in crypto that is weaved throughout this and provides the backbone for this, the strongest financial platform tech has ever had. That also means more of this money is going to stay in the system than ever before instead of hitting central banking or even going into someone else’s infrastructure, in plays that bring them face to face with AWS.  

I think the actual takeoff event will likely be the public launch of the metaverse and the other AR/VR platforms from the big players. Far from being dead or not existing, the Metaverse and AR/VR are already being integrated into the weapons program, already this AI is deployed in active combat zones, already it is being used in the policing field and in medicine and in construction. It is being used in universities for remote learning and study. Gamers have been in the metaverse for a long time, and venture capitalists have been investing very heavily in the gaming space, especially a16z, so we will be seeing new gaming experiences as well for these platforms. That said, crypto has been the leading indicator as it enters a bull run so that could just as much set off the spending.

I’m extremely suspicious about the lack of exit activity. As I’ve said earlier, I think the markets would be looking for new kinds of financial products and that there is hunger for the availability of tech assets. I absolutely believe that a16z will be launching a crypto stock exchange. I know that talent for something like high frequency trading is extremely expensive and the technical demands are extremely high and also extremely serious. 

Do I think that they are holding back exits so that they can debut them on VC-owned financial infrastructure? Yeah, I think that is definitely possible. This would have been something they’ve been working on for a long, long time and the parties involved have likely been envisioning a crypto stock market since way back in the PayPal days. With Coinbase and other crypto infrastructure leaving the US, the regulatory hurdles go down when they are setting up shop in places like Bermuda and El Salvador. 

A16z, via investments in OpenAI, is also a prioritized customer and will be at the forefront of using AI for trading. So I actually think we might be seeing something pretty different than what we are used to; a stock exchange that looks very different than the “legacy” one we have today. 

What the VC financial system needs is money going through it. VCs have $300 billion in cash just sitting around. How much of this game is making sure that, once deployed, that money is staying within the ecosystem? They need volume on crypto,  they need transactions, they need data and they need data volume. They need to be pushing as much as they can into this as fast as they can. Making sure that $300 billion that they are putting in is actually going to be animating their financial infrastructure instead of pouring into outside systems. 

It’s possible that dual-listing is part of this where companies will be on more than one exchange, so theoretically you could have stocks on both the main stock exchanges as well as in a crypto-backed exchange. I imagine this poses a huge amount of regulatory hurdles, but I think demand would be high. Meta is the only major tech company meaningfully tied to the a16z + PayPal Mafia conspiracy, so I think you could be looking at something in that direction. Facebook could very much decide to go onto the new system. 

Yeah, that sounds like a big move. Here’s the thing: expect big moves. They are literally trying to introduce an entirely new financial system to the world. It will be ugly. Pieces will fall off. There will be many, many problems with American regulators; but at this point I think the VCs are just going to threaten and sue the shit out of them and threaten to take money out of the US that in the long run I think they will go back to more or less avoiding the tech industry. That is not a problem for Marc Andreessen.

Regulators are going to be bent over the barrel. Tech has been fighting regulations all over the globe, from the social media to the medical data to the surveillance systems to the ride share apps; they are not new to this kind of shit, whatsoever, but the SEC will absolutely be new to the full wrath of venture capital, which I for one would actually like to see just go ham on these folks. Show them what you can do Marc, beat those bitches UP. 

Another possibility is they are just waiting to release a bunch of IPOs and M&A that they have been just staunchly not doing, in order to create a burst of financial activity and to get some of the returns back into the system to grow anther startup when the bubble does go off. Lots of exit activity will surely liven things up.

VCs are just waiting for the right second to start another bubble. (Technically we’ve already started it, but it’s not visible just yet). They have been lining up all the pieces. 

I hope this shows how venture capitalists ORCHESTRATE bubbles; bubbles are not actually an organic phenomenon, rather a financial pattern used by VCs that generates the best results to them, but where you end up with a long period of stagnation, then the start of the bubble, and then eventually the bubble bursting. They pour the gasoline and then they light the fire. 

Then we will dance again!!! There will be parties. The last bubble was pretty amazing. The amount of booze was absolutely legendary. I grew up in the Midwest so I really had no exposure to say, French dining, which I rapidly became a huge fan of, as well as extremely expensive champagne, as we all walked the fine line between sociability with one’s coworkers and degenerate alcoholism.

 Basically everyone I knew got rich as fuck in the end, but at what cost? My best friend died because working for a startup was worth more important to VCs than his life.

Nonetheless, good times are surely ahead for the tech sector which I absolutely think will reanimate some of the global economic picture, for this will allow access to the tech industry, at a more higher level than ever before. VCs are opening up and a ton of new sources of capital for the industry will be created with new investment paradigms and new financial products. There have been minimal ways to invest in the VC economy and that expands a lot in the future. 

I recommend you try out the champagne. Look at everyone around you. At least half of you going to get rich. But you’ll never see these people again, and you will be a totally different person when you come out. Building!!!