
Entrepreneurs are the New Labor - chrismealy
http://www.forbes.com/sites/venkateshrao/2012/09/03/entrepreneurs-are-the-new-labor-part-i/
======
pg
Investors have won? What? Founders have never had more power relative to
investors than they do now.

~~~
michaelochurch
Founders with breakout successes get the best terms ever now; that is true. On
the other hand, investors have more power to fuck with founders' careers (even
years after the venture dissolves), and founders who fail are more desperate
to get back into conventional careers due to the disgustingly high housing
prices that exist now. Venkat talks about the old-school serial entrepreneur:
the 10x hustler who learned a little bit from each failure and finally had a
huge hit on his 5th attempt (usually around age 40, at which point he'd be
unfundable by contemporary VC-istan standards).

That person is gone now. In contemporary VC-istan, _no one_ gets a 3rd
startup, thanks to the collusive and almost certainly illegal reputation
economy that exists there. You _might_ get a second shot if you come back to
your VC bosses with your tail between your legs.

That's because VCs have set themselves up as the executives of the first post-
modern company: VC-istan. "Entrepreneurs" are hustling project managers. The
investor/founder separation exists to hide the Effort Thermocline (the level
at which jobs become easier with increasing rank, not harder) because it
exists _between two companies_ , with a distinct power relationship of one
over the other.

Hell, most VCs won't even talk to you if you were lack-of-fit for a regular
corporate job. They want to fund banker kids who did Analyst -> Private
Equity. (This is the MBA stereotype, but it's the 2nd tier of those who do
MBAs. The top tier skip MBA school and become parasitic PEtards two years
early.) True hustlers and technologists are second-class citizens; they work
too hard and don't have the social polish to exploit "just like me"
chickenhawking of their backers.

~~~
tptacek
I might be the only person on HN who has a lower opinion of VCs than you do (I
credit them with killing the first company I started) but this reads batshit
to me. VC's want to fund MBAs who "did Analyst -> Private Equity"? That
describes nobody I know who's raised a round, but ironically describes a
couple people I know who failed utterly to raise.

I'm calling this comment out. I think you made that up. Show me I'm wrong.

Your bit about about "nobody getting a third startup" is also directly
contradicted by people I know who have done exactly that, and raised in their
40s. In fact, I think it's likely that more people raise real VC rounds in
their 40s than do in their 20s, and that you're just paying attention to a
small niche of social media startups.

~~~
michaelochurch
_I'm calling this comment out. I think you made that up. Show me I'm wrong._

I won't, if only because:

(a) some of these people I like, even if I find private equity (and, thus, the
company they kept in their career-building years) distasteful. Associating
innocent people (by name) with a problem just to make a point is something I'd
rather not do.

(b) the ones I hate I know well and identifying them would give information
about my career history that I've chosen not to share. For example, I worked
for a truly evil (management-wise; the engineers were fine) startup in 2011-12
and I've thus far kept the world from knowing which one. I have strategic
reasons for keeping that way. I could probably destroy that company if I
wanted to, but I'd prefer not to do so. If they succeed, it makes me rich. (I
don't have equity, but I have dirt.) However, anyone who is considering
working for an NYC startup can ping me and I'll do a yes/no on whether it's
That One. (I have convinced a lot of people not to work for them.)

You can believe me, or conclude that I'm drawing a conclusion based on limited
experience and not believe me. I'm not making it up, but I don't have
longitudinal data, just a large set of observations because I talk to a lot of
people. I'll admit to that.

Now, I will admit that all of my direct experience comes from New York VC-
istan. I haven't been to California in almost 5 years. For all I know, it
could be totally different out there but, based on the people I talk to on a
regular basis, it seems to be same shit, slightly different stink.

~~~
coopdog
> "I could probably destroy that company if I wanted to, but I'd prefer not to
> do so. If they succeed, it makes me rich. (I don't have equity, but I have
> dirt.)"

This is not the right move long term. If they've wronged you move on, maybe
blow the whistle if its complete BS. Resorting to extortion is not going to
make you any friends who take pride in their ethics and who therefore won't
screw you over in the long term.

~~~
michaelochurch
When I blew this whistle on Google, I pissed off a lot of engineers even
though I never had a problem with them. And, in that case, it didn't really
hurt them at all because a single whistleblower can't take out Google. The
worst it has to fear is mild embarrassment.

The lesson I learned is that whistleblowing often angers the wrong people. In
a better world, only wrongdoers would suffer, but that doesn't seem to be the
world that exists. Google's horrible management is still horrible; its
otherwise disinterested engineers (who I'd be inclined to like) seem to be the
ones upset about it. Which might suggest that it wasn't the right course of
action, since the wrong people feel attacked while the deserving targets don't
seem to have changed.

If I blew a whistle on this startup, I'd probably end it (unlike Google, on
which I had no real effect). Unfortunately, it'd be engineers who'd suffer
(losing jobs, when the company folds) but management would be OK. That's the
problem. The good guys are more vulnerable to that sort of thing than the
genuine malefactors. The CEO's independently wealthy and has flat-out said he
doesn't care if that startup fails (since the investors took it away from his
original vision-- to something much better than what he started with). If I
blew a whistle on him, I'd just take that firm off his books and he'd move on
to some other project.

Now, if they have a huge success, then that changes. In that case, engineers
get their payoff no matter what I do, but managers risk personal embarrassment
(as they deserve, because that company's whole management team is unethical).
So, then it might make sense to divulge. Right now, though, I'm just nervous
that it would hurt the wrong people.

------
ajju
The author seems to pick surface level similarities between completely
disparate things and claims they are the same.

>>The transformation of fund-raising activities from genuine negotiations
between evenly matched parties to “pitch cultures” that hew to ritual “know
your place” expectations on the part of investors

Someone invite Venkatesh to a YCombinator demo day so he can get an idea of
what the real dynamics are like. He fails to understand that there are still
genuine negotiations between investors and startups but instead of having 1, 2
or may be 3 possible investors as founders did before demo day, founders now
have potentially 500 possible investors. What impact does he think that has on
those genuine negotiations? Who does he think has an upper hand now? The idea
that founders have been degraded and must "know their place" is such utter
bullshit.

>>At least in the early stages, investors entirely run the game.

Nothing could be further from the truth. If he looked below the surface at
what the standard investment templates actually do for example, he would
realize that entrepreneurs now have more control than they ever did. If
anything, early stage entrepreneurs now have more power than they have had in
a long long time.

Disappointing.

~~~
bryanlarsen
You`re making his point stronger, not weaker.

>> founders now have potentially 500 possible investors

This speaks directly to the OP's central point of "legibility". The process is
open, anybody can participate. You don't need secret knowledge or connections
to do these deals; all you need is a worthy pitch or money to come to the
table.

You can get good terms. That`s the point. It`s much more difficult for
investors to squeeze you; it`s also much more difficult for you to pull off a
coup like the one Bill Gates did on IBM.

I think you`re reading the article wrong. Not surprising given the title and
our forum. Obviously hacker news sympathizes with the entrpreneurs.

The title implies that the investors have won and the entrepreneurs have lost.

In fact, it makes a quite convincing argument that Wall Street & the
traditional investment class are among the losers. It`s saying that the big
winners are Google/Facebook/Apple/Microsoft, et cetera. They made 10's of
billions.

The era of making 10's of billions is over. The rest of us are part of the
"new middle class". But it seems that the "new middle class" consists of those
who are either pulling in salaries over $150K working for the winners or those
who make millions through aqui-hires, fairly priced venture deals or
bootstrapped "lifestyle" companies. Sounds good to me.

Another thing that sounds good to me is the decline of the "entrepreneur as
scoundrel". Bill Gates made 50 billion by exploiting information asymmetry.
Todays entrepreneurs make 50 million by building better mousetraps. The
biggest winner is the consumer.

~~~
michaelochurch
_The era of making 10's of billions is over._

I never cared about that shit. I'm fine with financial mediocrity, defined as
capturing a small percentage of the value delivered to society. At some point,
you have to call it enough. Once you can raise a family in good conditions
(granted, in New York that's about $500-600k because of the insane cost of
living and education) you are a bit nutty if you keep playing the money game.
If you genuinely enjoy your job, that's different. But playing the money game
beyond upper-middle-class is insane, because (a) the people get worse, and (b)
returns diminish.

Financial mediocrity is fine. It's really competitive to get into the true
upper tier and, even though I'm smarter than the fuckers who are winning that
game, they have a 30-year head start on account of being born ruthless
assholes, whereas I'd have to learn it. I'm willing to let those assholes have
their private jets. Enjoy.

What I can't stand for, and never will, is being made to do mediocre work. If
you're going to get $2 million out of me each year and pay me only 10% of what
I deliver, then fine. We'll do it that way. I won't stand to be assigned
mediocre work that is essentially evaluative. If you don't trust me already to
do great work from the first day, then I don't trust or like you so get the
fuck out of my way.

~~~
jwhitlark
I had a financial fraud investigation professor who always said that getting
rich was easy if that was the only thing you cared about.

------
freechoice22
Hacker news should be renamed to Peasant news. Just how the reality is. Not
really new but didn't expect mainstream media to write about the reality of
it. Guess a rare one. Personally I will never go for an investor in a pseudo-
economic market which we live in. It's like begging to become a new age
peasant. You'll have more freedom living as a wildling in the woods or become
a small-scale farmer. Oh right you need that latest hi-tech gadget which they
use to enslave your mind. Well enjoy it.

------
fleitz
If you're doing a web/mobile startup what do you need VC financing for?

Might as well go see a VC about opening a Pizza shop, it makes about as much
sense.

The people who are losing to VCs have no leverage, if you have no leverage you
will always lose the negotiation.

~~~
codewright
There's a VC funded Indian burrito joint in Palo Alto. I've eaten lunch there
three times, once with a potential investor.

Food's terrible to boot.

~~~
GuiA
Tava Indian? They're in SF as well now, I share your experiences.

<http://www.tavaindian.com>

~~~
codewright
Yep. Awful food. Not, "awful Indian food". Awful by any standard.

I don't think the founders had any experience with food before doing Tava.

~~~
ajju
Haven't eaten here, but if this is true, it's a tragedy. There are so many
ways to do an Indian burrito right.

------
jwheeler79
That article is wordy and hard as hell to parse. I wish the author would just
speak plainly. What's he mean anyways? 'The entrepreneurs are the new labor'

~~~
michaelochurch
Let me give it a try. Venkat is brilliant but he doesn't hold back from using
hard-to-catch metaphors and $5 words.

There's a cartoon from Hugh MacLeod that shows the corporate pyramid with
three layers: Sociopaths at the top, Clueless in the middle, and Losers at the
bottom. Venkat has done one hash-out of this on his blog; I've done another
with a slightly different approach. Let's talk about what these tiers are.

Sociopaths are strategic and dedicated but not subordinate. They work hard,
will make things happen that most of society thinks "shouldn't", and they get
rich or famous when what they build advances human life. However, most of them
are also egotistical assholes. Steve Jobs is the uber-Sociopath. In general,
they love risk, because they view low social status and mediocrity as
indistinguishable from death (and therefore favor high-risk lifestyles). Many
of them aren't Sociopaths. I'm probably closest to this of the 3 tiers
(although I mix them up).

Losers are not undesirable or unpopular people. They're losing in an expected-
value sense. They disfavor changes (in management, location, jobs) and tend to
sell off their upside in exchange for risk-reduction. That's the insurance
trade of modern employment. They're subordinate and strategic (they know
what's worth working on, but will also subordinate on a dead-end project if it
keeps them comfortable) but not dedicated. At 5:01, they're gone.

Eventually, the company is no longer defined by economic competition to excel
on the market, but by _political_ competition to capture the rents of a
smooth-running machine. You get a caste of entitled, lazy executives who
replace the old entrepreneurs. Then, the symbiosis between risk-seeking
Sociopaths and risk-averse Losers dies out. The executives negotiate worse
terms for Losers (lowered risk reduction, fast-firing) and use their superior
social polish to push out the "good Sociopath" entrepreneurs who started the
thing.

When this happens, Sociopaths need a ready supply of rubber gloves to use for
their dirty work and then discard, because they're no longer holding up their
end of the trade with the risk-averse Losers. They carve out a contingent of
eager upper-tier Losers and failed-to-become-executive lower-tier Sociopaths
and forge the Clueless. Clueless are dedicated and subordinate but not
strategic. They often have _no idea_ what's worth working on, or what's
happening at the big picture.

Clueless are the middle-management buffer class. Since they work the hardest
(to clean up messes left by disengaged Losers and malignant Sociopaths) they
often end up propping up the Effort Thermocline, which is the level at which
jobs become easier (a switch-over from pay-for-work to executive rent-seeking)
rather than harder with increasing rank.

By the way, how do you get someone to be subordinate, strategic and dedicated?
That only happens in a true mentor/protege relationship where the mentor is
fully trusted to deliver a great career to the protege. That existed in guild
cultures but it's never found in modern employment.

VC-istan, with the collusive and illegal reputation economy driven by
comparing-of-notes and co-funding, is the first postmodern corporate
organization. The Effort Thermocline exists _between companies_. It's fucking
brilliant! The Sociopaths are the true executives (VCs, tech press, "popular
kids") and these "startups" are all-Clueless endeavors. If you haven't figured
it out, "lean startup" is code for "no Losers".

Obviously, this contention (that VC-funded "entrepreneurs" are out-of-work PMs
parlaying backers' money into acq-hires and fast promotions) is controversial
so he spends a lot of verbiage backing it up.

~~~
jfb
I didn't find it particularly difficult to read, but it moves along at a
pretty good clip. The central thesis largely comports with my experience.

------
danboarder
Worthwhile read, though note this was written in September 2012.

A quote from the article that captures the apparent shift of power to
investors:

"...one can hardly imagine a Carnegie or Rockefeller anxiously fretting over
what bankers might want to hear at a pitch meeting or anxiously studying how-
to books on pitching and business plans; they’d have just walked into the
room, hours late, with blackmailer swagger"

His point is that many "entrepreneurs" are actually not; rather they are a new
labor class building features and negotiating for funding or acqui-hire...

------
EGreg
"Investors have won" sounds a bit premature. If the SEC didn't drag its feet,
we'd have lots of new people entering the startup market on the investor side,
and presenting much more supply of investment money (and competition from the
investor side).

People at the SEC, however, (such as Mary Schapiro, who since left), are
concerned about protecting non-accredited investors who may be affected, and
the agency has even taken heat from many members of Congress for taking so
long:

[http://www.reuters.com/article/2013/04/11/us-sec-jobsact-
idU...](http://www.reuters.com/article/2013/04/11/us-sec-jobsact-
idUSBRE93A0JB20130411)

If they would at least drop the ban on general solicitation -- as they were
expected to do last August -- then many entrepreneurs with large user bases
could solicit investment through messaging those users, and inviting them to
introduce their rich (accredited) investor friends to the company.

------
zer0gravity
With the rise of crowdfunding, the days of angel investors are numbered. This
new model will permit to the "be useful" mindset gain terrain from the "get
rich" mindset and I think this is a good thing. Following and rewarding social
profit is wiser then the currently wide spread, egotistical personal gain
strategy.

------
dottrap
For all the historical blather in the article, the one simple thing that is
ignored is why there only super powerful investors and weak entrepreneurs.
There is more wealth available via the non-super rich than anytime in human
history. Average people should be able to invest their money to fund
ideas/companies.

This used to be possible in the US. You didn't have to seek ultra rich
investors to get started. You could take an idea and sell shares in the
company via a stock exchange. But now regulation has made that impossible for
all but the companies that have grown so large that they ironically don't need
to raise any money and it is all about the early VC's time to cash out. (see
Facebook)

Instead, the only new avenue we have are things like Kickstarter. But you
don't get to invest thanks to over-regulation. You can only "donate" and hope
to get a "gift" (fingers crossed pre-order/purchase).

------
outside1234
I feel like he got this utterly and completely 180 degrees wrong. There has
never been a time when it was easier to start a company and easier to get peer
to peer advice.

We are our own investors in this new bootstrapped world and we don't need the
VCs or other supermonied classes.

------
DanielBMarkham
"...Investors have won, and their dealings with the entrepreneur class now
look far more like the dealings between management and labor ..."

What the heck? I read a ton of startup-related news, and if anything, we now
live in a time where bootstrapping huge businesses are possible, people are
enjoying "lifestyle" opportunities, and investors are complaining they just
don't have as much oomph as they use to have.

Sometimes I think you see what you want to see in these things. If you're
already keyed-up with some kind of marxist/labor theory of the universe,
everything conveniently fits into your model no matter what the actual data
is.

------
BoredAstronaut
From the outside looking it, I would say it just looks like a rational model
is being imposed on a chaotic system as a means to control and understand the
risks. Can we take it for granted that the primary motivation of investors and
entrepreneurs is to make money (aka prestige/power/status), and things like
changing the world, enjoying their work/team, creativity and other motivations
are secondary? If so, since investors start with the money
(prestige/power/status), they have the upper hand in a rational model, where
successful investment always pays back dividends.

The cause of this situation is the accepted superiority of money
(prestige/power/status) and the way investments are structure to ensure the
return of more of it to the ones making the investment. The only alternative
would be a kind of philanthropy, where investors gave money (spent as capital
and income on necessities), without asking for a return, to those they
believed would do the most good with it.

Personally, I think that there are other ways to acquire/demonstrate social
status other than money, but they aren't as easy to use in algorithms and
economic models, so they aren't given as much attention. I think people need
to spend more cycles on considering these other ways of measuring status.
Certainly we can't dispense with money, because it makes perfect sense to use
a common way of measuring the value of most everyday things. But in terms of
how you measure a person's significance and contribution to their society, I
think it's very limited.

EDIT: some examples of alternatives to money which bequeath status, and which
can work as currency or to enhance bargaining position: unique or protected
(patented) knowledge, talent (artistic, athletic), beauty, perceived wisdom
(spiritual), nobility/heritage. All of these are familiar, but subverting
bankers/investors seems to always involve having access to some amount of one
or more of these, because it can be translated into followers (audience,
buyers).

The growing pool of entrepreneur/labour may have some amount of hustling
skill, but if it's not unique, then it is doomed to be commoditized. Anyone
who is trying to emulate a Gates, Jobs, Zuck, or other uber-hustler is
automatically not unique, and therefor expanding the replaceable pool. Anyone
who can acquire followers independently of capital is on to something new.
They can escape the dictates of the imposed model and set their own terms,
because they have a different sort of capital.

~~~
apalmer
This i think is the very key point the author was making.

An 'entrepreneur' would look at investors as bags of resources, which he will
leverage to enrich himself. To an 'entrepreneur' investment funding is not
intrinsically an more important a resource than say the right labor team,
etc...

The mindset of the investors have the money so obviously by rationality they
must have the upper hand is a key fundamental world view difference between an
'entrepreneur' and a high paid labor.

------
arbuge
So by entrepreneur he really means non-tech hustlers working on tech-centric
companies, the kind that are hard to get to the traction & cash-flow stage
without meaningful development. It's not so surprising that those would have
less leverage with investors - they're basically dependent on their money once
they max our their savings & credit cards.

------
sageikosa
Go figure, I never knew there was a competition between capitalists and
entrepreneurs. I always figured that they needed each other. Marketwise, this
"win" could shift back when entrepreneurship drops and investment picks up due
to the asymmetric fluctuations between supply and demand of the two
commodities.

------
jcub
At least 90% of the projects I see don't need the $100,000 for a nice office
space and whatever else they spend it on.

~~~
logicallee
You're wrong - they absolutely DO need it.

As an example, here is an itemized breakdown of why my project NEEDS a
$100,000 investment.

$2000 - Back wages and small debt (past year)

$4000 - burn rate of founders (1 yr)

$1500 - equipment and hosting (1 yr)

$7000 - outsourced labor (1 yr)

$85500 - necessary because you are not interested in a $12.5K investment, even
if we are the next Google. Therefore, this is added to convince you to invest
in the company. This portion will simply remain on the books.

The last portion is necessary because you, the investor, would not take a $15K
investments seriously. That's why we need a $100K investment.

It is not an optional line item: without it, we do not get the investment. It
is crucial.

~~~
il
Your burn rate is $2K/year? Where do you live?

------
CleanedStar
"Investors have won"

Congratulations, after ten thousand years of struggle, the ruling class has
finally won for good, permanent victory has been declared by - Venkatesh Rao.

Marx says in the Communist Manifesto - "The history of all hitherto existing
society is the history of class struggles. Freeman and slave, patrician and
plebian, lord and serf, guild-master and journeyman, in a word, oppressor and
oppressed, stood in constant opposition to one another, carried on an
uninterrupted, now hidden, now open fight, a fight that each time ended,
either in a revolutionary reconstitution of society at large, or in the common
ruin of the contending classes."

Marx had a point here about the long time span. In the Epic of Gilgamesh,
written several thousand years ago, rulers are advised to capture new slaves
from far-away, rural areas, as these slaves tend to be more passive. These
issues have been around for a while - from that time, to the time of
Pisistratus, and Spartacus and the Roman Servile wars, and the struggle
between the optimates and the populares, to the German Peasants revolt of the
16th century up to this modern day - one may have noticed how large and
militant the May Day rallies in Spain and Greece (unemployment is 26% in both
countries) were. US drones in Afghanistan, Pakistan or the Boston marathon
bombings - these struggles carry on over time.

If one reads a lot of Marx (something John McCarthy said was a sign of a
wasted youth), you see the point that just when some system is said to be
completely victorious, it has usually peaked and is on a long downhill slide
until something new comes along. Louis XIV was called the Sun King and is
quoted as saying, L'Etat, c'est moi, but less than eighty years after his
death, Louis XVI was guillotined in front of a crowd of revolutionary sans-
culottes.

Final victory is here for the investor...well, we will see about that...

~~~
sageikosa
...and evolution is directed toward a more perfect form? History isn't moved
by invisible forces towards a precognitive goal any more than an invisible
hand of a creator directs evolution, or deities direct kings to make divinely
sanctioned choices.

~~~
jfb
People love teleological stories. That doesn't make them true.

------
ttrreeww
Time for the government to fund startups directly. Say a million startups for
a start. It's our tax money after all.

