
Steve Blank: Venture Capital Is “Liquidity Ponzi Scheme” - t23
https://www.startupgrind.com/blog/venture-capital-is-liquidity-ponzi-scheme-says-steve-blank/
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kordless
> Blank has found that more than half of all Silicon Valley founders come from
> chaotic, dysfunctional families. “It’s the cruelest and most effective
> training ground for being a founder,” Blank said, "and that ability to shut
> out everything except for what's important for survival turns out to be
> exactly what you need to do to be a successful CEO."

The ability to shut out what is important for good mental survival is an
unhealthy, dissonance creating behavior. By ignoring what is crucial to one's
mental stability and focusing on an arbitrary goal (which is to make someone
else not doing the work more money) is an INSANE behavior to practice. It
_might_ make sense if it were life and death, but rationalizing the technology
improvements that come from these types of efforts, and the money that comes
with those improvements, is just a sign of massive societal dissonance.

Technology will continue to increase in sophistication regardless of how
idiotic we are with our own mental health and sanity.

These people, mostly billionaires I will point out, only stand to profit from
others throwing themselves into something so completely that the chances are
that the founders will either succeed widely or end up being broken as a
result. Justifying "brokenness" as a needed trait for CEOs using biased
blaming statements is a sign of a self centered rationalization. And for what?

That jackass on the right was even laughing about people paying $10 more to
sit closer to him. Fuck those guys. Build your own company on your own terms.
Live your life fully TODAY, for tomorrow may not be at all.

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im_down_w_otp
Two things:

1) the loose definition of Ponzi Scheme he's applying here seems so broad as
to be meaningless. Multiple banks offering you lines of credit you can't pay
back would be Ponzi Schemes too with his characterization.

2) the stuff about what makes great founders reads like post-hoc projection of
his own life experience onto rationalizations for his success. In other words,
bias. Given almost half of Silicon Valley founders apparently don't come from
"dysfunctional" upbringings. A veritable coin toss doesn't make a compelling
case.

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HillaryBriss
What percentage of families in society overall are dysfunctional?

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danielvf
You've got the right question to see if this datapoint matters at all.

I don't know the answer unfortunitly, so I'll answer a much easier question
instead: Only 46% of US children are in a family with two married parents.

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HillaryBriss
yeah, i mean, what is Steve Blank really talking about when he says
'dysfunctional'?

which definition of that word do we even use?

~~~
danielvf
Self reported. I think he's referring to this article he wrote in 2009:
[https://steveblank.com/2009/05/18/founders-and-
dysfunctional...](https://steveblank.com/2009/05/18/founders-and-
dysfunctional-families/)

Though I don't think you have have to come from a dysfunctional family to
handle choas well. Working in theater will teach you that just as well. :)

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Negative1
I don't think the term Ponzi Scheme is correct but I'm not sure a name for
this has been invented yet. Calling it a 'hustle' might be better but still
doesn't express what is happening.

VC's want to make money, pure and simple. The only thing that matters is the
liquidity event that allows them to recoup their investment. It can be argued
that in the end all these people actually create is personal wealth for
themselves since the product and it's long term success (and the success of
the founder and company) really don't matter. I think that's a pretty bleak
outlook considering they could be making money doing a lot of other things and
there is great value in what they do.

VC is a game, and to play it right, they need to distill their decision making
into core principles. This whole thing about dysfunctional families that the
article discusses, well, I do think you need a certain temperament to be
successful in the VC game and maybe the dysfunction helps to build that kind
of mindset (non-sentimentalism and drive).

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paulsutter
> "While they might like you, you’re just part of a liquidity Ponzi scheme,"

Completely incorrect use of the term "Ponzi scheme".

> "Their only goal is to make you liquid or go public. They will support you
> to do that, but that's about it."

I've never met a founder that didn't know that taking a VC money means
liquidity is your overarching goal.

~~~
Noseshine
The guy who founded OwnCloud, who recently made headlines all the way to HN by
leaving that company and founding NextCloud using the same open source
software, seems to be one of those. I heard an interview a few days ago, in
German (somewhere on Youtube, it's very recent), where he listed that as a
major downside (of VC capital) and in the end something that lead to his move.
I'm sure he if you ask him won't say he was surprised, and that he knew it -
but him pointing this out as a major point shows that even if he was aware of
it, he was not aware of what that means in reality.

    
    
        > I've never met a founder that didn't know this.
    

"Being aware" of something has several layers. A lot of people are "aware" of
things on a conscious level, but when you look at their actions you see that
it doesn't seem to influence the behavior. Just "knowing" something doesn't
mean all the parts of your brain responsible for your actions got the message.

For example, people now speeding or texting and driving may kill you, but I
bet those who experienced it first hand will show much improved behavior in
that respect compared to those who only "know about it".

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Noseshine
Can't edit any more to fix the typo:

For example, people _know_ speeding or texting and driving may kill you,
but...

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cs702
There's a lot of truth to Blank's statement, but like all generalizations,
it's unfair to the best VC and early-stage investors.

For example, it would be _extremely_ unfair to describe Y Combinator's
business as a "liquidity Ponzi scheme."

~~~
cloudjacker
Then you should read some of the SEC's enforcement actions on what they
perceive to be fraudulent Ponzi schemes

My conclusion is that it is extremely relative.

The definition of "Ponzi scheme" is quite simple, because what Mr. Ponzi did
was quite simple. It works until it doesn't. It doesn't matter if your
reputation is 1 year old, or 20 and "one of the best", while you are able to
pay investors nobody questions anything despite how obvious the source of
funding is, if you are unable to pay investors and halt redemptions then you
have a problem.

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leroy_masochist
Very interesting thoughts from Blank. I thought the interviewer was terrible:
visibly nervous and insecure, and his non-sequitur questions to the audience
were especially inane. "Who here uses data?" "Who has the next billion-dollar
idea?"

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rfreytag
Medium post is taken from this original site:
[https://www.startupgrind.com/blog/venture-capital-is-
liquidi...](https://www.startupgrind.com/blog/venture-capital-is-liquidity-
ponzi-scheme-says-steve-blank/)

Maybe a moderator can fix the original link.

~~~
sctb
Thanks! We updated the link from [https://medium.com/startup-grind/lean-
startup-pioneer-steve-...](https://medium.com/startup-grind/lean-startup-
pioneer-steve-blank-venture-capital-is-liquidity-ponzi-scheme-
ac1d28b392ec#.tlhagrdd0).

