The Relationship of Venture Capital to the Tech Giants
One of the key questions, and a frequent source of confusion. To the masses, there is very little distinction between them, and even to many people inside the industry, it is confusing as to how these entities differ and interact.
Certainly, there are many ways of looking at and thinking about this, but one of the better ones is to think about how these parties benefit each other, and what they exchange. The tech giants are Microsoft, Apple, Amazon, Nvidia, Oracle, Google and so on; these are large publicly traded companies dating as far back as the 70s in the case of Oracle. And still kicking ass. These are infrastructure providers; their infrastructure — datacenters, consumer devices, even the data substrate of Facebook — needs applications and customers and integrations and data flowing into and out of the infrastructure. Take Apple, where you have the iPhone and the other devices — and applications are built on it by third parties; for example, you have a Nike app, the Spotify app, the Nordstroms app, and all the other brand names like that. In the case of a more traditional infrastructure company like Oracle or Amazon, they have their computing platforms, which include storage and data processing and now AI tools; essentially, these companies host the applications and provide the background infrastructure for the apps that you then see on consumer platforms or deployed through the enterprise (what we call large companies).
So it is the existential need of the tech giants to have building of applications, higher-level platforms, use cases, data usage and collection, etc. being done on their infrastructure. Without that, they are toast.
The giants are very, very big companies with entrenched cultures and practices. They can’t possibly build all the apps and experiences they need to and they don’t have the internal competency to do that either. People don’t understand how limited these monster corporate entities are; Conway’s Law suggests quite beautifully that they are unable to produce anything but their own communications structure. Thus to really get the diversity of applications they need, and to build a vibrant financial ecosystem on their infrastructure, they need… other tech stuff to make their tech stuff worth a damn.
This is where the venture capitalist comes in, as they are the ones who fund a bunch of startups to build the latest, greatest, new shiny thing on top of what the giants have produced and on top of the new infrastructure plays. We have a perfect example of this playing out right now in the highly visible case of Microsoft and OpenAI. Microsoft, as well as Nvidia through its AI chips, are the infrastructure that OpenAI is building on; thus, the venture-backed startup is providing the consumer usage and the data collection and the at-scale adoption of the underlying infrastructure, that Microsoft needs for its infrastructure to be a success.
We also see that the venture capital growth is subsidized by the giants and that is a pattern we will surely see increasing, particularly as the new age of AI infrastructure becomes prohibitively expensive to a large range of startups. The increasing cost of cutting-edge infrastructure is driving consolidation in the venture capital space and an increasing size of funding rounds; compute is once more expensive with the arrival of the AI age, and venture capitalists are on the hook to provide larger and larger amounts of money to startups so that they can secure infrastructure and compete. A recent article stated that venture capitalists are even offering privileged access to infrastructure brokered in deals with the giants, to gain competitive deals with the startups they are courting. In the case of OpenAI, you see that Microsoft and Nvidia have subsidized the development of OpenAI by giving access to hardware, AI chips, and so on.
The expenses of new computing infrastructure have changed the power balance on at least this axis; it is propelling the venture capital hunger for foreign investment, as seen on the many high-profile world tours of venture capital and their portfolios this year. (Additionally, venture capitalists are moving more into hardware themselves, demanded by their new weapons programs; their eyes grow yet further bigger than their stomachs as they talk more and more of “large scale” projects, such a tech/crypto cities; and of course hardware having quite a higher capital requirement to get started.) So in this particular moment, the tech giants have a lot of power over venture capital and that is a strategic vector that we should not ignore, in particular in light of the AI arms race; these days hinge on the very cutting edge of infrastructure and venture capitalists must compete for access among themselves and against development by the enterprise in consumer, financial, health, etc. verticals. The giants have the ability to say “no more AI chips for you! No more cloud for you!” and that is a major dependency and weakness in the venture capital platform.
Adding to confusions about their partnership, the giants have their own VC arms through which they invest in their own startups. All of them do, and for example, this year we’ve seen an impressive amount of investment by Nvidia in the AI area, with a particularly interesting investment in Hugging Face, a direct competitor to the venture-fascist run OpenAI.
Venture capitalists have sold startups to the giants since the beginning of these parties. This is an exceedingly close relationship and of course venture capitalists move in and out of the giants and vice verse, the open door so to speak. There again, is this false notion of competition; unlike the idea of technology as this incredibly competitive place, what we actually see is that these relationships exist to maintain the power and revenue of both the giant and the startup, that sweetheart deals are made constantly, that startups are often started with no other goal than to get acquired by a vertical of larger companies, that giants have a huge role in what venture capital is investing in, and so on.
There are many reasons that giants purchase startups: to gain some competency they don’t have, to “acquihire” a startup with a high amount of talent, to gain new features for their platforms, to grow their footprint in some area of software or hardware, to grow very quickly (Facebook used this strategy and Anduril is doing it now, engaging in a rapid-fire of acquisitions of lethal weapons startups), to buy out potential competitors (which, accumulatively, is a highly anticompetitive process and giants are able to trivially buy out anything that threatens them in a serious manner). And for the venture capitalist, this is the way that they get many of their returns, by selling to the giants.
The giants are in many ways operating under much greater constraint than startups, largely because of their status as publicly traded companies, which subjects them to a much higher degree of scrutiny and reporting, and forces them to be more conservative. Thus, they rely on startups to do more “radical” things and to take early forays that may be controversial; for example, the launch of AI for the industry was handled by OpenAI, not by a giant, and likely because of the controversial nature of such an introduction: OpenAI served as the big splashy marketing vehicle and also the first foot into massive regulatory battle, while the giants got to take a more conservative and — less likely to cause fluctuations in the stock price — tact.
The matter of giants being followers, and letting the startups and the venture capitalists be the more radical edge of technology development, grows deeply concerning with the outward expansion of both economic structures. Take in El Salvador, where venture capitalists have effectively led of a coup of the country, are installed in the government and backing the dictator Bukele, and have now effectively secured the transition of the country into a venture-capital economy. They have made extensive deals for land and natural resources, with the planned “Bitcoin City” and “Bitcoin mine”. While this transformation is going on to make way for the venture capital parasite, the country has locked up 77,000 people, many with no due process, in the newly-constructed largest prison in the Americas, to eliminate any unpleasantness for the tech, VC and crypto classes.
DESPITE the country being in a state of human rights crisis, under the control of an extremist right-wing dictator, and clearly under invasion from the thirsty venture capital regime, DESPITE the clear moral depravity in this area, again, CONDEMNED repeatedly by human rights organizations including Amnesty International — and with experts fearing the spread of the human rights abuses by the El Salvadorian government to the region — Google has announced that they are opening offices, and a SEVEN YEAR agreement:
“a multi-year agreement to support the country in its journey to become a technological hub in Central America. Based on mutually agreed upon conditions, Google Cloud plans to establish a legal entity and a Google Cloud office in the Republic of El Salvador, initiate a Google Distributed Cloud (GDC) instance for the country, which will bring infrastructure closer to where El Salvador's data is generated, and set up a Cloud Center of Excellence to offer technical guidance to businesses and organizations on how to achieve the greatest benefits from cloud technology and innovations.”
In this situation, we see how dangerous the model of letting venture capital go first and “clearing the path” for the giants will be as these dynamics continue to evolve and we are in a new economic cycle of technology. Particularly in the new venture agendas of large-scale expansion both colonially, through cities, imperially, and militarily, we need to be seriously concerned that the giants will follow venture capital in these agendas. How advantageous and useful to venture capital if they can bring with them, in the form of an economic package, the giants! If this colonial invasion will be bolstered by technology and infrastructure from the giants, new offices, building in-country teams, by their stamp of approval, their legitimacy… that would significantly accelerate these proceedings and while venture capital will be the “first mover” in these areas — like with OpenAI, confronting regulations, confronting public perception, doing initial global delegation, suing the pants off the countries for land, etc. — they will not be the only movers, at least not for long. We have to strongly fear the tech giants following venture capitalists into these new colonial zones, significantly expanding the capital footprint, as well as the force that is brought to bear on local exploitation and the creation of a massive wealth gap in these areas.
I am VERY VERY
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concerned about the possibility that the tech giants are going to follow what is very evidently a venture-capital-led transformation of the industry into an explicit war machine. Venture capital is critically harnessing Silicon Valley workers in the development of military tech, and we can trace down the origin of this agenda to a few venture capital firms and even to individual venture capitalists. Right now, it is the venture capitalists, and a very small group of them, that is pushing and funding the new lethal weapons boom.
The giants have always had weapons and intelligence and surveillance contracts, but industry anti-war sentiment, including employee walk-outs for major defense contracts, has absolutely constrained the building of military technology by Silicon Valley, this has been admitted and stated by the Pentagon, and the venture capitalists doing the war hawking. (This is documented pretty well in the enemy book ‘The Kill Chain’, which basically lays out the new weapons strategy that venture capitalists are pursuing). And indeed, the venture capitalists have since succeeded in wresting the agenda of the industry, quite in opposition to these workers, towards war. They are additionally socializing this broader agenda among other venture capitalists, its workers, and it is becoming more and more normalized in the industry to work for lethal weapons startups.
My concern is that this will have a cascading effect into the giants, where giants will follow in the strategic and radical direction of venture capital as it is increasingly successful in getting lucrative defense contracts, in selling a new vision of war — of autonomous vehicles and AI piloted lethal weapons and drone swarms and blanket satellite surveillance. The entire package that venture capital is selling represents trillions of dollars over time and includes a vast rearmament program for US allies, and if venture capital is successful in making those first inroads, we should be truly concerned about the giants following in their wake. They will likely even be NEEDED to fufil the full scope of the military ambitions in play.
Emphasizing again that tech giants are much more susceptible to the court of public opinion than the venture capitalist, exactly because they are publicly traded and so their stock price can be affected by public perception of the company; the target is much more visible as venture capitalists stays more in the shadows, and is much less identified as a vector of intervention. The venture capitalist is not publicly traded, has very little burden of disclosure especially to the government, and is quickly able to close ranks in the face of dissent; this is especially true as they have significantly radicalized and have manufactured an external enemy — the “woke mind virus”, “communists”, etc — you are talking about a group of people who is in no way going to be changing their trajectory because of public dissent; the years where that was possible elapsed during the prior bubble. So for this reason venture capitalists are in many ways both a lot less visible, and a lot more resilient to public criticism. And we’re going to need a plan for the giants if they decide they want in on the new age of warfare too, or are dragged there by pressure from venture capital and the state and military apparatus. After all, war is an incubator for technology hypergrowth.
(Shout out to the ongoing efforts of Palestine Action to get Elbit weapons factories shut down as well as the Google and Amazon workers trying to end cloud contracts with Israel).