The Venture Capital Subsidy

Let us talk today of the VC subsidy, a critical part of the venture capital MO, aka, the bait and switch of all time. 

The VC subsidy is how venture capitalists and startups initially seed adoption. In the case of Uber, for a long, long time, venture capitalists were essentially paying for people’s rides for years and years, fostering adoption at lower price points that are later raised. Also in this phenomenon we see that in the early days of Uber when it launched in San Francisco, using limo drivers in black Lincolns, Uber drivers were actually getting paid more and had better working conditions than taxi drivers; this too was part of the subsidy, and a critical point: that the workers of gig services often are paid and treated competitively, with better working conditions, in the early days, but a few years down the road, the subsidy is removed and fare prices go up as driver pay goes down; to the point where we see simultaneous global protests — currently, simultaneous strikes and protest by ride share drivers in Nigeria and Michigan, USA. (Showing again the need for a coordinated global response to a coordinated global threat, as these strikes and resistances are happening independently of each other, similarly to what we saw in the last tech bubble but now operating on a far grander scale). Another good example from this time period is the many food delivery services that were created in web 2.0, such as Caviar, a high-end version of Doordash working with the luxury restaurants of the Bay — I ate cheap af for years on that thing as the VC subsidy was providing massive discounts to users with low service fees. Thanks Marc! Soon, the 30% off disappeared and I was out a free meal.

Let this be a lesson to you.

In the early days of a startup, services and products are offered at prices that are not sustainable and not designed to be sustainable, and wages are paid that the venture capitalist has no intention of sustaining either, and community is supported that will not be sustained either. Thus the early days of new technologies and startups and platforms, are misleading and specifically designed to create early adoption, at which point it can cannibalize on all earlier promises and implicit or explicit contracts with users and workers. This is particularly dangerous when venture colonialism is targeting economically oppressed countries in the global south, and the subsidy becomes a matter of creating the illusion of economic progress in the early days of invasion. Venture capital for this reason is being welcomed in many of these places, when these countries should be escorting them right out of the country at arms. 

For the interests of those following crypto, subsidy plays out here in the sector of community, where startups and their apps and platforms are originally fomenting community and developer innovation, growth and monetization. Later, this is cannibalized in 1000 ways, with the quintessential example being Twitter, whose early days were marked by a vibrant independent developer community building awesome experiences off on the platform, and apps that were critical to the spread of Twitter in its infancy. As Twitter grew, it cannibalized the ecosystem, shut down permissions to apps, driving many of them into closing up shop, including some of the most talented developers in the ecosystem. Some of the apps were purchased by Twitter itself but the major takeaway is the community subsidy, in which in early days we see community prioritized, and then in later days advertisers and exploiting and cannibalizing and marginalizing community becomes the focus. 

This is something we’ve seen in the web 3.0 / shitcrypto phase, with all the community that has built around memecoins, DAO collectives, NFTs, and the ongoing appeals to artists and developers, to develop this ecosystem and to provide a platform for mass adoption. “Community” is best understood as an EARLY PHASE of the venture capital lifecycle from founding, it is baked into the operating model and the adoption model, in which venture capital for a brief period floods these areas with support of different kinds of subsidy (money, fame, good jobs, podcasts, parties and events, etc etc), that it has no plans of maintaining; this is for marketing for the venture capitalist, for early adoption, and importantly, to attract the attention of large brands and financial institutions which are their ACTUAL customers, something that is true almost universally across the venture capital system when you are talking about big power players like a16z. When big brands and financial institutions see consumer adoption and general pomp — it is a package being curated for them — they want to get in on it. Thus the subsidized community support, is actually bait for the actual customers of venture capital and the bait for mainstream adoption, after which the fake support for community falls away and the planned exploitation begins. 

The role of the subsidy and community phase is particularly concerning with the advancement of venture colonialism, where it is entering a variety of countries in the global south — El Salvador, Kenya, Nigeria, Honduras, Guatemala and others — to create sovereign zones, create settlements, exploit labor and local resources, and replace existing state currencies with the currencies and financial infrastructure they control, the full colonial package. In these areas where there is extreme poverty and wealth gaps, internal turmoil, and labor exploitation, the venture capital subsidy can go very far, much further than it can go in the United States . 

Honduras is one site of major concern. There, the a16z + Founder’s Fund conspiracy have set up a sovereign zone via their firm Pronomos Capital, and are in the middle of a massive legal fight after local residents resisted the occupation. The venture capitalists are now suing Honduras for 2/3 of the country’s GDP to maintain it — a country of 10 million people and an average annual income of $2,740. In this type of extreme wealth gap we see all over the colonized world, labor is far cheaper than in America and thus it becomes much easier to temporarily subsidize while VC gains a larger footprint on the land, resources and people. Venture capital is in a position to provide the temporary illusion of increasing the prosperity of the region, and indeed, that is its selling point to the governments in this area -- that they will improve the economy, bring business development, raise the standard of living and infrastructure, and provide good jobs. Of course, we have seen in Oakland and San Francisco that this is not something which accrues to the actual people of the region, as opposed to only the people who are at the core of the venture capital mechanism. In reality, any subsidy of these countries will be designed to secure the VC foothold; even more labor exploitation, health care gaps, poverty, instability and displacement will come. 

To close out, I must call out the vital importance of understanding the material operation manual of venture capital, to understand the bait and switch they regularly pull, as this bait and switch carries much more heft in the here and now, than it ever did when this strategy was about developer communities around early social media APIs. In this case, life is at risk as is the colonial balance in the world. Community, better wages, better jobs, better living, is something that tech will only offer for a few years, before moving into generating its true return for venture capital.

We are then left with the rug being swept out from under us; this promises to throw the colonial targets of venture capital into a far deeper depression than ever they were uplifted on the arrival of this new colonial enemy.