Venture Capital Funds

Of all the strange things that money does to humans, one of the most arcane is the venture capital fund. These networks of investors and businesses are geared towards the willing exploitation of start up companies who happen to have business models that could succeed on global scales solely through the addition of vast sums of money. In other words, venture capital is there as a means to scale up operations of either already successful companies, or newcomers that might have the ‘next big thing’. There is something of a Faustian pact involved: venture capitalists (VC) want a stake in the company, and like any capitalists they care little about anything but the numbers. If you wanted to build a company for keeping people in your community in work, VC is roughly the diametric pole, being focussed primarily on heading for a share offer (an initial public offering or IPO) to cash out with.

Yet venture capital cyborgs behave weirdly... I have frequently noticed how companies successfully pursuing VC almost invariably raise much more money than they could realistically use. When pioneering social games company Zynga pursued VC money in 2007, it made a lot of sense for them – they had a hot property in FarmVille, which turned successful Japanese designs like Harvest Moon into a form tailored for the mass market. They needed money to expand. But how much did they really need for this? They ended up pursuing an astonishing nine rounds of funding raising $866 million. Valued at $7 billion, the IPO was ‘only’ valued at €1 billion – which when you consider how much was put in was a damp squib. The story ends with a lawsuit alleging a fraudulent concealment of the true state of their business after the IPO. Not entirely surprising... given the amount invested, Zynga would have needed to clone planet Earth to have a large enough audience to justify those investments.

I previously discussed how lottery tickets are intimately associated with poverty. Well, venture capital funds are the lottery tickets of the ultra-wealthy, and the returns (unsurprising) are far better. Only one in five VC bets pays off... but those that do are billion dollar jackpots. Of course, Zynga shows that even winning a billion isn’t always enough. They pursued nine rounds of funding because they could – the money was being waved in their faces. Venture capital funds have a time limit, and it's ‘better’ for VC to invest and lose than to have failed to invest – so when one VC finds a good bet, the pack isn’t far behind. Capital – the vast accumulation of money beyond any human need – is a game of chasing tails, and venture capital funds are the apex lottery; good odds, but proportionally smaller returns than lotteries for the poor – albeit at billion dollar scales. This self-perpetuation of circumstances is perhaps the defining feature of a world whose most influential cybernetic network is money.

A Hundred Cyborgs, #33