Is peak capitalism the conspicuous consumption of capitalism itself?
Traditionally, the failure rate of start-ups, including (and particularly) ventured-backed start-ups, is very high. And yet, despite the failure rate of start-ups and maturation of the VC industry, the quality of start-ups seems to be declining. In a recent paper, several researchers proposed an explanation: entrepreneurship has mutated “into a lifestyle commodity that is attractive to individuals who are unlikely to enjoy any kind of substantive success with their ventures. Rather, they pursue entrepreneurship as an identity project. As a consequence, entrepreneurship has transformed from a productive activity into a set of conspicuously consumable goods that can be used to signal belonging to a socially desirable identity by Veblenian Entrepreneurs.”
Essentially, the start-up universe is increasingly attracting more of the wrong people for the wrong reasons. This seems reasonably accurate, but I’d suggest that the bigger problem is the VCs.
Question: when did jazz start to suck?
Answer: the late 1970s.
Question: what was happening to jazz in the late 1970s?
Answer: it started to become standardized, commodified, mass-produced. Universities started jazz programs that taught everyone the same way. Textbooks (jazz textbooks!?!?!) were produced. Jazz standards became jazz standards. Everyone started sounding the same (and lame), and what was once the playground of sonic invention mutated into dentist office Muzak and scene-setting for late-night second-rate cable programming.
Is it the “Veblenian Entrepreneurs” who burnish the myth of the teenage robot-savant riding a unicorn, or is it the Veblenian Capitalists? The paradigm for the VC world is Mark Zuckerberg, the college dropout (who may or may not be a robot and/or alien) capturing lightening in a bottle, wears a t-shirt at work, has no dependents (i.e. can work for nothing), and can hire and build something meaningful for $500k (e.g. still gets money from his parents), and thinks “Hacker Way” sounds like a cool name for a street.
Contrary to the edenism of teenage robot-alien founders, data clearly demonstrates that the founders with the most success are in their 40s. But VCs don’t like these people; they have families and mortgages and inadequate supplies of hoodies. In other words, they’re expensive. You can’t put a $1M on them and expect an MVP in six months. These are the kind of people who aren’t going to (and can’t) leave their mid-career executive positions for a 70% salary cut and unlimited foosball.
Given the choice between a hostel of 19-year-olds and a team of 40-somethings, the VCs will choose the 19-year-olds, despite the data. VCs view the 19-year-olds as less risky because they can (maybe) deliver for $1M, whereas the adults will require $10M (and probably expense some hoodies to try to fit in). For VCs, $10M looks like 10x the risk as $1M, but those not given to Veblenian delusions of unicorn grandeur know that’s not how risk works. $10M may be 10x the cash of $1M, but $1M may have 10x the failure rate — which means that $1M and $10M may actually have the same risk. (I’ve heard some argue that a $1M bet on hobbyist teenagers is actually riskier than $10M on flabby middle-age adults because the failure rate on the former is very close to 100%.)
The warped universe of unicorn-riding robot-teens is how you get Elizabeth Holmes raising $700M on the premise that an uneducated fantasist is going to upend decades of bio-medical research.
But wait, it gets worse. When Veblenian Capitalists talk of “bootstrapping” and “lean builds,” which inevitably means they want to fund your $10M project at $6M (to lower their risk, supposedly), the net effect is that the founders filter their hiring candidates by cost. You hire fewer and cheaper people. Your full-stack engineer can also manage your servers. And all your data security. And probably throw together a UI.
This is why start-ups are magnets for second-rate talent. And those people become the senior management as the company moves through funding rounds. If the company then raises serious funding, it may hire competent people … who report to the incompetent early employees who joined the company for stock options and ramen noodles. When a VC asserts that he has to invest in 100 companies to get one unicorn, does one wonder whether the high failure rate may be in part caused by the way he invests?
But wait, it gets even worse. “Build an MVP, get it out into the market, and see if you can get traction.” That strategy is so common in Silicon Valley I’m sure their kindergarteners repeat it to themselves after school each day. But here’s the problem with MVPs (minimally-viable products): they only work in some industries, sometimes. There are many industries that have terrible software (i.e. most government software), and your V2.0 could/would crush it. But your MVP will get nowhere in those industries because they won’t buy your janky platform that only has 15 of the 20 functions required for purchasing. And no traction = no more funding = no V2.0. This is why there are entire (software) industries largely untouched by Silicon Valley.
MVPs really only work in two industries: consumer and start-up. And even then, timing matters. Would an MVP social network get real traction today? Consumer expectations are not the same today as they were in 2005. A lot of people have a lot of experience with mature software. Janky featureless software running on hype just doesn’t get the traction it once did. In reality, many MVPs are actually made to be purchased by other start-ups, and with the start-up universe increasingly vast, it’s actually a good place to get enough traction to secure Series B, which funds your super awesome V2.0.
Which means that the optimal Veblenian start-up is a disruptive crypto-hoodie decentralized meme platform.
Once the perceived rate of progress begins to decline, maturing cultures obsess over pattern recognition to discover the secret recipe that will return them to their youths; inevitably, dynamism mutates into a sclerotic homogenization of process and form. If it happened to jazz, it can happen to anything. The quality of start-ups may be declining because entrepreneurism is attracting the wrong people for the wrong reasons, but this decline is certainly catalyzed by VCs who have synthesized a phenotype of success out of an archetype that usually leads to failure.
In that case, maybe the Veblenian Capitalists are attracting the Veblenian Entrepreneurs they deserve.
 “Veblenian” as is Thorstein Veblen, author of The Theory of the Leisure Class that developed the idea of conspicuous consumption as means to identity, status, and stratification (e.g. consuming something expensive and useless as a display of status). Veblen died poor on Sand Hill Road, home of most of Silicon Valley’s biggest VCs.
Azoulay, P., Jones, B. F., Kim, J. D., Miranda, J. 2020. Age and high-growth entrepreneurship. American economic review: Insights.
Camuffo, A., Cordova, A., Gambardella, A., Spina, C. 2020. A scientific approach to entrepreneurial decision making: Evidence from a randomized control trial. Management Science.
Decker, R. A., Haltiwanger, J. Jarmin, R. S., Miranda, J. 2016. Where has all the skewness gone? The decline in high-growth (young) firms in the U.S. European Economic Review.
Hamilton, B. H. 2000. Does entrepreneurship pay? An empirical analysis of the returns to self-employment. Journal of Political Economy.
Hunt, R. A., Kiefer, K. 2017. The entrepreneurship Industry: influences of the goods and services marketed to entrepreneurs. Journal of small business management.
Reid, S. W., Patel, P. C., Wolfe, M. T. 2018. The struggle is real: Self-employment and short-term psychological stress.
Sorenson, O., Dahl, M. S., Canalas, R., Burton, M. D. 2021. Do start-up employees earn more in the long run? Organization Science.
Ucbasaran, D., Shepherd, D. A., Lockett, A., Lyon, S. J. 2012. Life after Business Failure: The Process and Consequences of Business Failure for Entrepreneurs. Journal of Management.