If you're a start up, you need them. If you're on Twitter, you've seen them. And if you're the Patagonia store at 770 North Point Street in San Francisco, they're probably inside of you right now.
Of course, I'm talking about venture capitalists. And today we ask, I'm here in beautiful Silicon Valley, California, the home of venture capital. Which investor Pedia defines as a type of financing that investors provide to startup companies and small businesses that are believed to have long term growth potential.
Sure. But over the last decade, the investment arm of the startup community has created a buzzy culture around itself with some of its most successful operators becoming famous in their own right. So do these mostly guys really just invest in companies, or is it something more?
Our investigation began with a real life venture capitalist who we lured into our studio by telling him we are two young Stanford grads with a hot new startup. That's like if Uber and GitHub had a baby whose skin was made of Allbirds. My name is Sheila Banat and I am a general partner.
At Better Tomorrow Ventures. We find really small companies and give them money and time and hope that they become good big companies. So that's that's pretty much it.
All right. Well, lots of people finance projects that need money. Banks, the government, My sugar mama best.
So what besides designer mushrooms are these guys doing that's so unique? You look for crazy ideas that if they become true, are going to change the world. They would say that they are funding the innovation economy.
If we didn't have venture capitalists, we wouldn't have Genentech or Intel or Apple or any of the the great American companies that have brought us all of these innovations that we use in our everyday life. And that's true. You know, you can't dispute that.
Fundamentally, the job of VCs is to take long shot chances on small businesses with huge potential, which must mean that everyone in venture capital invests in small companies and makes mad bills. Case closed. You usually lose money when you invest in a startup, never mind in aggregate.
Startup investments typically outperform the market. So you probably, if you're going to invest in startups as an asset class, you probably want to make 20, 30, 40, 50 investments. TURNER Novak is a writer and investor at Banana Capital Ventures, which focuses on young startups like Be Real Techie, MIO, Peanut and other companies that sound like Teletubbies.
And if you're just, you know, normal investor who doesn't do this as a full time job, it's probably unlikely that you'll be able to find 20 to 50 really good, potentially high quality opportunities. So you go to a venture capital firm that essentially raises a fund from anywhere from 2200 or 200 or 300 investors investing in a large number of startups can sometimes yield a great return. But investors in institutions who can afford that type of risk, like super rich people, pension funds, college endowments and insurance plans, they're busy.
They don't have time to figure out if a 3D printing cannabis company named Pringle is legit or not. So they give money to VCs and let them handle it. However, when you talk to venture capitalists about vetting potential investments, you don't hear a lot about numbers.
You hear more about the vibes. First and foremost, we're investing in a team of people and their ability to execute against their vision as the company gets bigger. You're more looking at spreadsheets and when I invest, there are really no numbers to go off of.
So it's much more about the people. So not only do VCs separate themselves from traditional investment by taking risks, they're also the vibe is a form of investment around. And this past decade they've grown between 2012 and 2021.
Low interest rates and technological advancement has led to $344 billion flowing from venture capital. And tech reporter Natasha moss Greenhouse told us how this created a hyper competitive market where VCs competed over founders. If your competitor is willing to invest in, you know, after 2 hours of meeting a founder, you need to start doing that too, or else you'll start losing out on deals and where there is excessive dealmaking, there is also excessive deals that should not have been making.
There has been so much money available for startup founders over the last decade and that attracts bad actors sometimes, or that can create bad incentives where maybe if you exaggerate a little bit, no one really calls you out on that. Another double edged sword of VC growth has been the pressure to talk a big game. It's really tough to stand out as a VC.
So you see them talk about in proclaim all these things to to try to stand out. And if we're not creating natural skepticism, usually the idea isn't disruptive enough. So I'm beginning to talk about culture and revolution today.
I've made more in the last eight years compared to the S&P than Buffett did in the first eight years of Berkshire. Buffett did a thousand points of Alpha, I did 1800 points of Alpha. My returns are double.
Buffett And where does most of this swinging take place? So venture companies brag on Twitter. Twitter is where all of the venture capitalists are because you can follow a socialist Onlyfans influencer on LinkedIn VC brags is an anonymous Twitter account that documents the most egregious examples of VC self-promotion posts like this VC talking about achieving his decades long goal of graduating Wharton and being a Forbes 30 under 30 in this VC who heard about someone's tragic loss and took the opportunity to promote their fight.
And this VC who says that while the rest of us are quibbling over jargon, he is saving lives with his tweets to draw up deal flow. You occupy the be a little bit loud on Twitter. A lot of the time it's kind of a double edged sword here.
You're too self-aggrandizing on Twitter. You know, you're going to get dragged by me, unfortunately. But it's also my hope your business, it has evolved over the years into this kind of like thought leadership Olympics.
Everyone's kind of picking their lane. It's like, am I the visionary? Am I the fight picker?
Am I the meme share? It would be great to see just more authenticity and intention. A lot of the times it's very fast moving and you know, people are always excited to go on to the next thing.
I think it would be great to just see more conviction and, you know, people really digging in and getting really building expertise and being able to support the companies that they're investing. So what do venture capitalists actually do? It's simple.
They take cash from investors who are willing to accept risk and use that money to invest in startups. But the pressure to build their profile and land deals can make VCs act like they're doing more than that. But don't let the VCs fool you there.
Humans just like us, which means they only want two things money and attention, but mostly money. Speaking of, if any investor is listening, I would now like to take this moment to advertise an exciting new media startup that helps narcissistic white boys from Massachusetts find their purpose in life. It's called I'm Here in Beautiful Silicon Valley, California.
I'm here in beautiful Silicon Valley, Beautiful Silicon Valley, California. Well, Silicon Valley's Silicon Valley, California, the home of venture capital.
