Let's talk about something nobody wants to say out loud at Sand Hill Road cocktail parties: The venture capital industry isn't funding innovation anymore. It's running a sophisticated wealth extraction scheme dressed up in hoodies and buzzwords.

The $50 Million Toast Delivery App

You've seen the headlines. Stanford dropout raises obscene amounts for an app that solves problems nobody has. Former Big Tech employee gets nine figures for "Uber for X." VC firm invests in a company with no revenue, no product, but a killer deck about "changing the world."

Here's what's actually happening: We've turned innovation funding into a Ponzi scheme where early investors cash out by convincing later investors to buy in at absurd valuations. Whether the company ever makes a dollar doesn't matter. What matters is the next round, the next sucker, the next headline.

Remember when "unicorn" meant something that doesn't exist? The VC industry took that mythical creature and said, "Perfect! Let's name our billion-dollar companies with no path to profitability after imaginary beasts!"

The irony writes itself.

The Beautiful Math of 2-and-20

Let me walk you through the most elegant swindle in modern finance.

You're a VC firm managing a billion-dollar fund. You immediately collect $20 million annually in management fees—before investing a single penny, before creating any value, before doing anything except convincing people to give you their money.

That's $200 million over ten years. Guaranteed. Win or lose.

But wait—if the fund actually performs well, you take 20% of the profits too. So you can collect $600 million for managing other people's money, whether or not you actually generate returns for those people.

Tell me another job where you can be wrong 80% of the time and still make hundreds of millions.

This creates a perverse incentive: VC firms are motivated to raise bigger and bigger funds (bigger fees), push for faster exits (need those headline returns for the next fund), and inflate valuations beyond reality (makes early bets look brilliant on paper).

Which is how you get WeWork at $47 billion. Theranos at $9 billion. And countless other unicorns whose horns turned out to be papier-mâché.

Private Equity: Stripping Companies Like Cars in a Bad Neighborhood

If VCs are flashy con artists, private equity firms are methodical mob enforcers showing up with baseball bats and calculators.

The playbook is brutally simple:

1. Buy a company using mostly borrowed money
2. Load that debt onto the company itself
3. Have the company take out MORE loans to pay YOU special dividends
4. Cut everything that matters (employees, R&D, customer service, maintenance)
5. Sell the assets and lease them back
6. Exit before it collapses
7. Repeat with a straight face

Remember Toys "R" Us? Private equity firms bought it with $1.3 billion down and $5.3 billion in debt. The company paid $400 million annually just on interest—money that couldn't be invested in competing with Amazon. By 2017, it was bankrupt, 33,000 people lost jobs, but the PE firms had already extracted over $470 million in fees.

They call this "unlocking hidden value" and "improving operational efficiency."

I call it what it is: financial strip-mining.

The IPO: Initial Plunder Opportunity

Here's the grand finale—the moment when insiders dump their overvalued shares onto the unsuspecting public.

The company burns through capital for years at increasingly ridiculous valuations. When private investors finally run out of appetite (or patience), it's time to "go public."

Investment banks intentionally underprice the IPO to ensure a first-day "pop" that generates headlines. Who benefits from leaving money on the table? The banks, the institutional investors who get early allocations, and the insiders who can sell into the hype.

Who loses? The company (gets less capital) and public investors (pay inflated prices).

Then, 3-6 months later, when lock-ups expire, there's a flood of insider selling. By this point, all the "change the world" rhetoric has to contend with boring things like actual revenue and profit. And for most unicorns, those numbers aren't pretty.

The early investors have already cashed out. The founders have diversified. The VCs have distributed shares to their limited partners.

And your 401(k) is left holding the bag.

Impact Washing and Climate Theater

Now capitalism has discovered the ultimate PR move: slap "impact" or "climate" on the same extraction machine and suddenly you're saving the world!

Impact investing sounds noble—positive social impact alongside financial returns. But when those two goals conflict, financial returns win every single time. Otherwise, it wouldn't be venture capital, would it?

Climate tech is the latest gold rush. Billions flowing into startups that can tell a climate story while fitting the VC model: software with high margins, minimal capital requirements, explosive growth potential.

Carbon offset marketplaces? Perfect VC investment—software platforms with transaction fees. Whether they actually help the climate is a secondary concern at best.

Green credit cards that plant trees? Great consumer fintech play with recurring revenue. Also completely ineffective at addressing systemic climate issues.

Meanwhile, the hard, capital-intensive work of actually decarbonizing our economy—building clean energy infrastructure, retooling factories, retrofitting buildings—struggles to attract funding. Not sexy enough. Returns too slow. Margins too thin.

The clock is ticking, but hey, at least we've got unicorns.

What's your experience with VCs or PE? Have you seen the patterns described here? Let's talk about building something better.

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