Over the last century and more significantly through the past decade venture capital has become hopelessly infamous. For better or worse, it’s become synonymous with greed, hubris, and meritless frivolity. The situation has gotten so bad that even some of venture’s strongest supporters find it difficult to go without highlighting the predatory behavior that the industry consistently engages in.
The recognition of the failures of venture especially in the last decade has created entire movements dedicated to finding better models that topple the winner-take-all dynamics ostensibly created by it. In fact, much like Bitcoin is inextricably tied to the 2008 financial crisis, projects like Ethereum are inextricably tied to this rise in dissatisfaction with the current state of venture.
Why then is Ethereum filled with its own new era of venture investors, and what role should they actually play in our ecosystem?
In the summer of 2014, Ethereum launched a public sale that would spark a reimagining of internet-native coordination. Projects like Maker quickly followed suit in some of the first attempts to allow anyone to participate in new forms of public infrastructure – the first ‘Ðapps’ on top of the Ethereum world computer.
By raising from their own communities, their own publics, Ethereum and early ‘Initial Coin Offerings’ (ICOs) in 2015-16 showed that we might not actually need to privately raise billions of dollars from a handful of people to build the future we want to see. Instead, by allowing anyone to participate in economic opportunity, we could build a more collaborative ecosystem with a more prosocial message – a welcome change in an era where the prevailing belief was that all anyone could count on to be socialized were losses.
While ICOs were filled with their own challenges around accountability, distribution, and incentive alignment, the demand to have ownership in decentralized applications on top of a ‘world computer’ was at all time highs. The energy was electric, and nerds around the world were convening in the same tiny corner of cyberspace at random hours of the night to work on everything from global currencies to new forms of interplanetary storage.
Slowly, the success of these developments led to venture funds starting to emerge, at first acting largely as ratings agencies that invested the same way as everyone else while combating the rampant fraud in early token offerings. As more of these funds became successful, it opened the gates for other larger investors from outside the scene to start getting involved. By 2018, after a flood of new entrants, venture-style models were once again mainstream. At the same time that venture poured in, the folly of ICOs soured the public enough on the model to discard it in favor of various forms of progressive decentralization.
Venture funding continued to scale, and as it did the size of funds grew as well. As fund sizes grew, so did check sizes. As check sizes grew, so did valuations. As valuations grew, so did pressures for massive multi-billion dollar exits distributed to ever smaller groups. Eventually, by the time many projects were ready to engage with the public, what was meant to be an “exit to community” sometimes became a form of “dumping on retail”.
The surprising part of this story is not the excesses of venture, however, but the way in which even its worst forms created unintentional positive externalities in an incentive-aligned ecosystem like “web3”. Notably, as the bear market came around, venture-backed projects started to take the treasuries they had accrued and distribute purely non-dilutive forms of capital to newcomers through a wide range of grants . This was not an entirely selfless act, but rather a realization that by building better tooling and infrastructure for Ethereum the ecosystem they relied on would benefit, and they would rise with the tides as well. In this way, even despite its problems, many venture firms inadvertently helped sustain a new kind of commons.
While venture is far from perfect, as the tides wash out again and we enter another “crypto winter”, we are fortunate to get the time to reflect on its role and ask important questions about our commons: What do we want Ethereum to actually be? What are our values? Does venture have a role to play in our ecosystem and if so what forms does it take? We believe there are real answers to these questions, and that it is precisely because of the level of interdependence and collaboration within Ethereum that we might be able to actually find better ones than we did in the last cycle. Specifically and controversially, we believe we can reimagine venture capital, build better public infrastructure, and convince those “in the arena” to play infinite games.
Not to bring up the Roman Empire, but time is a flat circle and to explore how we might actually reimagine venture it’s interesting to look back at how pooling capital to fund new technologies and sustain the commons worked in the past:
The oldest recorded example comes from the Sumerians (~3000 BCE) who built irrigation systems to channel water from the Tigris and Euphrates rivers to their agricultural lands. Since these efforts benefited public temple and palace lands as much as those owned by families or individuals, the project was jointly funded and managed. When devices like the shaduf (a hand-operated device for lifting water) or methods for seasonal crop rotation were discovered, they were similarly shared to collectively improve Sumer's economic strength in commercial trade with neighboring regions.
In Phoenicia (~1550 BCE), nascent joint-stock companies were used by captains looking to build ships and sails for maritime trade expeditions. As might be expected, these expeditions were notoriously dangerous and had a high chance of failure, which the nature of agreements between captains and investors accounted for. By making their journeys, the Phoenicians established extensive trade networks, agreements with various city-states, and ultimately created a number of advances including an alphabet that would inspire the Greeks, woodworking techniques, and urban planning.
During the Tang Dynasty (~600) structured guilds (domain-specific cooperatives) were formed to deal in specific kinds of products and achieved economic sustainability by selling to wholesalers and shop owners. Bootstrapped by dues and investment endowments, these guilds contributed to a renaissance across areas including silkweaving, metallurgy, and medicine, while ensuring member well-being.
Critically, the success of these societies did not come from strong hierachies and monarchic forces whether through temples or armies or dynastic social orders. Rather, as David Graeber identified, the historical record shows that progress often emerged (including during the periods mentioned above) through polycentric communities with interdependent, shared livelihoods.
In other words, throughout history atomized notions of individual or extractive profit were often superseded by the complex relationships between a community, its resources, and their surplus. By prioritizing the well-being of a broader commons, civilizations across time have found ways to create and maintain technologies for their collective benefit.
In the 20th century we saw approaches to innovation slowly transform into the models of public-private partnership we’re familiar with today. Groups like Bell Labs were able to create the transistor, practical solar cells, and the UNIX operating system through a form of subsidized R&D publicly and privately funded by AT&T along with New Deal government grants. On the west coast, Fairchild Semiconductors and Xerox Parc leveraged similar approaches to create the integrated circuit, the modern personal computer, ethernet, and unfortunately object-oriented programming. In 1968, Arthur Rock, who supported Fairchild, went on to invest in Gordon Moore at Intel through what was arguably the first modern venture fund.
Where then has modern venture capital gone wrong? Not in any one firm's thesis or investment, but through compounding excess that has become even unchecked without any commons or collective interest to ground it in. As scholars like Carlota Perez have more eloquently identified, these specific forms of venture capital driven cycles of innovation almost always create increasing instability and fragile bubbles that eventually burst. Worse, as we enter later-stages of these bubbles we start to see an enclosure of public knowledge, an increasing focus on easy wins rather than long-term gains, and a chilling effect on critical research. It should come as no surprise then that what started with Arthur Rock ended with WeWork.
But history shows this doesn't have to be the case, and Ethereum provides us with a faint idea of what a sustainble digital commons might look like if we can realign venture.
In the long run it is through exactly the kind of commons-based self-governance that Ostrom won the Nobel prize for in 2009 that we can achieve a kind of venture mutualism; that we can use our shared currency to create new forms of public infrastructure based on our own economic returns.
Public Works exists to facilitate this movement by encouraging developers to build more open source software, to generate sustainable surplus, and to create new mechanisms to progressively distribute ownership, so that we might finally establish a network of decentralized systems that can sustainably rely on each other.
Critically, the form these networks take matter. Drawing from Vitalik’s work on the revenue-evil curve, we recognize that not everything should have a business model. Rather, by establishing new forms of open, generative infrastructure we can cross-subsidize those goods that if monetized would become significantly inaccessible to the broader community.
To construct cross-subsidies and real interdependence, without inadvertently recreating the same problems, we propose that venture should aim to: restrict itself to seeding the absolute minimum capital required, build with projects as key contributors not just passive investors, and most importantly facilitate better forms of community ownership via new approaches to fair launch.
Actually formalizing venture mutualism in a way that ensures it avoids the pitfalls of previous models will need to be a collective effort, and this post is an open call to become a part of it. If this resonates with you, please reach out. Together, we can take another step prefiguratively towards better models not just for crypto but for technological progress.
To paraphrase Bauwens, “thank you [venture] for doing this because now we can make something better.”
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