Silicon Valley is the new Fannie Mae

Tim Draper has it rough
Tim Draper has it rough

VCs have a tough job. They have to turn a giant pile of money into more money. However, they are not allowed to do it the sensible way, which is to invest in European index funds1. They have to do it by investing in half-baked ideas dreamt up by kids in a garage.

Some time ago, banks had a similarly tough job. They had to turn money into more money, and they had to do it by lending it to people to buy houses. The customers would pay back the loan plus interest. A decade ago, interest rates were unusually low, and this cut the banks’ profits. They had to make more home loans than ever before to get the same returns.

But there were only so many people out there who wanted to buy houses. There were only so many people who deserved to buy houses.

The banks did what any smart business would do: They invested in marketing. Fannie Mae, the nation’s biggest provider of mortgages, created the term “American Dream” and defined it as owning a house with a white picket fence and a kidney-shaped pool. The American Dream is a manufactured marketing scam to convince more people to buy houses.

Own the American Dream! Only $4999/month for the next 3 decades. Plus shipping and handling.
Own the American Dream! Only $4999/month for the next 3 decades. Plus shipping and handling.

After the financial crisis and stuff, Fannie Mae went bankrupt and that dream died. Americans locked on to a new Dream. A dream where we aren’t enslaved to mortgages and corporate employers. Screw owning a house, I want to own my own company.

The new dream is Entrepreneurship.

Blame Quantitative Easing or Swensen’s Asset Allocation model: Venture Capital is seeing a lot of inflows. And VCs have to do their jobs, which is to invest in startups. Therefore it is in their best interest that lots of people quit their corporate jobs and start, or work at, a startup.

Welcome to the new marketing scam. The pages of TechCrunch2 teem with stories of who raised how much money and how easy it was. Look, this 8-month old company is suddenly worth a Billion dollars3! All they did was write an app! Anyone can write an app.

In Silicon Valley, every day is just like this.
In Silicon Valley, every day is just like this.

Silicon Valley is the best place to do it, of course. Sam Altman, Paul Graham, Marc Andreessen, and Peter Thiel all say so. They cite many different reasons, but the biggest one is that way they don’t have to get off their asses and leave Sand Hill Road to meet with founders.

Dear VCs: You are not allowed to bitch about the high burn rates of startups while simultaneously urging their founders to live in the most expensive city in the nation. Doing so makes you a hypocritical shit.

So, what’s your dream today? Who fed it to you, and why?

1 This does not constitute investment advice.

2 The founder of TechCrunch is also an LP at multiple VC firms, which should really be a disclosure in every single article they publish.

3 Don’t believe everything that you read.

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