Charles Duhigg, the New Yorker:
Increasingly, the venture-capital industry has become fixated on creating “unicorns”: startups whose valuations exceed a billion dollars. Some of these companies become lasting successes, but many of them — such as Uber, the data-mining giant Palantir, and the scandal-plagued software firm Zenefits — never seemed to have a realistic plan for turning a profit. A 2018 paper co-written by Martin Kenney, a professor at the University of California, Davis, argued that, thanks to the prodigious bets made by today’s V.C.s, “money-losing firms can continue operating and undercutting incumbents for far longer than previously.” In the traditional capitalist model, the most efficient and capable company succeeds; in the new model, the company with the most funding wins. Such firms are often “destroying economic value” — that is, undermining sound rivals — and creating “disruption without social benefit.”
Many venture capitalists say that they have no choice but to flood startups with cash. In order for a Silicon Valley startup to become a true unicorn, it typically must wipe out its competitors and emerge as the dominant brand. Jeff Housenbold, a managing partner at SoftBank, told me, “Once Uber is founded, within a year you suddenly have three hundred copycats. The only way to protect your company is to get big fast by investing hundreds of millions.” What’s more, V.C.s say, the big venture firms are all looking at the same deals, and trying to persuade the same coveted entrepreneurs to accept their investment dollars. To win, V.C.s must give entrepreneurs what they demand.
There’s an Audm version of this piece that I highly recommend, if only because Prentice Onayemi, its narrator, sounds like a professional keeping it together in spite of the article’s increasingly ludicrous subject matter.