Seed Investments in Insurrection

This is the Internet We Built and Made Money Off

A few months ago, I got a pitch from a company providing a kind of “last mile” for computer vision—an always-on human network that would take images that computers couldn’t identify, and spit back whether or not a roof tile was broken or if a signature matched.

I asked questions about how much money per hour these workers would be making—and the founder gave me some line about how they’re not paid per hour, but by task. Obviously, he knew how long the workers would be sitting there, how many images they’d be expected to look at, and he could do the simple arithmetic to calculate an hourly rate. I called him on it and pressed until I got an answer.

“Ten dollars an hour.”

“So what happens if the Democrats take back Congress and we get to a national $15/hour minimum wage?”

“On second thought—forget about the political strategy around it. How about—do you think that’s a livable wage in this country? That’s less than $20,000 per year.”

He didn’t quite have an answer to the morality of it, but that he’d said they’d have to recalculate the financial part. He was certain he had the margin to cover it. Maybe one day he’d get around to thinking about what it meant to pay someone that little.

I suggested reading Nickled and Dimed in America.

Then I started asking questions about what kind of content these workers would be subjected to—and whether they would take contracts that forced people to look at, for example, child porn all day, the founder just said they’d deal with that as it came.

I suggested it might be worth creating a worker protection statement now, before they were tempted by a big Facebook contract in the future, that limits this kind of exposure or provides some kind of mental health options.

“No other VC asked questions like this.”

They had raised nearly $2 million of venture capital money to hire an army of workers whose job it was to mindlessly stare at images all day and no one asked about working conditions or if the existence of this company and others like it had costly societal consequences.

I was both horrified and yet not surprised at all.

Similarly, I just got a pitch for a startup providing telehealth access that specialized in allergies—which I was pretty excited about until they told me that pharmaceutical companies were fronting the cost of their marketing.

Granted the doctors weren’t getting paid directly by the pharma companies to offer allergy drugs—but the companies knew full well that the DNA of this company was to lead people down a path to getting a prescription, and by paying for customer leads to get to the online clinic, they’d be boosting their own sales in the process.

It’s not as if this clinic was offering a wide range of holistic solutions to fight allergies, including nutritional help or organic compounds, and that some patients would just wind up having to go the pharma route. The whole clinic was built around medicating people, and the drug companies were happy to prime the pump.

I passed because of what I believe to be a glaring conflict at odds with the best interests of consumers. You don’t to be in a strategy meeting where a growing body of evidence exists that some other sets of remedies are better for consumers, but you don’t want to pivot because the pharma folks pay for your traffic.

It didn’t matter as the round was going to be fully spoken for.

Should this matter to venture capitalists? Aren’t we all just in it for the money alone?

Well, it’s kind of hard to make money if the long term consequences of your investments threaten the free and open democracy that underpins our society.

That would probably feel like an extreme statement—until this past week.

On Wednesday, domestic terrorists, at least in part radicalized on one-time venture capital backed platforms like Facebook, Youtube, Twitch and Twitter, stormed the US Capitol Building in an effort to stop the counting of electoral votes and overturn the results of the election.

How many years did VCs continue to pour money into these companies before there was ever a “what if” board conversation? Was there ever that kind of conversation at the board level?

Better yet, how confident are you that the investors behind the big social media and content platforms will insist on better polices going forward? Does the experience with Clubhouse so far give you much confidence that lessons have been learned?

Should Robinhood be having serious conversations about whether its app is creating a bubble in Tesla stock—a bubble that might take down a bunch of retail investors? Should Coinbase be asking those kinds of questions about Bitcoin? Should Tiktok be asking about what role it plays in the sexualization of young girls?

Last year, I went to a National Venture Capital Association dinner where the President of the organization, Bobby Franklin, spoke about all the great things our lobbying group was doing for VCs—like keeping our carried interest tax loophole. You know the one, where our income from investments gets taxed at a lower rate than the rate on income an elementary school teacher makes.

I raised my hand and spoke up—about how perhaps we could be doing better as an industry working to alleviate the gaps between the rich and the poor—not exacerbate them with special tax treatment, or by being a bit more conscious about what happens to the jobs we automate out of existence. I also mentioned how we were building up a lot of these companies on the backs of workers who didn’t have healthcare coverage or labor protections—because they were “gig economy” workers. That was before Prop 22 passed.

I didn’t even get to the use of technology to facilitate hate speech and disinformation—which Silicon Valley libertarians will argue is a “free speech” issue without grasping even the basics of the yelling fire in a crowded theater analogy.

I spoke up on these issues… at a table of VCs.

You can imagine the reaction.

Look, I’m proud to be an industry that invests in ambitious people who aim to create big companies that employ many people in the future—but I don’t think we should let the fact that some of the biggest growth companies in the US are or were venture-backed distract us from the idea that perhaps these companies that we fund could be better participants and contributors to society.

People used to tell me that, as an investor, I shouldn’t share my political opinions in public because it might impact my portfolio companies or my ability to raise capital. However, when political events result in violence, death, and oppression, sharing your commentary isn’t about a political point of view, it’s about sharing your values—and I believe the best founders are going to want to know where you stand.

Do I believe that private companies should be able to eliminate hate speech and incitements towards violence on their platforms? Absolutely.

First off, it’s the morally right thing to do, if you care about, you know, people, society, etc., and the idea of “do no harm”.

But second, it just makes the product better. More people will use YouTube if they don’t have to worry about it being a cesspool of hate. More advertisers will feel comfortable spending money on it. More women and the BIPOC community will use social networks if they’re not being harassed on them. Roblox will have a very nice IPO one day if it doesn’t have a big hate speech problem on its platform.

Some investors who rewrite the history of innovation. They forget that taxpayers funded the creation of the internet and contributed to pharmaceutical discoveries. They call for the end of regulations except for the ones that incentivize them to invest through tax benefits regular people don’t get. They want the government off their backs except when it comes to making sure no one builds affordable housing down the street from them.

These people want to make the technology ecosystem the wild west where anyone that doesn’t have privilege and power just gets run over and I fully believe their views are going to make them less desirable to have on cap tables. We know the values that founders in their 20’s and 30’s voted for and “everyone for themselves” isn’t one of them.

Don’t let someone who could give you a term sheet scare you into thinking that de-platforming violence and hate is censorship. Don’t let them tell you that living wages must come at the expense of “worker freedom”. Don’t buy the argument that anyone can lift themselves up by their bootstraps unless you see them fighting the SEC for you to able to invest $100 into their fund as a non-accredited investor—given how much they’ve been bragging about their top-quartile returns and unicorn investments. Don’t let them tell you that anyone can learn to code and make a living unless they’re willing to put a homeless shelter with internet access in their neighborhood.

The US has a long history of racism and class division, both of which were rapidly accelerated by tech booms. As venture capitalists, our decisions about capital allocation and our presence (or lack of) on the boards of these companies must come with some sense of responsibility related to how we got to the events of not just last week, but over the last four years plus.

Hopefully, a new generation of VCs will help point us towards a future of both healthy returns and healthy technology—tech that increases access, levels the playing field for people, and makes life easier not just for SF programmers but for the rest of the country, too. This is where more and more founders are headed—solving big problems with equitable solutions, and the tweets this week are going to help them decide who they want along for that ride asking the questions that we’ve failed to ask over the last two decades.

Let’s continue this conversation here on Twitter.