🌲 Stanford's reign on venture capital is ending

✨How rolling funds are upending the venture industry, 💀Why SF really dead, and 😂Oracle is buying TikTok

Sep 15, 2020

Yo! ✌️ I’m Brett! I am a founder and former Cognitive Science researcher. Social Studies is a semi-weekly newsletter for people building great products for humans. It includes recaps of what happened on Tech Twitter every week plus deep analysis using frameworks from Psychology, Economics, and the other Social Sciences.

✨ TLDR

The biggest story was about how rolling funds are shifting the venture landscape

👴 How to become a VC, the old way - go to Stanford - 40% of VCs went to Harvard or Stanford. That’s it. That’s the tweet.

💰Rolling funds are eating venture - Now (almost) anyone can raise a fund, bring on investors, and deploy capital thanks to Angellist’s new rolling funds.

🎥 How to become a VC, the new way - become a celebrity - This will drive so much competition in venture that the only investors to survive will be those commanding large audiences and those that provide a truly value-add service.

🤔 Where does this leave Stanford? - Prestigious universities will always be breeding grounds for incredible talent, but attending one will no longer hold the weight it used to.

And speaking of change…

💀 SF is ded. D. E. D. - As skies turned bright orange this past week, many more are predicting doomsday for SF as the tech hub of the future. And they’re not wrong.

😂Oracle is buying TikTok - yep.

👴 How to become a VC, the old way - go to Stanford

Venture capital has been one of the most sought after carer paths but breaking into it is incredibly challenging. That said, there is one formula that has worked over the years: go to Sanford GSB or Harvard Business School and maybe spend some time at a big tech company.

Sar Haribhakti @sarthakgh

We have hit a point where GPs proudly talk how their new teammates have had an unconventional path to VC *checks resume Went to GSB or HBS, had coveted summer internships & spent time at a Tech Giant or on Wall Street. Bravo sir, you are fooling no one but yourself 👏

Kim Taylor @kimmytaylor

@thatguyBG 40% of venture capitalists went to Harvard or Stanford and like to fund their own. Also Stanford is literally next to Sand Hill Rd.

Most VCs are (still) white men, and 40% went to Harvard or StanfordMeanwhile, the percentage of women VCs increased from 11% to 18%. But it’s primarily white women who have made gains.fastcompany.com

To be fair, Stanford and Harvard are incredible breeding grounds for some of the brightest people. But this formula has become so predictable that the venture capital industry has become somewhat of a caricature of itself. Sequoia Capital added 4 new partners in Februrary and all of them went to Stanford.

As the importance of diversity reaches the industry zeitgeist, this formula has been an increasing point of concern.

Alex Cohen @anothercohen

When I went to fundraise for my first startup, almost every venture partner I talked to was a Harvard, Stanford, or MIT grad. I experienced a ton of of classism and was likely ‘disqualified’ from funding even before taking the meeting

🌀 @HipCityReg

The minute someone ends a question like this with “how do we fix the system” — you’re offloading the problem Everything is about your direct locus of control Hire a black associate at Sequoia Start there

Amy ☀️ @amysundae

Race is an awkward topic in Silicon Valley. We desperately want to believe that we are a meritocracy, that the best ideas win. But when pause to look at founders and funders, blacks and latinx are glaringly absent. How can we work together to correct this systemic failure?

Even comparable schools like Berkeley are dramatically underrepresented in venture.

Brett Goldstein 🚀🏠🌴 @thatguyBG

Stanford grads outnumber Berkeley grads in building successful tech companies but: - Berkeley has a better engineering department - Berkeley class sizes are much larger - Berkeley students have to fight harder to survive (larger classes, grade deflation, less support) Why?

Why has this been the case? Ask Tech Twitter this question like I did and you get a lot of passionate answers, some cynical and some realistic:

Like attracts like. People hire people who are similar to them.
Stanford is literally next to Sand Hill Road. Harvard is next to the biotech investing hub.
Generational wealth. H & S grads come from wealthier families.
Highest bar for entry, stronger programs, etc.

Times are changing though. Venture has been getting more and more competitive over the years and the introduction of rolling funds has dramatically shifted the balance further.

💰Rolling funds are eating venture

Dickie Bush has a great thread explaining rolling funds:

Dickie Bush 📊 @dickiebush

1/ First, let's understand regular venture funds. • They're dominated by legacy Silicon Valley. • They raise funds over multiple months. • They cannot be publicly marketed. • All capital must be raised before the fund is launched. TLDR: hard to raise, manage, and access.

Dickie Bush 📊 @dickiebush

2/ What is a rolling fund? Think of them as a SaaS-like venture fund subscription. • They can be marketed publicly. • They can raise capital at any time. • GPs can deploy capital on a quarterly basis. • LPs can redeem capital on a quarterly basis. • Fees are flexible.

Simple enough right? The implications are massive.

🎥 How to become a VC, the new way - become a celebrity

The future of venture lies in the hands of influencers and true value-add investors.

Dickie Bush 📊 @dickiebush

4/ What's the impact on the venture landscape? 1. Democratized access to launching a micro-VC fund. 2. More angel rounds mean more competitive Series-A rounds. 3. A new industry: advertising of your venture fund. 4. A new marketplace: relative value / reputation of GPs.

Andreas Klinger ✌️ @andreasklinger

3) Audience = Fund Every large newsletter host, every podcast host about startups (or related - eg gaming) will have a fund Influencers and investors roles will merge early-stage I expect the first VC fund by a livestreamer by November.

We’re seeing tons of examples of this popping up already. In a few short weeks, Anthony Pompliano raised one of the largest seed funds in venture from his following.

Pomp 🌪 @APompliano

🔥 Pomp Investments Rolling Fund Update #2 🔥 There has been just under $700,000 committed per quarter by 53 investors. Average quarterly commitment is now over $13,000. We are a little over 72 hours since initial announcement. Building an army!

This leads us to one really interesting conclusion:

Brett Goldstein 🚀🏠🌴 @thatguyBG

Venture, media, community, and celebrity are all merging: - Media cos are celebrity factories - Celebrities are community factories - Communities are startup factories This may be the biggest change in hands in venture over the last 10 years.

🤔 Where does this leave Stanford?

Stanford will still attract some of the best and brightest minds for a long time. And smart people will always find a way to win in any market.

That said, the game is changing. Mere connections and prestigious degrees are no longer sufficient for winning deals.

Over the next five years, I believe we’ll see venture capital start getting eaten away (starting with seed) by influencers like Anthony Pompliano and systematized value-add investors like Pipe.

💀 SF is ded. D. E. D.

The “Why I’m leaving SF” essays have been so commonplace over the years that they’ve become somewhat of a meme. That said, over the last month, it feels like everyone is writing them.

There are plenty of great reasons to leave SF these days

Homeless encampments slowly taking over the city
Absurd real estate market prevents even the nations most wealthy from buying homes
Remote work opportunities now bountiful

… Oh, also the unbreathable apocalyptic atmosphere that may be a permanent thing every summer thanks to climate change.