From Building Intel to Burning Billions: The Shocking Transformation of Venture Capital
“We’re all just playing the Fed’s game.” - Chamath Palihapitiya, 2020
In 1968, Arthur Rock invested $2.5 million of his own money to help found Intel. The company would go on to revolutionize computing and create trillions in economic value. In 2019, Masayoshi Son invested $375 million of Saudi Arabia’s money into Zume Pizza, a robot pizza delivery company that shut down months later, having never delivered a single profitable pizza.
These two investments, separated by five decades, tell the story of venture capital’s descent from innovation engine to the world’s most sophisticated wealth extraction machine. What happened in between isn’t just a tale of greed gone wild—it’s the systematic hijacking of global retirement funds, the perversion of monetary policy, and the transformation of Silicon Valley from humanity’s R&D department into a casino where the house always wins, even when the companies fail.
This is the story of how VCs discovered they could make more money destroying value than creating it.
Part I: When VCs Actually Built Things (1950s-1990s)
In the beginning, venture capitalists were former operators who invested their own money. Arthur Rock, who coined the term “venture capital,” didn’t just write checks—he helped build Fairchild Semiconductor, Intel, and Apple. When he invested, he was betting his own fortune on technologies that didn’t yet exist.
The original VC model was simple: find brilliant technologists, give them capital to build something genuinely new, and wait patiently—sometimes for a decade or more—for the technology to mature. The returns were modest by today’s standards. A 3-5x return over 10 years was considered exceptional. But the companies they built—Genentech, Cisco, Oracle—created entirely new industries.
“We invested in companies that were trying to solve real problems,” recalls Don Valentine, founder of Sequoia Capital, in a 1999 interview. “The idea of investing in a company that would lose money forever wasn’t even conceivable. We expected profits by year three or four, or we’d shut it down.”
The numbers from this era tell a different story than today: Between 1970 and 1990, VCs invested approximately $20 billion total. Those investments created companies now worth over $2 trillion and employing millions. The hit rate was around 20%—one in five companies succeeded.
Part II: The Netscape Moment - When Everything Changed (1995)
On August 9, 1995, Netscape went public without ever having turned a profit. Its stock price doubled on the first day of trading. In that moment, venture capital discovered its most dangerous truth: you don’t need a profitable business to get rich—you just need a story.
“Netscape changed everything,” admits Michael Moritz of Sequoia Capital in his book. “Suddenly, the exit wasn’t the end goal of building a sustainable business. The exit became the business.”
The dot-com boom that followed was the first great VC bubble, but it was quaint by today’s standards. Pets.com raised $82 million and went bankrupt in 268 days. Webvan burned through $800 million trying to deliver groceries. The total carnage: $5 trillion in value destroyed when the bubble burst in 2000.
Any rational system would have learned from this catastrophe. Instead, VCs learned exactly the wrong lesson: exit faster next time.
Part III: The Fed’s Deal with the Devil (2008-2022)
The 2008 financial crisis should have ended the VC party. Instead, it transformed venture capital from a niche corner of finance into the beating heart of a global Ponzi scheme. The mechanism was the Federal Reserve’s unprecedented decision to drop interest rates to zero and keep them there for fourteen years.
Here’s what actually happened: The Fed printed $8 trillion from nothing. This money flowed into banks, pension funds, and institutional investors who suddenly couldn’t earn returns from traditional investments. A savings account that paid 5% in 2007 paid 0.01% by 2009. Pension funds that needed 8% returns to meet their obligations were forced into increasingly desperate searches for yield.
Enter the VCs with a seductive pitch: “Give us your money, and we’ll deliver 20-30% returns by funding the next Facebook.”
The numbers are staggering:
- 2010: 50 new unicorns (companies valued over $1B)
- 2015: 142 unicorns
- 2020: 500 unicorns
- 2021: 959 unicorns—one every 9 hours
“We’re not in the business of building companies anymore,” Chamath Palihapitiya admitted in his 2020 podcast. “We’re in the business of narrative construction and financial engineering. The Fed has made it clear that asset prices only go up, so our job is to create assets to sell into that demand.”
Part IV: The 2% Scam - How VCs Get Rich Even When They Fail
Here’s the dirty secret of venture capital: VCs make their real money not from successful investments, but from management fees. The “2 and 20” model means VCs charge 2% annually just for managing money, plus 20% of any profits.
Do the math: A $1 billion fund generates $20 million per year in management fees for 10 years. That’s $200 million guaranteed, regardless of performance. Split among 5 partners, that’s $40 million each for a decade—whether they make a single successful investment or not.
“The management fee is the business,” admits a former Kleiner Perkins partner who requested anonymity. “The carried interest (profit sharing) is the lottery ticket. Most VCs are really just asset managers in disguise.”
The performance data is damning. According to Cambridge Associates, the truth about VC returns:
- Top 5% of VCs: Generate 3-5x returns (7-12% annually)
- Next 15%: Barely beat the S&P 500
- Bottom 80%: LOSE money after fees
“Most VCs can’t even beat a simple index fund,” reveals a study by Kauffman Foundation. “Over 20 years, the average VC fund returned just 1.3x after fees. You’d have done better in bonds.”
But it gets worse. VCs discovered they could raise new funds by showing “paper gains”—unrealized markups on portfolio companies. Invest in a startup at $10 million valuation, get another VC to invest at $100 million a year later, claim a 10x gain. The company might never make a dollar of profit, might eventually go bankrupt, but the VC already raised their next fund based on that paper gain.
“It’s a heads I win, tails you lose proposition,” explains Diane Mulcahy, author of “The VC Asset Class Is Broken.” “VCs get rich on management fees whether their investments succeed or fail. LPs—the pension funds and endowments—are the suckers at the poker table.”
Part V: The Playbook - How to Build a Billion-Dollar Ponzi
The modern VC playbook, perfected between 2010 and 2021, is a masterpiece of financial engineering. Here’s how it actually works, according to leaked documents and public admissions from top VCs:
Step 1: The Narrative
Find a large market and claim you’ll disrupt it with technology. It doesn’t matter if the technology is just an app that does what people already did. Uber is “revolutionizing transportation” (it’s taxis with an app). WeWork is “elevating the world’s consciousness” (it’s office rentals with beer).
Step 2: Blitzscale
Reid Hoffman of Greylock literally wrote the book on this: grow at 300% annually, regardless of losses. Burn $10 to acquire a customer worth $1. Why? Because growth justifies higher valuations.
Step 3: The Valuation Ladder
- Seed round: $5 million valuation
- Series A: $30 million (6x markup in 18 months)
- Series B: $150 million (5x markup)
- Series C: $500 million (3.3x markup)
- Series D: $1 billion (you’re now a unicorn!)
Each round needs new investors at higher prices. Early investors show paper gains to raise their next fund. It’s a Ponzi scheme in plain sight.
Step 4: The Secondary Sale
Here’s the dirty secret: founders and early VCs sell 10-20% of their shares during each funding round. The company might eventually fail, but they’ve already extracted millions. Adam Neumann walked away from WeWork’s collapse with $1.7 billion. The company went from a $47 billion valuation to bankruptcy.
Step 5: The Exit Illusion
IPO while growth still looks good, or sell to a strategic buyer desperate for a “digital transformation” story. By the time public market investors or the acquiring company realize the business model doesn’t work, the VCs are gone.
Part VI: The IPO Dump and Strategic Acquisition Scam
The exit strategy deserves special attention because it’s where the wealth transfer becomes most obvious.
The IPO Con Game
When a VC-backed company goes public, retail investors become the bagholders. Recent examples:
- Robinhood: IPO’d at $38, crashed to $7 (81% loss)
- Peloton: IPO’d at $29, fell to $3 (90% loss)
- Beyond Meat: IPO’d at $25, peaked at $234, now $5 (98% loss from peak)
- Compass: IPO’d at $18, now $3 (83% loss)
“We time the IPO for peak narrative, not peak business,” admits a Goldman Sachs banker involved in tech IPOs. “The whole roadshow is about selling the story to retail investors who don’t understand unit economics.”
The Strategic Acquisition Shell Game
Even more insidious is the “strategic acquisition”—when a public company buys a startup to appear innovative. These deals are almost always done with stock, not cash, and here’s what happens:
Microsoft bought aQuantive for $6.3 billion in 2007. Written off entirely five years later—$6.3 billion loss.
HP bought Autonomy for $11 billion in 2011. Written down by $8.8 billion a year later—fraud allegations followed.
Yahoo bought Tumblr for $1.1 billion in 2013. Sold for $3 million in 2019—99.7% loss.
“These aren’t really acquisitions,” explains a former M&A head at a major tech company. “They’re exit liquidity events for VCs, disguised as strategic moves. The acquiring company’s stock takes the hit, VCs cash out, executives get golden parachutes, and shareholders eat the loss when we write it down three years later.”
The pattern is always the same:
- Public company needs “growth story” for Wall Street
- Acquires unprofitable startup at insane valuation
- VCs and founders cash out immediately
- Integration fails, synergies never materialize
- Massive write-down 2-3 years later
- CEO who did the deal is gone with huge severance
“We’ve seen over $500 billion in write-downs from failed acquisitions in the last decade,” notes Aswath Damodaran, NYU finance professor. “That’s $500 billion transferred from public shareholders to VCs and founders for companies that were worthless.”
Part VII: The Global Infection - How Every Country Became Las Vegas
The VC model was so successful at extracting wealth that it went global. The playbook was identical everywhere: take an American company, copy it for a local market, raise billions, never make profit, IPO, dump on retail investors.
China: Alibaba showed it could work. Then came Didi (Uber clone), Meituan (DoorDash clone), and hundreds more.
India: Flipkart (Amazon clone) raised $7 billion, never made a profit, sold to Walmart. Zomato (DoorDash clone) loses ₹4,800 crore annually. Byju’s went from $22 billion to near-worthless in 18 months.
Southeast Asia: Grab (Uber clone), GoJek (everything clone), Sea Limited (Amazon + gaming), all losing billions.
“We realized we could run the same playbook in every geography,” explained a Tiger Global partner who requested anonymity. “The same pension funds that invested in Uber would invest in Uber for India, Uber for Brazil, Uber for Nigeria. It’s the same money chasing the same story in different places.”
The numbers are obscene: VCs deployed over $600 billion globally in 2021 alone. To put that in perspective, the entire Apollo space program, adjusted for inflation, cost $280 billion.
Part VIII: Where the Money Really Comes From
Here’s what nobody wants you to know: the money VCs are burning isn’t theirs—it’s yours.
35% comes from pension funds. CalPERS, the California public employee pension system, has $50 billion invested in “alternative assets,” primarily VC and private equity. When Uber loses $5 billion in a quarter, that’s partially California teachers’ retirement money evaporating.
20% comes from university endowments. Harvard, Yale, Stanford—they all have 20-40% of their endowments in VC funds. When a VC-backed company fails, that’s tuition money and research grants disappearing.
25% comes from sovereign wealth funds. Saudi Arabia’s Public Investment Fund gave SoftBank $45 billion for its Vision Fund, which promptly lost most of it on WeWork, Uber, and robot pizza companies.
10% comes from insurance companies. Your insurance premiums are being gambled on startups that deliver groceries in 10 minutes.
The result is a grotesque wealth transfer. According to research from Stanford, between 2010 and 2020:
- VCs collected over $150 billion in management fees alone
- Founders extracted over $100 billion in secondary sales
- Public market investors lost over $500 billion on IPOs
- Pension funds are now underfunded by $4 trillion
Part IX: The Real Cost - How VCs Murdered the Future They Promised to Build
While VCs and founders extracted billions, the real economy suffered. Between 2010 and 2020:
- R&D spending on fundamental research dropped 30%
- Investment in manufacturing fell 40%
- Infrastructure investment hit record lows
- But VC investment grew 1,000%
“We’ve created an entire generation of our brightest minds working on how to make people click ads or deliver food faster,” lamented John Hennessy, former Stanford president. “Meanwhile, China is building fusion reactors and hypersonic aircraft.”
The Innovation They Refuse to Fund
The bitter irony is that VCs now actively avoid funding actual innovation. Here’s what they won’t touch and why:
Nuclear Fusion: Commonwealth Fusion Systems struggled for years to raise $200 million. Meanwhile, DoorDash raised $2.5 billion to lose money delivering burritos. Why? Fusion takes 10-15 years to commercialize. VCs need exits in 5-7 years or their fund lifecycle ends.
Robotics: Boston Dynamics, after creating the world’s most advanced robots, was sold three times because VCs wouldn’t fund it. “Hardware is hard” became the Valley’s motto. Translation: Hardware requires actual R&D, real manufacturing, and patient capital. You can’t just reskin ChatGPT and IPO in 18 months.
Quantum Computing: Despite being potentially revolutionary, quantum computing companies raise pennies compared to food delivery apps. Rigetti Computing, a quantum leader, raised $200 million over 8 years. DoorDash raised that in a single round to subsidize tacos.
“We pitched to 200 VCs,” recalls the founder of a deep tech startup working on carbon capture. “Every single one asked the same question: ‘Can you make this a SaaS play?’ When we explained it required building actual hardware to capture actual carbon, they literally laughed. One partner told me, ‘Why would I fund this when I can fund another B2B SaaS that’s just a database with a nice UI?’”
The Systematic Murder of Deep Tech
Peter Thiel, despite being part of the problem, accurately diagnosed it: “We wanted flying cars, instead we got 140 characters.” But even he won’t fund flying cars. His Founders Fund portfolio is mostly software companies with quick exits.
The Real Reasons VCs Hate Deep Tech:
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The J-Curve Problem: Deep tech requires massive upfront investment with no revenue for years. VCs need to show “markups” to raise their next fund. A fusion reactor can’t be marked up 5x every 18 months like a food delivery app.
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The Technical Competence Gap: Most VCs are ex-investment bankers or MBA grads who’ve never built anything. “They literally don’t understand what we’re building,” says a biotech founder. “I had a partner at Sequoia ask me if we could make our cancer drug work as a subscription service.”
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The Exit Timeline: VC funds have 10-year lifecycles, with investment in years 1-3 and exits needed by years 5-7. Nuclear reactors, new drugs, or revolutionary materials take 10-20 years. The fund math doesn’t work.
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The Manufacturing Taboo: Building physical products requires factories, supply chains, and inventory. VCs learned from Solyndra and other cleantech failures that atoms are harder than bits. Now they won’t touch anything physical.
“The VC model is structurally incompatible with actual innovation,” explains Josh Wolfe of Lux Capital, one of the few VCs still funding deep tech. “We’re the exception that proves the rule. For every dollar we put into rockets or robots, a hundred dollars goes into the 500th food delivery app.”
The Brain Drain Tragedy
The most devastating cost is human capital. MIT, Caltech, and Stanford’s brightest physics and engineering PhDs now go to Facebook to optimize ad clicks or to hedge funds to high-frequency trade.
“I spent eight years getting my PhD in robotics,” says a former Carnegie Mellon researcher now at Google. “I wanted to build prosthetic limbs for amputees. But nobody would fund it. Now I optimize YouTube’s recommendation algorithm to maximize watch time. I help teenagers get addicted to videos. This is what our society values.”
The numbers are damning:
- 40% of MIT engineering grads go into finance or consulting
- 60% of Stanford CS PhDs join big tech for ad optimization
- Less than 5% work on fundamental research
- China now produces 8x more STEM PhDs than the US
“We’ve created a system where our smartest people are incentivized to work on trivial problems,” says Eric Weinstein, mathematician and economist. “The opportunity cost is civilization-level. Every brilliant mind working on ad targeting is not working on fusion, life extension, or space exploration.”
The Destruction Economy
The human cost is staggering. WeWork alone destroyed 20,000 jobs. Uber and Lyft devastated taxi drivers globally—suicides among taxi drivers in New York increased 700% after Uber’s arrival. Hundreds of thousands of small businesses were destroyed by VC-subsidized competitors who could afford to lose money indefinitely.
“They call it ‘disruption,’ but it’s really destruction,” says Martin Ford, author of “Rise of the Robots.” “VCs have figured out how to use capital as a weapon to destroy existing businesses, create monopolies, then extract monopoly rents. It’s not innovation—it’s economic warfare.”
The Companies That Should Have Been
While VCs funded WeWork (office rentals with kombucha), Juicero ($700 juice squeezer), and Quibi (videos no one wanted), here’s what went unfunded or underfunded:
- Vertical farming that could solve food security
- Desalination technology for the water crisis
- Grid-scale energy storage for renewable transition
- Advanced materials for everything from construction to computing
- Life extension research that could add decades to human life
- Space manufacturing that could revolutionize production
- Ocean cleanup technologies
- Carbon capture at scale
“Every one of these could be transformational,” notes Vinod Khosla, who tried funding cleantech before giving up. “But LPs don’t want transformation. They want markups. They want DPI [Distributed to Paid In]. They want their money back in 5 years with a 3x return. You can’t build the future with those constraints.”
The Ultimate Betrayal
VCs haven’t just failed to fund innovation—they’ve actively killed it. By offering 10x salaries to work on trivial problems, they’ve drained talent from important work. By subsidizing unsustainable business models, they’ve destroyed profitable companies that were actually innovating. By capturing all available capital, they’ve starved real R&D of funding.
“It’s worse than zero-sum,” explains Tyler Cowen, economist at George Mason University. “VCs aren’t just not funding innovation—they’re actively preventing it. Every dollar that goes to the 50th food delivery app is a dollar not going to fusion research. Every brilliant engineer optimizing TikTok is not designing spacecraft.”
The final insult: VCs still claim they’re changing the world. Andreessen Horowitz’s website proclaims “Software is eating the world”—but what they mean is software is destroying existing businesses and replacing them with unprofitable apps. Sequoia says they “help the daring build legendary companies”—but their portfolio is full of ad-tech and delivery apps.
“We used to fund the future,” reflects a retired partner from one of Sand Hill Road’s oldest firms. “We funded semiconductors, biotech, the internet itself. Now we fund apps that deliver toilet paper in 10 minutes. We’ve become the opposite of what we were supposed to be. We’re not accelerating innovation—we’re preventing it.”
The cost isn’t just economic—it’s civilizational. While America’s best minds optimize ad clicks, China builds quantum computers. While VCs fund food delivery, climate change accelerates. While billions pour into ChatGPT wrappers, fusion energy remains decades away for lack of funding.
“Future generations will look back at this era with disgust,” predicts Peter Diamandis, founder of the X Prize. “They’ll ask how we could have had such wealth, such talent, such potential—and wasted it all on making people click on ads and delivering burritos slightly faster. We had the resources to build a Type 1 civilization. Instead, we built DoorDash.”
The venture capital industry hasn’t just failed to deliver on its promise of funding the future—it has become the single biggest obstacle to building it. The very institution created to fund moonshots now actively prevents them, preferring instead to fund the 1,000th food delivery app.
As one deep tech founder put it: “VCs didn’t just stop funding innovation. They murdered it, buried the body, and are now dancing on its grave while telling everyone they’re saving the world.”
Part X: The Whistleblowers Speak
In 2021, at the peak of the bubble, some VCs began breaking ranks.
“It’s a complete fraud,” said Jeffrey Funk, a former associate professor at the National University of Singapore who studied unicorn economics. “We analyzed 600 unicorns. Less than 10% will ever be profitable. The rest are zombies kept alive by continuous funding.”
Even Marc Andreessen, the legendary founder of Andreessen Horowitz, admitted in a leaked recording: “We’re in a bubble, but bubbles are where fortunes are made. The key is to be selling, not buying, when it pops.”
The most damning admission came from an internal Sequoia Capital presentation that leaked in 2022: “We expect 90% of our investments to fail. But LPs [Limited Partners] don’t know that. They see our one success—Airbnb or WhatsApp—and assume we’re geniuses. The game is to raise the next fund before the current one’s failures become apparent.”
“We all know it’s a game,” admitted Bill Gurley of Benchmark in 2019, before being pressured to walk back his comments. “The question isn’t whether these companies will be profitable—most won’t. The question is whether you can exit before the music stops.”
Part XI: The Reckoning That Never Comes
By 2022, interest rates finally started rising, and the VC model should have collapsed. Uber, after 15 years and $25 billion raised, still loses money. DoorDash admits it may never be profitable. Snap lost $4 billion in 2022 alone.
But the system cannot be allowed to fail. Why? Because the numbers are too big:
- Global pension funds: $35 trillion
- Insurance assets: $35 trillion
- Sovereign wealth funds: $10 trillion
- University endowments: $2 trillion
All of this money needs 6-8% returns. With bonds yielding 4% and stocks returning 6%, the only mathematical possibility for meeting obligations is “alternative investments”—primarily VC and private equity.
“If we stop,” explains a former Federal Reserve economist who requested anonymity, “pension funds collapse. If pension funds collapse, you have social unrest. No politician will let that happen. So the game continues.”
Epilogue: The Game Continues
As I write this in 2024, the game has entered its final, most absurd phase. VCs are now funding:
- Companies whose entire business is ChatGPT with a different logo
- 10-minute grocery delivery that loses $30 per order
- The 50th attempt at “Uber for X”
- NFTs for everything, even though NFTs already collapsed
The latest bubble is AI. OpenAI, despite having maybe $2 billion in revenue, is valued at $157 billion. Every VC portfolio company has added “AI” to its pitch deck. The same pension funds that lost billions on crypto are now pouring money into AI startups that are just GPT wrappers.
“We know exactly how this ends,” admits a partner at a major Sand Hill Road firm, speaking on condition of anonymity. “The same way it always ends. Retail investors holding the bag, pension funds taking losses, a few founders and VCs extracting billions, and then we wait for the Fed to lower rates again so we can start the next bubble.”
When asked why he continues participating in what he admits is a destructive system, he laughs darkly: “Because the alternative is admitting the entire system is broken. And nobody—not VCs, not founders, not LPs, not the government—wants to be the one holding the bag when the music stops. So we all keep dancing.”
The transformation is complete. Venture capital, once the proud financier of Intel, Genentech, and Apple, has become the world’s largest casino, where the only guaranteed winners are the house dealers—the VCs themselves, collecting their 2% management fees whether they win or lose. They’ve discovered the greatest innovation of all: how to get rich not by creating value, but by destroying it with other people’s money.
As Chamath Palihapitiya perfectly summarized: “We replaced capitalism with a game. The only question is whether you’re a player or the one being played.”
For the vast majority of us whose pensions, tuitions, and insurance premiums are funding this casino, the answer is obvious.
We’re the ones being played.