VC-Backed Startups are Low Status

Before Tech became the dominant industry, jobs like investment banking were generally viewed as the best expected-value career trade to make out of school in terms of money, training, and accrued social capital. As tech began to rise in the 2000s-early 2010s, backed by cultural tenants of weirdness (what the smartest people do on weekends), meritocracy, and change for good, doing investment banking within many younger circles went from high status to a specific type of low status which is “this shows you’re smart but not that interesting.” It was clearly high EV but lacked a form of soul.

Despite this, within finance the status decline wasn't absolute. Firms like Jane Street did a great job of focusing on a certain type of person, aesthetic, and culture that targeted those selecting for intellect and difficulty over a more generic path, leading to a shift in where and how people entered the finance industry, as well as retention within the industry.¹

The mainstream venture-backed startup path is undergoing the same transition.

To the prior point, this is not about all founders. It is not about the person who has been doing research on something their whole life and tries to solve previously unsolvable science. It is not about the person who cares deeply about how their technology is used (in reality, not just in a deck). It is not about the person who treats running a company as a serious responsibility rather than a right they fell into. These people exist and they will continue to exist and inspire many daily.²

This is about the path itself becoming the default.³ It is about a world in which starting a venture-backed company has become the thing you do when you’re ambitious and want to be perceived as smart, in the same way that going into banking used to be the thing you did when you were ambitious and wanted to be perceived as successful. When a path becomes the default, it no longer says something meaningful about you, but instead starts being an optimization problem. And optimization problems are increasingly not that interesting.

The Cascade of Status Erosion

The startup status erosion could be viewed as a cascade, starting with the institutions.

The largest venture firms are investment banks now. They rotate out partners, force LPs into various SKUs, run corporate-backed fund strategies, all in an effort to index/foie gras innovation as much as possible while placing hands on the scale of society as much as possible. The partner with 0 carry who sits on your board is your VP at the bank who sent you deck comments. The structure, incentives, and vibes are the same.

Dispersion of thought across large political institutions often narrows.

When the institutional machine needs to deploy billions of dollars, it indexes toward ideas that Make Total Sense in the few themes in the tech zeitgeist at any given moment. And thus the ecosystem orients itself to produce a steady stream of companies that are legible and reasonable enough in a Monday partner meeting, all in an effort to bring passive allocation to private tech markets and then deploy into the 10 best companies with the vast majority of capital in the industry.⁴

The individuals mirror the institutions

We are at a moment in tech where people have minimal desire to be different, a pendulum swing from the prior decade in which originality drew respect.

Underneath that is the fear of falling into the “permanent underclass” that Smac artfully disputed in a recent essay. The fear produces a specific pathology of maximum legibility in which people squeeze as much out of known systems as possible with as minimal risk as possible, because they believe the alternative to optimization is oblivion.

This naturally leads to some path that, depending on your career stage, circles around starting a company within one of the consensus areas and raising from one of the large firms that will give you more money at a higher price than anyone else, and that has a name others recognize.⁵

When the institutions are optimized to fund the legible thing and the individuals are optimized to build the legible thing, the identity of the founder itself fades. Being a founder used to carry with it the implication that you had seen something others hadn’t, that you were willing to be wrong in public about an unlikely future you believed in, and take a risk of banging your head against a wall with high career risk for a long time. Now it is almost eye-roll inducing in many non-tech circles as people struggle to distinguish Another Founder with Another Launch Video building Another (insert zeitgeist here) Startup.

The noise outpaces the signal as the system is optimized to produce as many founders as possible, as safely as possible. The legible thing becomes the average thing, and thus the average thing becomes the low-status thing.

There Is No 2008

Investment banking had 2008. An easy to see crisis that gave people moral vocabulary to dismiss it and started the march downwards of social status throughout the 2010s. You could say “I don’t want to be part of that” (even if it was painting a broad brush stroke on the entire finance industry) and point at something concrete.

The venture-backed startup path doesn’t have its 2008, but instead has has something more diffuse and possibly harder to reverse: cultural exhaustion.

This exhaustion creates a confluence of factors that individually feel manageable but collectively change how the broader population digests technology as an industry and the people building it.

Generations in Technology

The generational divides here matter.

Gen Z, at least for now, feels to be the most status-captured generation with respect to the legibility trap. They’ve come to age around the aggressive rise of algorithmic social media, COVID, and various types civil and economic unrest. They’ve watched tech use its growing influence to take control of politics in ways that fly in the face of its historically libertarian principles, and critically, they have only ever seen tech as the startup mill it currently is. They never saw the craft part of the industry and thus are not rejecting something they once admired because they never saw the version worth admiring. This manifests itself as a nihilism that perhaps is a sadder form of status erosion than disillusionment.

Millennials, on the other hand, saw the shift in the industry end-to-end, building the institutional machinery being observed in this essay. Millennials are in many cases the Partners at funds, the operators who scaled the playbook of Founder Nihilism, and the early employees who benefitted in an outsized way from this shift. But seeing something clearly and doing something about it are different things.

A subset will genuinely channel the disillusionment into new quests that are perhaps more mission-oriented than ever before, harkening back to their early careers. A larger group will use their insider clarity and experience to extract maximum remaining value from the system they can see is breaking, then go quiet. Secure the bag, buy the house, angel invest from a position of comfort.⁶

The actual energy for building something different probably comes more from Gen Alpha (and the youngest cohort of Gen Z), who have no nostalgic attachment to what tech used to be and therefore no guilt about abandoning the current version (or not participating). They may see the generations in front of them dealing with the repercussions of internet, political, and LLM psychosis and say “yeah, we’re good on that” and opt for a more measured take on what leads to success, potentially with more focus than COVID-era Gen Z, and less jadedness than Millennials.⁷

Beyond the generational, there is the flattening of aesthetic, where the people in venture and startups are now everyone, and so to be in venture and startups signals nothing about who you are (or worse).

There is also the reality that the mainstream world has started to develop cultural stigmas between types of tech work. If you tell someone you work in biotech vs. crypto vs. AI, these produce different reactions, and the gap is widening, making the type of company you choose to build even more important than the high-order industry of Tech you chose to work in.

The relationship between founders and their investors reflects a status shift too. Venture capitalists have been dehumanized.⁸ When firms were led by individuals with recognizable taste and conviction, founders treated allocation as something worth thinking about. Now the partners are interchangeable, the institutions behind them are interchangeable, and founders treat them accordingly. The brand halo that once justified giving a top firm a better price has been replaced by a simple question of who writes the biggest check at the highest valuation.

And outside of tech, the patience is running thin. The world is facing inequality problems in housing, healthcare, education, and more that a subset of the industry’s default answer of “AGI will solve this” is starting to sound less like optimism and more like avoidance. Even politically, the main battleground for villains, across both parties, revolves around tech wealth.

Across all areas the goodwill buffer that tech operated within for two decades is gone. None of these points are a singular crisis but together they produce a slow realization that the startup path has absorbed into the same institutional logic it was supposed to be the antidote to.

Vibes as Competitive Advantage

There is irony that the top search result now when you search “openai vs. anthropic” or vice versa is a reddit thread on the vibes

The current Anthropic and OpenAI split might be the clearest illustration of what this status shift looks like in practice.⁹

Anthropic was built around being pro-human, caring about safety, and has aligned its brand to feel warm, thoughtful, and not overly tech-pilled. Whether you agree with their approach or not, the aesthetic coherence is real and paired with execution, it functions as a talent attractor in a way that goes beyond compensation or mission in the abstract. People want to work there in part because the vibes are good, and the vibes being good is now a first-order differentiator in a way it wasn’t even two years ago.

OpenAI has gone the other direction. More corporate, more intense, cycling through people, hiring Facebook executives to direct product direction at a time when the product velocity has seemingly slowed. They’ve verbally tested ideas like government backstopping and taking a percentage of IP, which feels overly heavy-handed and structurally wrong, after creating a web of capital and compute commitments. The vibe is just off and you can feel it in how people talk about the two companies, even amongst people who think OpenAI’s models are better and know their revenue is higher.

This is a small (and possibly fleeting) example of a larger dynamic.

When institutions start to lose their soul, the people inside them start to care about different things. Aesthetic warmth, values coherence, institutional vibe. These are now functioning as primary signals for where elite talent goes (and more importantly, stays), and by extension, which companies breakaway and which don’t.

The Tipping Points

So how does this actually progress?

First, people will fleece investors for all they can. Secondary sales, SPACs, HALOs, whatever structures exist. If you are going to do the thing that is losing status you might as well gun for the kind of money that gives you options later, because you may need those options.

Second, there are early cohorts of founders who will aim to find vibe-alignment with their capital. This is the bull case for more opinionated or smaller firms at the early-stage. I’m talking my own book here, but as the mission actually starts to matter again (not in the “wink-wink” sense), if a core value-add of VCs has been “brand halos”, then founders will align with investors that show an aesthetic they want to feed into their startup’s status signaling. The capital you take becomes a statement about who you are, and people will start to treat it that way.

Third, what people care about when they join a company will start to shift. Despite the desire to say that we can all be solopreneurs, I don’t think human beings actually want this. We are starting to see the full rejection of the illusion of freedom that remote work offered us, driven by the complexities of how it has changed us. What matters now is identity, community, belonging, and being out in the world, experiencing life in various ways. This means the intersection of who you work with, why you’re building, and what you’re building really matters and will directly reflect your values and your ability to be in communities. The vibes must be good at your company to have it be viewed as high status to work there, and this becomes a self-fulfilling prophecy once the flywheel begins.

Fourth, people will stop building venture-backed businesses. The psyop that even though you have a data center of thousands of Nobel laureates (or engineers) at your fingertips for $200/month and some API credits you still need to raise tens of millions of dollars will start to degrade. This is a bit of a meme and I don’t think VC will die, but there might just be different distributions of outcomes or capital efficiency over time.

What Replaces It

I don’t fully know what the replacement looks like.

People will still build things. There are massive innovation tailwinds to come and the mechanics of the early-stage ecosystem will continue to spin. Young people will do YC out of desire or lack of jobs, raise from random family offices and VC firms, most will die, 2-4% will become unicorns, 1-3% will exit as unicorns, and tech will continue to consume the labor force.

But the texture of it might change. It might be more principled, or at least more intentional. Some people will go toward FROs or other institutions optimizing for change and breakthroughs versus purely profits. Hopefully some will go toward government, though I’m not optimistic. Many will build the same types of companies but with a different orientation around their founding principles and capital partners. The structural output might look similar. The emotional and cultural relationship people have to the act of starting a company could be different.

The gap between knowing the current thing is broken and not yet seeing the next thing clearly is where a lot of talented people are sitting right now, somewhat frozen. This is the uncomfortable part of any status transition in times of mass volatility. You can feel the old thing losing its pull before the new thing has revealed itself.

Or maybe I’m wrong entirely and this is a singular march for tech toward collective low status paired with high power, which history would tell us leads to some form of volatility and potential societal collapse.

Thank you AK, AW, KK, and PM for thoughts.

1. The natural parallel here is frontier-facing companies where the risk is scientific and the work is genuinely novel, which aren’t losing status but instead gaining it.

2. Leaving this here so that the VCs who feel the need to signal how much they LOVE FOUNDERS don’t freak out.

3. It’s not X, it’s Y! Fwiw, I tried everything to not use this framing out of LLM-writing hatred.

4. With the help of sovereign wealth funds and pensions that use this as a mechanism to try to net out fees and reason around a likely decade of illiquid underperformance.

5. In AI it might be raising a ton of money to be able to take your research direction you are sure is right and do it on your own, with a large valuation that exists because people feel downside protected.

6. I am tempted to plaster this with a series of SPAC charts and secondary headlines from 2021 but I won’t.

7. Somewhere adjacent to this all is the rise of trad life principles within tech which might be an attempt to quiet parts of the chaos that jadedness and nihilism results in.

8. 1 million percent deserved, tbh.

9. For what it’s worth, this can change quickly with one PR misstep or new product release even, though it does prove a compounding moat over time.