Venture capitalism loves to parade itself as the pinnacle of free-market capitalism: ruthless competition, bold risks, and winners taking all. But scratch the surface, and you’ll find something far more insidious. It’s not capitalism at all—it’s socialism in disguise.
I began to realize this when so many VCs turned to support the Biden administration, which was notoriously anti-business. The 2+2 just didn’t make sense to me. Then I realized —
VC is system where public money is pooled, controlled by a select few, and doled out to insiders who cruise through life on handouts, regardless of success or failure. This isn’t the wild west of entrepreneurship; it’s a centrally planned economy run by elite bureaucrats who skim off the top while the real producers grind away. Socialism at its very best!
Is everyone in the VC world guilty of it? No, I think there are some people who genuinely believe they can make a different and to guide us towards a better, more advanced, more prosperous future. VC is just a mechanism to get there.
How many think that way vs just want to hitch a ride on the gravy train?
Hard to say.
Public Money, Private Control
At its core, venture capitalism starts with raising massive funds—not from scrappy individual investors, but from vast pools of institutional capital. Sure, occasionally you’ll hear about exited founders chipping in, but on the grand scale—think $100+ million funds—the money comes from pensions, university endowments, 401(k)s, and other “public” sources. These are essentially taxpayer dollars, funneled indirectly through everyday people’s retirement savings.
VCs position themselves as superior investors, claiming they can spot winners better than the market. But what they’re really doing is acting like central planners in a socialist state: taking collective resources and deciding who gets what.
In true capitalism, you’d bootstrap or compete for loans based on proven merit. Here? It’s a handout from the masses to the chosen few. And let’s not forget—the VCs get paid upfront. A typical 2% management fee on that pooled capital means they’re compensated just for holding and distributing public money, much like socialist bureaucrats who earn salaries for overseeing state resources without ever producing a thing.
A Controlled Economy with Insider Handouts
Once the money’s in, VCs distribute it selectively to startups they deem worthy. Sounds efficient? Hardly. Most ventures fail spectacularly, but that’s not the point.
The real game is control. Acquisitions often aren’t organic market outcomes—they’re VCs shuffling their portfolio like a deck of cards, merging one failing bet into another to keep the illusion alive.
I’ve known founders who’ve tanked two, three companies, yet live comfortably. Why? They’re in the circle. As long as you’re part of the club, you get another shot, another infusion of cash. It’s a safety net of mutual back-scratching: everyone participates in giving each other a share. Just make sure to say only the good things about your handlers.
This is textbook socialism—handouts for the connected, regardless of output. Contrast that with true capitalism, where small business owners hustle nonstop without injections or networks to fall back on. No one’s bailing you out if your revenue dips; you work your ass off or fold.
Rules for thee, but no for me
The VC ecosystem sells itself as a brutal fight to the top, where only the fittest survive. But insiders? They cruise. Small businesses are the ones truly fighting—always one bad quarter from disaster, with no safety net. Even if you’re profitable today, tomorrow’s uncertain because banks enforce strict rules: no loans without collateral and proven cash flow.
Remember the Silicon Valley Bank (SVB) meltdown? The freakout was confined to VCs and startups because they’d grown addicted to sweet deals.
Zero-revenue companies raising hundreds of millions could snag tens of millions in credit lines, all while depositing back into SVB in a cozy circle of mutual enrichment. Meanwhile, a small business turning a million in profit? Good luck getting a matching loan—banking regulations shut them out. VCs bypass it all through their networks, proving it’s not merit, but connections that win.
And when SVB wobbled? The government, ushered by your favorite deal makers, quietly stepped in to prop it up, echoing how socialist regimes subsidize failing state enterprises.
It was laughable how many VCs at the time were talking about “real jobs and real businesses” that allegedly relied on SVB, with ZERO real consequences. Meanwhile, actual businesses, with actual cash in profits, were struggling to raise a bare minimum to grow their operations.
Bureaucrats Skimming from Producers
This isn’t hyperbole; the parallels to historical socialism are stark. In the Soviet Union party bureaucrats got cushy perks (salaries, dachas, privileges) for doling out collective resources from farms and factories, without ever touching the tools. Workers produced; elites skimmed.
VCs do the same: 2% fees upfront, plus 20% carried interest on exits. If the startup flops? They keep the fee, blame the founders. If the start is a success, they attribute it all to their own genius at picking the winner.
Statistically, VCs are like mutual funds - on average you get better returns by sticking with S&P 500.
Look at flops like WeWork or Theranos—insiders walked away unscathed, no clawbacks. It’s subsidized failure, just like Soviet tractor factories propped up despite global irrelevance. Private farmers starved while the system funneled resources to the inefficient elite. In VC, your 401(k) funds the yacht parties, while small biz owners crawl.
Anti-Business Policies
This whole realization hit me during the Biden era. Why were so many VCs—self-proclaimed stewards of capitalism—adamantly supporting an administration seen as anti-business, with regulations and taxes galore? Meanwhile, others defected to Trump.
Two reasons emerged. First, sunk costs in relationships. If you’ve spent years building ties with Democrats in Congress, the Senate, and the White House, switching sides torches bridges. It’s expensive and risky, so you double down, hoping for future favors. This is pure favoritism: advancement based on who you know, not what you produce—another socialist hallmark, where connections trump merit. I understand it though, it makes sense.
Second, some VCs are outright socialists at heart. They milk the system, taking public money, charging fees, and living comfortably in the club. Especially if they came from money and had never worked a day in their lives, it makes perfect sense that someone else works, while they vacation. Biden’s world of handouts and regulations suits them fine.
But the Trump supporters? They’re the outliers who believe in duty—investing not just for today’s buck, but for a prosperous future. They want tech that scales, innovations that endure, because they’ve got enough money and status. It’s still riding the system, but with a nod to long-term societal gain over personal hoarding.
Is it a coincidence that it was entrepreneurs that came from nothing, like Elon Musk and Mark Andreessen, who were among the folks to swing over to the Republican camp?
No Consequences, No Change
In this socialistic VC machine of self-dealing, no one’s going to jail, going broke, or facing real trouble. If you’re in the club, life’s golden—endless second chances, bailouts, and comfort. Even if you crush and burn through a fund, or a few, it will still take a few decades to materialize, and someone else will pick you up into their firm then. You will safe face, and continue. But for the uninvited? Small business owners struggle eternally, future unsecured, no free money in sight. We’re the ones funding their game through our pensions, while they pretend it’s capitalism.
Is there an alternative system? Bootstrap is the only one I can think of. Make it work, and then just carry on that way; less glamor, but also a more free mind and soul.
Socialism for the rich, capitalism for the poor, that’s just not something I care about.
-Kirill.