When Techbros’ Circle Jerk Becomes a Circular Firing Squad

[NB: check the byline, thanks. /~Rayne]

I have been meaning to write a longer post about this topic but the events of the last 48 hours have forced me to stop snickering long enough to put up this post.

Here is a chart depicting Twitter’s current investors comparing their relative amount of commitment:

Here is a list of the investors’ names and the amount they’d committed at the time Elon Musk closed the deal to acquire Twitter.

In both graphics from Reuters above I’ve noted in red one name in particular — that of AH Capital Management, LLC.

A as in Andreesen, H as in Horowitz. As in the venture capital firm behind a16z.com.

As in the venture capital firm behind Substack.

Elmo is pissing on one of his investors because his investor’s investment decided to launch a competing platform.

Let that sink in, as Elmo so eloquently tweeted as he dragged a bathroom fixture into Twitter’s offices last October.

~ ~ ~

Axios beat me to making the observation about the financial relationship between Elmo’s Twitter and AH Capital in their article yesterday about Substack’s recent fundraising effort relying on crowdfunding.

Substack announced the offer to sell equity to writers on March 28, with its own writers’ investments prioritized over others who might choose to participate.

The fundraising effort followed an aborted fundraising attempt last year.

As Axios’ Dan Primack noted, the crowdfunding prospectus didn’t report this year’s financials, only the previous two years as required by law.

Substack’s founder Chris Best apparently believes Substack “doesn’t actually need the money,” forecasting profitability ahead.

This makes little sense to me.

What does make sense, though, is that the VC funding well may have run dry.

Take a look at the Form ADV – Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Advisers, filed on March 31 this year with the Securities and Exchange Commission by AH Capital Management (hereafter a16z).

Caveat: it’s more than 400 pages long, might take a bit to browse.

I regret not downloading a copy when I first read this document in mid-March. I’d lost count as I scrolled through the form back then while counting the number of times SILICON VALLEY BANK and SVB appeared in the document as a second custodian for private funds.

You’ll recall SVB collapsed on March 10 this year.

The version of a16z’s Form ADV now shows SILICON VALLEY BANK, A DIVISION OF FIRST CITIZENS BANK reflecting the post-crash acquisition of SVB as part of a rescue plan. This new identity appears 84 times, with other financial management firms like J.P. Morgan, Merrill Lynch, and Raymond James each appearing in tandem but fewer times as fund custodians. None of the others appear as frequently as SVB.

While these financial managers are custodians, the frequency with which SVB is mentioned in a16z’s filing suggests a repeated relationship with SVB apart from fund custodian.

Is Substack’s renewed fundraising effort due to tightening of a16z’s financing capacity, possibly due to losses at SVB?

The Substack financials provided to potential crowdfunding investors certainly won’t shed light on their funders’ conditions.

~ ~ ~

What’s much more obvious about Substack’s recent launch of a microblogging platform “Notes” to complement its blog/newsletter format is its potential to draw down users from Twitter.

Substack Notes must also have cost some cash to develop and now going forward to administer.

It’s not clear whether the new microblogging platform will eventually offer an alternative source of monetization. It’s possible that Substack longform could remain subscription based as one revenue stream while Substack shortform could sell promoted Notes or advertisement space (Tumblr users will understand the advertising possibilities using scroll over content).

With advertisers abandoning Twitter causing its advertising revenue to tank by 89%, there’s money on the table out there somewhere waiting to be chased by a microblogging platform which isn’t a crustpunk Nazi bar. Is Substack positioning itself to sweep up some of the cash?

They may need to if Substack can’t go back to the VC well. Offering equity may be a way to ensure their longform writers stay on board with a change in business model since they may be happy to increase their earnings without having to hump more subscriptions.

There’s a limit to the subscription market, after all. How many subscriptions can the average reader afford?

~ ~ ~

It’s not just the possibility that the VC well has been affected by SVB’s crash; it’s the rolling damage to funding capacity caused by cryptocurrency ventures.

You’ll note in the Twitter financing graphics that cryptocurrency exchange Binance is a financier to Musk’s Twitter. Binance has been under investigation by the Internal Revenue Service and the Department of Justice; the latter has been split over whether to file criminal charges against Binance.

Fallout from the collapse of cryptocurrency exchange and hedge fund FTX also figures into the mix; it’s difficult for the public to readily determine which investment managers were exposed and how deeply unless the investment manager was so deeply over their heads in FTX that they are obviously failing — like Silvergate Bank which folded on March 9.

At that point it becomes an ourobouros eating itself since Silvergate’s collapse preceded and helped precipitate SVB’s collapse.

How much of Elmo’s desperate and sloppy flailing after cash through half-assed approaches like his new Twitter Blue is tied to the inability to seek more financing through non-traditional sources?

~ ~ ~

The stupidest part of all of this is that techbros did this to themselves through their own stupid hubris. Stupid, in that they didn’t bother to do their homework early enough to prevent this financial Jenga.

Hubris, in that they’ve acted like the rules don’t apply to them, as if they’ve got enough money they can throw it around endlessly without any concern they may be held accountable, as if rubbing their shoulders with people like themselves in their own circle is all they really need to assure their ongoing success.

Peter Thiel decided it was all about him and his immediate best buddies related to the Founders fund when he set off the bank run at SVB.

Never mind how this might affect the rest of the tech sector ecosystem, or the other non-technology businesses which had been persuaded to use SVB for their banking needs.

The PayPal Mafia-spawned techbro-hood finally failed its acolytes and the damage has yet to be fully realized.

I had $50m of my own money stuck in SVB,” Thiel told the Financial Times, omitting what you might imagine as the natural follow-on, “I can’t help it if I could run faster than the rest of you ahead of that grizzly bear gaining on us after I tweaked its nose.” But $50 million is loose change stuck in the cushions to a guy who made a billion on cryptocurrency, fortunately before the crypto-tulip mania began to crater.

Marc Andreesen and Ben Horowitz at a16z should have noticed much earlier that far too many of their investments overlapped either in the other financing on — like cryptocurrency exchanges — which they relied, or in the personalities of the techbros’ involved.

Did they buy into the hype about Elmo like so many Muskian fanbois? They could have done the legwork and discovered for themselves quite inexpensively what it is that Elmo didn’t want revealed in DE’s Chancery Court so badly that he scrambled out of exposure and simply closed on Twitter.

And then the others who have relied on a16z for funding like Chris Best at Substack, and all the writers who’ve signed up with Substack, all now hanging on to whatever it was that sold a16z about Elmo’s Twitter and the techbro ecosphere which banked at SVB…

Including Noam Bardin and Post.Media (Post Media, Inc.) which also received funding from a16z to launch as a Twitter competitor. The platform has not taken off as anticipated, its Terms of Service seen as stultifying and its flat excessively polished effect discouraging to building out social networking.

~ ~ ~

One other thing all these techbros who are pulling rugs out from under each other have in common: their age. The oldest are in their mid-50s and the youngest in their mid-40s. They’re old enough to have adult children, old enough not to want to sleep on the floor in their offices amidst pizza boxes and empty soda cans. Perhaps all of this bullshit circular firing squad among the techbros which leave us as collateral damage is really just a nasty mid-life crisis.

We should worry when they finally begin to clue into their mortality — one of them has already been eyeing the blood of teenagers for infusions as a fountain of youth, out of some sort of sick techbro vampirism. As if our social media environment and our nation’s economic welfare aren’t enough blood to siphon off.

The entire technology environment from social media to apps to network to cloud is ripe for a generational shift, a generation which won’t see the current techbros as the end-all-be-all of financing and development.

A generation used to being told to suck it up by guys who were born into wealth, hung out with wealthy tech dudes, and blinded by their own wealth, a generation used to screaming for relief while billionaire techbros blithely look to their own backsides is coming of age.

45 replies
  1. Rayne says:

    SVB isn’t over. FTX isn’t over. Binance hasn’t even yet hit though you can smell it ahead.

    I wonder how many of the current investors in Twitter were hit with SVB-related losses and really don’t want Twitter to be yet another hit on their wallet while Elmo continues to burn the place down to the waterline.

    EDIT: 8:50 AM 09-APR-2023 (Happy Easter!) —
    Marcy tweeted a link to this post and received this reply:

    Sebastian Peitsch @SPeitsch
    Replying to @emptywheel
    I don’t get that argument – I thought all investors in SVB got bailed out, why should money be „drying up“ – does he need new cash anyway? I thought he now just has to pay the investment off – his operating costs can’t be that high after firing everyone including the janitor
    8:22 AM · Apr 9, 2023

    First, Musk is still firing people. Doesn’t sound like operating costs are under control if he’s still cutting personnel.

    Second, if SVB was up for auction, there were going to be losses somewhere. Nobody bids full price at an auction. If VC firms were invested in SVB they’re going to take a haircut.

    And unless they were fully insured at $250K to begin with, investors with cash in SVB were not going to be whole — they’re going to lose on opportunity cost for starters.

    Lastly, the VCs are going to be twitchy about lending right now, especially if they were burnt by FTX/Silvergate and soon Binance-ish losses. That’s capital drying up.

    • Rayne says:

      Yeah, there are these boneyards behind these guys, graveyards of elephants. They launch something, flip it and make a killing, then move on while their once-beloved something begins to die. It’s kind of creepy — can even say that now about Jack Dorsey, Noah Glass, Biz Stone, Ev Williams wrt Twitter.

      • Rayne says:

        Um, that could have been savvy opportunism. There was a co-inventor, Eric Bina, and he’s rarely ever mentioned.

        In the last day or so I’ve seen a post about a woman who also worked on the concept of a browser but wasn’t credited. I need to track that down.

        There’s a pattern here among these techbros — like Musk didn’t found Tesla.

  2. RipNoLonger says:

    Maybe it’s just me, but I’m getting tired of having to sign up for a new account in every flash-in-the-pan platform. Let alone all of the f’in merchant accounts.

    I’m not sure I trust any of these platforms at all, anymore. Most of them are just re-branded existing frameworks that share code and information without any of us knowing.

    I hate to say this, but EmptyWheel’s ‘no login’ model works as long as the moderators can put up with it. It aint’ obvious, but that “login” button is only for us non-mortals. Just type away, and remember your last username – otherwise one of the gatekeepers (Cerberus?) will put you to rights.

    • Rayne says:

      I question what you mean by flash-in-the-pan platform since Twitter has been around 17 years and Facebook now 19 years. Even this site is middle aged by internet standards, between Facebook and Twitter in age.

      And no, they’re not “re-branded existing frameworks” or you would have seen a Twitter clone a decade ago. Twitter also wouldn’t be falling apart the way it is based on cludged software tacked on along the way.

      WRT the login button: it’s on list of items to be modified — it’s for the contributors/moderators only to access the backend of the site. If you haven’t figured out after all this time the price of admission here is to make your own username, keep track of it and use the same one every time, I don’t know what to do about you because it’s a pretty low threshold to participation. I have to remember more than that just to reply.

      • RipNoLonger says:

        Rayne – I try out many platforms for various work projects. I’m guessing I have logins for 30-40. Most of which you would recognize such as slack, medium, MS Teams, trello, etc., etc. And yes, many of these are re-implementations of some of the same web frameworks underlying these platforms. You may not know about these as much – WordPress actually uses some common extensions that link into these. Too much technical stuff to discuss with you that are busy keeping us in line.

        • Rayne says:

          LOL I’ve been blogging since 2002, been in online community management since 1996, used I can’t even remember how many content management systems beginning with Radio Userland. I bought stock in Salesforce because its business model made it look like it would be around a lot longer and with its integration with Slack (which I have also used) after acquisition, now even longer.

          I’ve also worked in project management doing integration work for a couple Fortune 500 firms. Been there, done that, make no assumptions.

          [10-APR-2023 — Laughing at the trolling. After this many years and as many hours as I’ve put into IT project management, consulting, and blogging, all the differences/similarities in underlying code matters absolutely dick if your clients are unhappy with the results. Commenters are not necessarily the clients depending on the site’s business model and coders can be replaced.]

  3. John Paul Jones says:

    Great post. You always manage to find the data that others overlook, and then put it into a coherent, easy to follow format. Thank you once again.

    I don’t Tweet (kind of missed it when it started, then maybe too old to start?), don’t really FBook any more, and I wonder how many out there are like me – slowly disentangling their lives from various social media outlets, and whether the generational shift will mean a kind of contraction/condensation of SM sites?

    • Legonaut says:

      You’re not alone. What SM I engage in is here, and occasionally on YouTube (when I see someone making something especially nifty :-) ). My computing start was 8-bit, pre-Internet, so never developed the right habits I guess.

      That said, haven’t we seen all of this before? IRC? Usenet? GeoCities? MySpace? I think the newer generations will find a way. We’re already seeing the proliferation of alternatives as Twitter falters; like the loss of a tall tree in the forest allowing sunlight to reach the ground for new growth that was previously suppressed. In the short term (3-5 yrs), I’d expect SM sites to mushroom, with longer-term consolidation once the next round of network effects resolve themselves. The choice may well be obvious for Gen Z+1.

      Assuming, of course, that Elmo doesn’t wise up and continues his controlled demolition project. As bmaz points out, there currently is no real substitute; I’m not sure if Twitter’s passed the point of no return, but it’ll certainly never be the same.

    • gruntfuttock says:

      I won’t claim to be a statistically valid sample but I never tried facebook because, by the time I was online, I was aware of their appetite for our personal data. I did try twitter because I was studying online and they asked us to sign up for information to do with our course but, while it was quite entertaining to begin with (Gillian Anderson as dildos sticks in my mind – it was stupid and hilarious and beautiful and Gillian apparently loved it so nobody was getting hurt which is my general rule for life: don’t hurt anybody.),

      More recently, however, social media (or its algorithms) has become, I think, a poisoned chalice which seems weighted in favour of the loudest, shoutiest types. The long ends of the bell curve end up having the most media exposure which is not good for the ordinary quiet majority of us.

      We are the I’s who are being abused by the Withnails and we need to stand up for ourselves (but sometimes we need help so I am going to give ew some late birthday money) :-)

  4. Rugger_9 says:

    Many of the VCs not cleaned out by SVB’s troubles are going to be more gun shy for a little while. One wonders how much the investors were covered by the buyout since Biden was going to let them squirm.

    Just like in 2008, the shutdown of credit is an economic weapon of mass destruction.

  5. BobBobCon says:

    The bit in this post about age is interesting to me because it points to how how these people are too young to remember the 70s and early 80s.

    I’m curious how much of their financial freakouts are due to these people being not just too young to have experienced real inflation and too dumb to be able to figure it out from books or just talking to people.

    They are too muddy brained to understand the difference between 6% and 16%, can’t look at a curve and underlying data and think through whether it’s really going up to infinity or is more likely to come back to earth.

    They read one Malcolm Gladwell book during a flight delay at San Jose Mineta Airport and think they have a grasp of all world history. And meanwhile if you ask them who Mineta was, or where he might have been in 1942, they have no damn clue, or how it might apply to current events.

    • Rayne says:

      I think it’s less that they’re too still too young to have experienced ups/downs but that they are all from well-to-do backgrounds before they went out on their own. Like Bezos able to launch his bookstore but with the help of family, or Elmo born with an emerald mine in his background — they are not people who think to look for certain kinds of challenges because they’ve never faced the brunt of them.

      • Peterr says:

        There’s also the “we are smarter than the fools that got screwed in the last big economic up-and-down – we could *never* lose like they did” factor.

      • BobBobCon says:

        I agree about the insulation being a big factor. I’d add though that it’s just impossible for these people — unless they give a good faith effort, which they won’t — to understand how far things are now from the 1970s.

        If you bring up how a Republican president was imposing wage and price controls and dictating the price of meat, they simply can’t believe it. They look at today’s moderate, limited inflation and believe it’s the end of the world.

        Their insulation is definitely on a personal level, but it’s also on a historical level, and that means they yoyo like toddlers at the slightest change to the world they know.

        • Rayne says:

          Should also keep in mind some of these PayPay Mafia — Musk and Thiel in particular — have been highly mobile throughout their lives. Things get rocky? Pick up and move. It’s no wonder they have no loyalty to U.S. democracy because they don’t have to have loyalty to anything, ever.

          I am wondering about Thiel’s deceased former lover, though. Might be the one time he has to answer to anyone about someone else’s life.

        • gruntfuttock says:

          Musk is clearly a smart guy. But smart guys get things wrong. What if there is no way off our overheating, melting, boiling planet, Elon? Light a vagina candle and think nice thoughts?
          (And move your banking details to Hellas Planitia?)
          How many little Musks will it take to populate Mars once his nearest and dearest have done the terraforming?

        • Bruce Olsen says:

          Whatever the requisite number of Musklets he’s doing his damnedest to make as many as he can: ten and counting. Or maybe not bothering to count.

        • Rayne says:

          If you have Netflix and haven’t yet watched ‘Love, Death, and Robots’ Season 3, I recommend the first episode “Three Robots: Exit Strategies.” That’s so Musk and will surely answer your questions.

        • P J Evans says:

          Short memories for anything that doesn’t affect them directly, and many weren’t born then.
          (My parents bought a Toyota between the West Coast dock strike and Nixon’s embargo on Japanese cars. It was around until 1989.)

        • RitaRita says:

          How much is due to insularity or immaturity and how much is intentional?

          SVB was looking for additional capital when the run started. Thiel could have helped his pals out by drumming up investors. Instead it looks like he encouraged clients to get their money out, which put the nail in the coffin.

          Who knows why Musk is destroying Twitter? It might be because he is an arrogant, immature nitwit. Or, maybe he has some long term plan.

        • Troutwaxer says:

          My suspicion, and I have no proof whatsoever, is that Thiel helped pull the plug on SVB because they were financing a lot of green energy startups.

        • Rayne says:

          I think I’ve said this before: it’d be really tough to distinguish this unnecessary bank run from hybrid warfare.

    • txvoodoo says:

      Truth. I had a discussion the other day with a GenZ-er bemoaning the current rise in interest rates. I let them know what I was paying in the 90s & they were “OMG.”

        • bgThenNow says:

          I thought one I had was high at 11.75%. I had a hard time getting it refinanced and maybe the rate for the new mortgage I finally got was a bargain at around 7-something? I’d have to go back and look but I did a lot of refinancing over those years. And then there were the traunches and MERS. One refi guy told me I had the highest credit score he had ever seen. I took it as a complement until Trufax, as Rayne says, set me straight, thanks to Dayen and some of our other good online friends.

        • e.a.foster says:

          Its always good to remember what has happened in the past. Getting your nickers in a knot about the current interest rates isn’t going to help. Our economy has been there before. In the 70s interest started to go up. By 1982 or 3 our housing co op had to sign a new mortgage at 19%. That was in Canada and the mortgage was for $3 Million. /the other signator couldn’t believe it. Explained we were getting a deal because we were getting the federal government discount from the bank. the funny part is that $3M got us 52 town houses. Today that $3M might get you a nice house in need of some renos in the city of Vancouver.

          Everything goes in cycles. You just need to be careful where the cycle is and what idiots are running the game. Didn’t sign up for twitter or facebook, never trusted it. stock market, well in B.C. back in the day the stories I heard about the Vancovuer stock market were like something out of movie. They were true, so I figured if they could do it here, they could do it else where so always stayed away from that also.

          People like Musk may be smart but at some level, there is something lacking. Perhaps it is they have not had to face adversity and can skate on when things don’t work out. but to pay what he did and then have the value decline, that is real genius. the day he walked in with that sink, thought, oh, really, so that is what the company is going to do, sink.
          The failure of the bank, well we can all recall the previous times there were bank failures in the U.S.A. and it keeps repeating. Some laws regulating banks might help.

          I expect if we lived long enough Rayne might be writing another version of this in another 30 years. Not much changes in business.

        • Rayne says:

          I wrote a post about the 10th anniversary of the 2008 crash — and how Trump had funds/bonds in the first tranches that set off the 2008 edition of financial Jenga, in one of two offshore funds managed by Bear Stearns (RIP).

          Five years since that piece, 15 years since 2008…I think 30 years is optimistic unless you meant in 30 years I will publish another piece in a series of works related to institutional forgetfulness, hubris, and corruption in the financial and tech sectors. Optimistic because the tech sector could wipe us out before then with their hubristic approach to AI.

          EDIT: I just went and checked — Marcy had written a post about the credit crises the day before Bear Stearns collapsed in 2008. One of us will surely have something to say when next the financial/technology sector screws itself.

          And I may then have a chance to update the very last line of the piece I wrote in 2018:

          Let’s hope I’m not writing another financial postmortem like this one in March 2028. 2033.

  6. pdaly says:

    The techbro vampirism is creepy.

    The monetary troubles of these techbro guys brings me momentary solace, as I just finished watching “The A.I. Dilemma” from March 9, 2023.

    Tristan Harris and Aza Raskin who previously brought us the documentary “The Social Dilemma” about the for-profit ‘attention economy’ casually state that the 2024 election will be the last human election, because AI will be deployed in chatbots and other social media to spread messages and disinformation at a level exponentially beyond what has already taken place on Facebook and Twitter.

    Aside from its future ability to persuade humans, AI has already been trained to convert functional MRI (fMRI) scans of human brains into a photo-realistic picture of what the test subject was viewing at the time of the fMRI scan, process wifi signals to map a room and the people in it, and who knows what else.

    [Edited for you. :-) /~Rayne]

    • JAFO_NAL says:

      I was wondering if one of the reasons Musk wants to put the brakes on AI interfaces (especially OpenAI) is it’s potential for AI-turfing responses on twitter by would-be influencers and political ratmessengers that would eventually result in AI’s responding to AI’s, causing mere humans to bail at an even higher rate.

      • pdaly says:

        You would think if Musk thought that way then he would spared the AI ethics team at twitter from the massive layoffs he enacted there.

        From the Washington Post 3/30/23 article: As AI booms, tech firms are laying off their ethicists:

        “Twitch isn’t the only company to cut its responsible AI team in recent months. Twitter did the same in November, as Elon Musk took over the company and cut three-quarters of the workforce. And Microsoft cut its Ethics and Society team, which was one of the groups that led research on responsible AI at the company”

    • Bruce Olsen says:

      Harris and Raskin are wrong. The 2024 election will be overwhelmed with bots. It’s easy to customize a language model once the heavy lifting of training has been done. NVIDIA (the chipmaker whose chips do that heavy lifting) offers a cloud service called NeMo that helps enterprises tailor a model to the firm’s needs. Here’s a 2 minute video from NVIDIA https://www.youtube.com/watch?v=J86qoG6zG58

      This work can be done by a mere mortal at home, too–it doesn’t require gobs of machine time (unlike the initial training). I’m 100% confident someone somewhere is working on this now, especially considering the recent spate of frauds where bad actors obtain small audio clips of a victim’s loved ones and use AI to generate realistic voices that are then used to scam the victim. If it’s being done for money it’s certainly being done for power.

      We’ve already moved past the elbow of the exponential curve, but don’t overestimate the brain scan project. It currently has to be trained on each “targeted” individual, which requires (IIRC) 40 hours in an MRI machine. So, invasive it’s not. The author I read sees the brain physiology issues as very difficult.

    • PeteT0323 says:

      I washed more of March Madness than in the past. Much more full contact like the pros than I remember.

      I guess that applies to the celebrating too.

  7. Raven Onthill says:

    I think we are looking at the collapse of a speculative bubble, possibly the biggest speculative bubble ever. The errors of the techbros are the same as those of any bubble investors; “this time is different” only it never is.

    With the failure of SVB and problems of a16z, it is going to become much more difficult for anyone to fund experimental innovative businesses. Which is a shame; bright, creative young people are probably going to have to make their fortunes the old-fashioned way, by becoming employees and climbing the corporate ladder.

    (BTW, the emerald mine story is at least questionable: https://www.snopes.com/news/2022/11/17/elon-musk-emerald-mine/.)

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