The Silicon Gods Must Have Their Blood: How Public Venture Capital Might Kill Venture Capitalism

00:00 Andrew Keen Hello, my name is Andrew Keen. Welcome to Keen on America, the daily interview show about the United States... with world-leading commentators and thinkers.
00:54 Andrew Keen Hello everybody, if it’s Saturday, it must be the day of revolution, the day when we talk about technology with my old friend Keith Teare, the publisher of That Was The Week newsletter.
01:06 Andrew Keen Every week it would seem there’s a huge revolution in technology that’s going to change the world, and this Saturday is no different.
01:13 Andrew Keen The title of his editorial this week is "Blowing the Doors Completely Off the Hinges of Venture Capital." It’s a subject he’s all too familiar with.
01:23 Andrew Keen And he’s joining us, as always, from the heart of the global revolution of the world in Palo Alto, California.
01:31 Andrew Keen So Keith, another revolutionary week—how many revolutionary weeks can we have before we all go down the plughole?
01:40 Keith Teare Well, you know, in Silicon Valley, you get rewarded for grandiose announcements, and so every CEO or founder worth their salt is planning them.
01:52 Keith Teare So I would guess that we’re going to have attempted revolutions, at least, pretty much every week.
01:59 Andrew Keen So this week we are triggered by this announcement of something called the Robinhood Ventures Fund I, which according to Robinhood, at least appropriately named:
02:11 Andrew Keen "For too long, private markets have been out of reach to everyday investors. At Robinhood, we believe access shouldn’t be limited to a select few."
02:22 Andrew Keen We’ve heard that message time and again about the radical consequences and benefits of democratization.
02:29 Andrew Keen But at this point, the Robinhood guys seem as if they want to blow the doors off the elites of venture capital. What exactly is Robinhood doing?
02:41 Keith Teare Well, there’s what they say they’re doing and then there’s what’s really happening.
02:46 Keith Teare What they say they’re doing is exactly what you just read out: they are launching a publicly listed venture fund, very like the conversations you and me have had in the past about what I do at SignalRank.
03:01 Keith Teare They’re pulling together assets into the venture fund; they already have $300 million-ish of assets, like Databricks.
03:10 Andrew Keen Just to jump in here, because not everyone—just remind us Keith, what is Robinhood’s day job?
03:17 Keith Teare Their day job is to build a user-facing stock trading platform.
03:22 Keith Teare They’re a middleman between people who actually do the trades in the background and you, the user, in the foreground.
03:29 Keith Teare All of my children have Robinhood accounts, for example.
03:32 Keith Teare You know, their claim to fame was that they allowed you to buy fractional shares, so you could buy one-tenth of a share of Apple instead of a whole share, which meant you could start trading with small amounts of money and own equities.
03:47 Andrew Keen In other words, your teenage kids or your kids in their 20s can buy shares.
03:52 Keith Teare Correct. And they’ve got 24 to 27 million retail customers that use Robinhood now, so they were successful.
04:02 Andrew Keen And appropriately named, for those people who don't know, Robinhood was an original, supposedly, somebody in the forest of Nottingham who stole from the rich to give to the poor... anyway, go on.
04:21 Keith Teare Exactly, exactly. A bit like William Tell for our Swiss listeners.
04:26 Andrew Keen We have a huge Swiss audience by the way.
04:29 Keith Teare Yeah, yeah. So yes, that's what Robinhood do and they have expanded into other areas; for example, they added crypto at some point as an asset.
04:40 Keith Teare They’ve added prediction markets as an asset in response to Polymarket’s success.
04:46 Andrew Keen Poly—Polymarket, which is a ubiquitous betting—it's a big story, it's still not allowed in the US, I'm sure it will be eventually.
04:56 Andrew Keen It allows you to bet on anything essentially, and like your kids, bet on tech companies that they probably don't know anything about.
05:07 Keith Teare Well, my kids bet on sports, basically.
05:11 Keith Teare It's called a parlay—do you know what a parlay is?
05:14 Andrew Keen I think so.
05:15 Keith Teare You bet on a number of different outcomes and if they all come through you win a lot of money, and so you never win.
05:23 Keith Teare It's clever. Anyways, so that’s Robinhood.
05:27 Andrew Keen But just to be clear, Keith, you used this important word: Robinhood is a middleman. They’re not actually producing anything.
05:37 Keith Teare Yeah, it’s a little bit like Uber: they’re aggregating existing capability into an interface that improves on what was there before.
05:47 Andrew Keen They're a channel kind of, they're a viaduct.
05:51 Keith Teare Or a destination for a set of functions. You know, they own the attention of the audience, which is the key—that's what makes them valuable.
06:01 Keith Teare And so when they're at venture capital—it's worth knowing, Andrew, they’re doing an IPO for this new fund.
06:08 Keith Teare In an IPO you raise money; they are raising up to a billion dollars in the next week, by the way. It's happening now; you can go and buy shares in their fund.
06:19 Keith Teare And $25 a share, they’ve got 40 million shares, which weirdly is exactly the same number of shares we have at SignalRank at the same price, which is weird.
06:33 Andrew Keen Yeah, and we’re not going to turn this into an advert for SignalRank, but you’re trying to do the same thing; you’re following in Robinhood’s coattails.
06:45 Keith Teare So what they’re doing is they’re raising up to a billion dollars, they’re going to take that money, invest it in their assets.
06:55 Keith Teare And the key is: what are they buying and what are they selling you?
07:00 Keith Teare There is innovation for sure in packaging up assets that previously were unavailable, that’s their whole game.
07:11 Keith Teare So then it comes down to: should we be buying these assets?
07:15 Andrew Keen What exactly—and again I know this is a matter of checking your pockets—what exactly are they enabling people to do?
07:25 Andrew Keen Let’s use your kids in their 20s. What is Robinhood enabling them to do that they can't currently do?
07:34 Keith Teare Well, so if you put that chart back up, I’ll use it as an example.
07:38 Andrew Keen And here we have a chart, "Share of VC Exit Types Value by Type."
07:43 Andrew Keen Of course we've got the classic VC model where VCs invest in a company... what is Robinhood doing that's different?
08:03 Keith Teare Well, so that kind of flesh-colored part of that chart is the key. Look how small it used to be.
08:11 Andrew Keen Right, and there are going to be some people listening to this so: there's a chart, "Share of VC Exit Type Value by Type."
08:21 Andrew Keen We have three categories: IPO, secondaries, and M&A.
08:26 Keith Teare Right. So historically, when venture capital invests in companies, the only way they exit is through that company doing an IPO or being bought through mergers and acquisitions.
08:39 Keith Teare In the last four years, suddenly a new category has emerged called secondaries.
08:46 Keith Teare A secondary is part of a crazy trend called tender offers.
08:52 Keith Teare Now, a tender offer is when a company offers shares, mainly from employees, to new buyers.
09:01 Andrew Keen Like OpenAI. OpenAI is very hot on the secondary market.
09:05 Andrew Keen A lot of people working for OpenAI who have shares in a private company and then they are selling their shares on the secondary market. Is that a fair way of thinking about it?
09:20 Keith Teare That is correct, and it’s done in a structured way, usually with a bank involved, and it’s called a tender offer.
09:29 Keith Teare There are more uncontrolled secondary markets like Forge Global and Hiive, but these are structured, bank-based tender offers.
09:40 Keith Teare And what you’re buying is usually shares from employees in a late-stage company.
09:47 Keith Teare That money goes back to the venture capitalists, who in turn give it back to their limited partners.
09:55 Andrew Keen So to come back to your kids... through the secondary market could acquire shares in OpenAI. Is that correct?
10:07 Keith Teare And the like, yeah. And the demand is in a very small number of names; it’s maybe 10 companies at any given time.
10:19 Andrew Keen Anthropic and OpenAI presumably dominate, everyone's heard of them.
10:24 Keith Teare Stripe and SpaceX are in there as well.
10:27 Andrew Keen Right, okay. So to me, that already speaks to democratization.
10:33 Andrew Keen I mean, your kids now have the same access to these early-stage companies as Marc Andreessen or Ben Horowitz, don’t they?
10:45 Keith Teare So the devil is in the word "early stage" and the anticipation of what might happen next.
10:55 Keith Teare And so, as you know with venture capital, there's a life cycle of a company.
11:01 Keith Teare And the ones who do tender offers are normally companies that historically would have already done an IPO, but they’re tending to stay private much longer.
11:13 Keith Teare Most of the growth in wealth happens while they’re private.
11:18 Keith Teare At the point that they do a tender offer, the selling employees have drawn the conclusion that this is the peak, or close to the peak.
11:33 Andrew Keen What a Hollywood person might call the "climax."
11:37 Keith Teare Correct. And so these tender offers are producing a lot of shares available at high valuations.
11:45 Keith Teare The poster child for this is Figma, which is now public, which was attempted to be acquired by Adobe for 20 billion—that failed.
11:57 Keith Teare Figma then started doing secondaries at 12 billion whilst it was still private; a lot of people bought at 12 billion.
12:05 Andrew Keen Okay, so I take your point: some of these secondary markets are being used by perhaps overpriced, late-stage private companies.
12:15 Andrew Keen So what is Robinhood doing with this announcement of its private market fund going public that will benefit your boys?
12:37 Keith Teare It’s in a group of like entities... that I probably say to my kids, "Be careful," because the assets you’re buying can go down.
12:51 Keith Teare Why? Because they’re already highly priced.
12:55 Keith Teare And the money that you’re going to pay is going to go back to venture capitalists and their LPs, and you’re going to be holding these relatively highly priced assets.
13:08 Andrew Keen Okay, so that’s your critique. So what is Robinhood doing that’s in any way different?
13:17 Keith Teare It’s packaging up these assets for people like my kids, which is possibly a good thing depending on the basket of assets, or a bad thing depending on the basket of assets.
13:30 Keith Teare So you really have to get to the next level down. It’s democratizing, but is it democratizing exciting assets or disappointing assets?
13:42 Andrew Keen And I mean, that's going to obviously depend.
13:58 Andrew Keen So what? It sounds to me like maybe not a scam, but Robinhood’s always seemed to me as a rather odd company; they’re not producing any value.
14:09 Andrew Keen It’s just a game, an extension of Polymarket or the way in which Wall Street and IPOs and Polymarket have all become part of the same kind of gambling game.
14:21 Keith Teare Well, I think this is the time to influence Robinhood.
14:31 Keith Teare But it could also be that companies that are going to experience another 10x growth become available to retail investors before that happens.
14:43 Keith Teare So it entirely depends on how Robinhood plays the game and the other players in the space.
14:50 Andrew Keen Robinhood doesn't know, because it can't know... whether these companies are any good or not.
15:02 Andrew Keen It depends on so many variables, on the future of the global economy, on AI, on so many other things. They can't know any more than anyone else, can they?
15:13 Keith Teare Yeah, but they have a predilection at the point of their purchase to determine what kind of a risk they want to be acquiring.
15:23 Andrew Keen Let me take another tack on this... some people might say, if they want to invest, sure that's a good idea... let them invest in the public markets.
15:42 Andrew Keen What’s wrong with the current public market?
15:45 Andrew Keen Now of course what Robinhood is doing is entering the public market, but what's wrong with them investing in Microsoft or Facebook or Google?
15:57 Keith Teare There’s nothing wrong with that, but you’ve got to do the math.
16:08 Keith Teare The public markets, taking the averages as the likely outcome—because almost nobody beats the market—the best-case scenario is that you can grow your wealth by about 10% a year.
16:23 Keith Teare In private markets, historically, that's been where the growth is and increasingly that's more and more true.
16:30 Keith Teare The best-case scenario is that you can grow your wealth by a thousand times.
16:37 Andrew Keen But the obvious response is you can grow it by a thousand times but you can also lose all your money, which is less likely on the public markets.
16:47 Keith Teare That’s definitely true. But if you make a hundred bets in private markets, each one of those hundred you can lose all your money, but if just one of them does a thousand-X, you’ll get 10 times your money—or a hundred times, depending on the numbers.
17:06 Keith Teare So the private markets are definitely high risk compared to public, but they’re also high reward compared to public.
17:16 Keith Teare And so there’s a trade-off there. Obviously you should never put all your eggs in a single basket.
17:23 Keith Teare So opening up private markets to public investors—I’m definitely a strong believer in that, as long as it’s educated.
17:34 Andrew Keen Say that again: as long as—what do you mean by educated? What does that mean?
17:39 Keith Teare Well, that there’s proper understanding of what it is you’re buying.
17:44 Keith Teare I also believe in de-risking. So there's two ways of doing private baskets: one is called concentrated, the other is index-like.
17:55 Keith Teare Concentrated is Robinhood; they’re only going to have... 18 companies in their portfolio.
18:04 Keith Teare Just by way of contrast, and we are very early, we have 45 already and we'll end up with 150.
18:12 Keith Teare So the amount of the risk spread over a certain number of companies is one of the variables here.
18:22 Keith Teare And a highly concentrated late-stage portfolio is probably the most risky and aligned to what you just said.
18:32 Keith Teare An earlier stage, more index-like basket is more de-risked.
18:38 Andrew Keen How would you respond to my suggestion that all this really reflects this kind of merging of the financial markets and betting markets like Polymarket?
19:02 Keith Teare Well, I don't think you're wrong to say that that's part of what's happening. I think that is part of what's happening.
19:10 Keith Teare But it's also true that in parallel to that, the largest wealth growth in the history of the human race is happening.
19:22 Keith Teare And who gets to play in that pond is highly selective right now... and Robinhood is right to suggest that that can be broken and more and more people can benefit from this wealth growth.
19:40 Andrew Keen You talk about the democratization of finance. People with a million dollars have more rights, not because they’re better or even smarter; it’s just because they’ve got the money.
19:53 Keith Teare No, it’s because regulations prevent anyone with less than a million dollars from buying private assets.
20:01 Andrew Keen And one of the reasons is because they assume people with more than a million dollars are perhaps a bit more responsible or are able to lose more than your kids who often extremely ill-informed.
20:25 Keith Teare You're right Andrew, but if if we focus in on a single word—risk.
20:34 Keith Teare Say it again, Keith: "I'm right."
20:37 Keith Teare You're right, but if you focus in on a single word—risk.
20:42 Keith Teare It's an economic truth that risk has a price.
20:47 Keith Teare And and the higher the risk, you know, the lower the price.
20:52 Andrew Keen Yeah, economics 101. Yeah, I mean we know that, Keith, that goes without saying.
21:00 Keith Teare Well, you can't say we know it because I suspect many of our listeners don't know it.
21:10 Keith Teare And I think that when you bring private assets to public markets, the weight of the risk is the only thing you need to understand because then you can figure out whether you're prepared to buy it and with what portion of your wealth.
21:26 Keith Teare And and you know, so democratization is definitely 100% great.
21:35 Keith Teare Risk that it carries is a variable and different different players are going to bring different baskets of risk to the market.
21:49 Andrew Keen Yeah, and we've talked about booms, you and I disagree on this.
22:01 Andrew Keen The nature of booms is one where a lot of people assume that risk has no price and then you have a radical correction...
22:15 Andrew Keen One more question Keith... I've always and maybe correct me if I'm wrong, but I've always assumed that to go public you have to have some value, you can't just be an idea... what exactly is this thing?
22:42 Keith Teare It's a basket. It’s they’ve spent $340 million buying previously impossible-to-own private companies.
23:00 Andrew Keen So these are investments in these companies... so it's basically just a kind of an investment platform that's going public.
23:13 Keith Teare A little bit like Berkshire Hathaway is... Robinhood owns other companies, not fully.
23:25 Keith Teare Its product is to make it possible to own them, and you judge them based on what it is they’re selling you.
23:36 Andrew Keen So in a way... this Robinhood announcement in a way might not be such a bad thing because it's encouraging them to go to the public market and invest in something like Robinhood, is that fair?
23:51 Keith Teare Yeah, that's fair, as long as you do the calculation on the risk analysis of all your possible strategies.
24:06 Andrew Keen And then coming back to the revolutionary point about blowing the doors off venture capital, why should Andreessen Horowitz or Sequoia or Union Square Ventures, why should they care about any of this?
24:23 Keith Teare That's actually the most interesting part of it. Sequoia and Andreessen charge their investors somewhere between 20 and 30% of the profit on the money that they invest. Robinhood is charging 0%.
24:45 Andrew Keen Wow.
24:46 Keith Teare So they are creating a venture capital fund where the profit stays with the investors... they are changing venture capital from a 30% tax to 0% tax.
25:01 Keith Teare They are charging fees, it’ll end up being somewhere between 2 and 3% at the end of the day... and their stated goal is to be the biggest venture capital company in the world. If that happens at 0% fees, it makes Sequoia and Andreessen’s business model untenable.
25:27 Andrew Keen But the point... their point of their value is that they actually have access to these companies... Robinhood isn't doing any of that.
25:39 Keith Teare Now you're agreeing with me, I agree with that. What are the assets? How early do you own them?
25:46 Keith Teare In the case of Andreessen and Sequoia, they often own these companies at the seed round or the A round, so the growth is huge if they succeed.
25:57 Keith Teare If you buy assets late, when they’re already fully grown, and you package them up for retail investors and they don’t grow massively, you really don’t deserve a premium.
26:10 Keith Teare And that's why Sequoia and Andreessen can earn that premium.
26:16 Andrew Keen I think we’re going around in circles, let’s move on. Another interesting piece you linked to this week is about the humanities being automated by Yasha Mounk.
26:27 Andrew Keen He suggests that AI now is at a point where it can write political philosophy papers, not quite perfectly but getting towards a point where it’s harder and harder to distinguish between AI and people who have spent their lives training to write political philosophy.
26:45 Andrew Keen It’s an interesting observation and I think he’s right, isn’t he?
26:50 Keith Teare He’s definitely right on the facts. He conducted an experiment to get the AI to write a paper, and he concluded that it was "depressingly good" because he felt it could be submitted for publication and be good enough to be published in an academic journal.
27:10 Keith Teare And then he asked the question: where is his value add if that trend continues?
27:18 Keith Teare He concludes an average non-specialist is going to be able to produce a specialist-level publication using AI and it will be increasingly difficult to distinguish between that and one written by an actual specialist.
27:32 Andrew Keen So this comes back really to what we were talking about before about radical democratization. Former experts like himself, professors of political philosophy, don’t bring much of value.
27:46 Andrew Keen Does he get into the argument about whether if he smartly uses AI he can improve the quality of the piece?
27:54 Keith Teare No, he does retain some optimism about the importance of the human.
27:59 Keith Teare That said, I think he might be misframing this: I think automation is probably a better word for this than democratization.
28:09 Keith Teare Democratization suggests humans are being leveled up; what’s really happening here is humans are masquerading as producers when actually it’s the AI that’s becoming as good as or better than humans.
28:22 Keith Teare So if there is democratization, it’s software agents that are writing, not humans.
28:29 Andrew Keen Although some people will probably hide behind that and claim that they’re political philosophers by using AI.
28:37 Andrew Keen Another of your pieces that you linked to this week is by Packy McCormick... about power in the age of intelligence.
28:47 Andrew Keen Where is the power then, Keith, if we acknowledge that you have this flattening or democratization?
28:55 Andrew Keen Where does the power go?
28:57 Keith Teare If we ask ourselves what do we still respect? I think it comes down to creativity that breaks through some previous boundaries and therefore grabs our attention because of its uniqueness, novelty, newness, depth, interestingness.
29:18 Keith Teare AI is very bad at that; humans are very good at that. We’re still attracted like flies to a light to creativity.
29:28 Andrew Keen So power is with the creative. In fact, this was something I talked about with the Los Angeles Times book critic Bethanne Patrick about the Washington Post closing their book reviews.
29:43 Andrew Keen We agreed the book still retains a degree of popularity, maybe because of the value of creativity, Keith.
29:50 Keith Teare I think it’s exactly that. When a new book comes out that breaks some kind of ground intellectually or in terms of leisure and fiction, a lot of people buy them, because we have a thirst to be either entertained or educated.
30:06 Andrew Keen So maybe Yasha’s point is that the humanities aren’t particularly creative and that most people working away in university departments writing these white papers aren’t creative and that we shouldn’t be too sad about their demise.
30:21 Keith Teare Well, I think what will happen is the good writers will be like Sequoia and Andreessen: they’ll be very good at doing their craft before anyone else and benefit from that by attention.
30:35 Keith Teare Therefore, the craft still retains its power.
30:38 Andrew Keen Craft retains its power.
30:42 Andrew Keen Steve Gillmor criticized you and I because he said we disagree too much, but maybe we agree too much on this front that we’re not in violent disagreement.
30:54 Andrew Keen Even if the humanities are about to be automated, that’s not necessarily bad for humanism or maybe for creativity.
31:02 Keith Teare I think anytime a technology relieves humans of the mundane, it elevates the special.
31:10 Andrew Keen Like you and I.
31:12 Keith Teare I don’t know about you and I. Steve’s point by the way wasn't that we disagree too much, it’s that we disagree about the same things over and over again and don't move on.
31:23 Andrew Keen Okay, well to annoy Steve we’re going to disagree finally, Keith, about the same old thing again, which is abundance.
31:33 Andrew Keen You linked to pieces by Peter Diamandis and Dr. Alexander Wisner-Gross on this idea of abundance.
31:43 Andrew Keen I just think it’s complete and utter nonsense; I think that there will always be power, there will always be scarcity.
31:53 Andrew Keen Are you in this camp of achieving abundance by 2035?
31:58 Keith Teare Well, these two are part of Singularity University historically and the concept of the singularity is highly discussed.
32:11 Keith Teare Let’s just say they have a stake in the ground: they believe the singularity is inevitable.
32:17 Keith Teare I think they’re probably right about that—at some point automated software and robotics that is self-referential and can reproduce itself at better and better functionality is probably going to happen.
32:31 Andrew Keen And I wouldn’t necessarily disagree with that, but that does not result in abundance.
32:38 Keith Teare Well then let’s define abundance: will the production of things grow to such an extent that almost everything is available to everybody?
32:48 Keith Teare I think that probably is yes, at some point that will happen.
32:53 Andrew Keen You mean like access like we were talking about with Robinhood?
32:56 Andrew Keen But it doesn’t mean everyone can just buy these things.
33:00 Keith Teare Well I think you have to remove the word "buy," because that’s a word of the present.
33:06 Keith Teare If you imagine that things are produced in abundance automatically with no human input, then the concept of buying them goes out the window because there’s too many of them, they will have zero value actually because supply will outstrip demand.
33:23 Andrew Keen Now you’re going all Musky on me; I just think this is science fiction, it’s just nonsense.
33:31 Andrew Keen You still have to have resources to produce stuff; even with AI, the big tech companies are investing billions... trillions of dollars in producing the power to drive these things.
33:43 Keith Teare Remember, we’re trying to understand Diamandis and Wisner-Gross. They believe that this exponential abundance is fairly short-term, by 2035.
33:55 Keith Teare I don't think we can disagree that abundance will eventually happen, it will.
34:00 Andrew Keen You just said it will, you didn't prove it! How do they explain land, for example, and the fact that you can't just produce land?
34:11 Keith Teare Well there’s so much land on the earth compared to people that it doesn’t matter.
34:16 Andrew Keen I think that’s enough, Keith, otherwise you’re going to annoy me too much, that’s such a stupid thing to say.
34:25 Keith Teare Well it means you’re not scientific, you’re being too emotional about it.
34:30 Andrew Keen Enough! That was the week of Keith Teare; we agreed that maybe venture capital is interesting, but now he believes that land is abundant, I’m not so sure.
34:42 Andrew Keen Especially in our age of Greenland, of rising real estate, living in San Francisco, that is just one bridge too far.
34:52 Andrew Keen Anyway, Keith, good conversation, we will talk again next week.
35:00 Keith Teare No, it’s already abundant; by 2035, yeah, already abundant.
35:05 Andrew Keen Well if that’s the case, then why would America want to own Greenland?
35:10 Keith Teare Go to Greenland, there’s no people on most of the land, there’s lots of land.
35:17 Andrew Keen Well that’s enough, otherwise we’re going to get stuck in... we'll talk again next week.
35:28 Andrew Keen Thanks, Keith.
35:30 Keith Teare Bye everyone.
35:33 Andrew Keen Hi, this is Andrew again. Thank you so much for listening or watching the show. If you enjoyed it, please subscribe... Apple, Spotify, all the platforms.