The Venture Capitalization of Culture

For a recent story published by The Cut, Bindu Bansinath surveyed 102 of the publication’s readers about the most “frivolous thing” they’d taken on debt to buy. Most of the submissions tracked with what you might expect from readers of New York magazine’s fashion-forward women’s vertical—Chanel shoes, plastic surgery, Ozempic—but a few curious inclusions stood out: DoorDash deliveries and Lyft rides, sore thumbs on a hand that otherwise counted more obvious luxuries. DoorDash and Lyft, two companies so saturated with venture capital that each transaction should come with a complimentary Patagonia vest, have each raised several billion dollars. After more than a decade straight of losing money, both companies eked out profitable quarters for the first time ever late last year. 

Once considered reasonably priced ways to summon a gig worker during their 2010s-era, VC-subsidized growth phases, at some point these services ceased being cheaper than those they aimed to displace. In the early months of the pandemic, food delivery spending on apps like DoorDash tripled (and remained high), our collective habit expanding, then crystallizing. Today, it’s hard to tell who the real winners are—though it’s almost certainly not the gig workers, who reported falling earnings as ridesharing and delivery apps confronted the reality that even massive scale couldn’t rescue bad unit economics. Squeezed by higher interest rates over the last few years, the VC funds that once enabled these companies and others like them are currently sitting on levels of cash (“dry powder”) not seen since 2008, signaling that the fever dream of the last 15 years might finally be over.

“There’s a reason why in the 2010s everything from Ubers to Netflix subscriptions felt oddly cheap,” writes Sirena Bergman for Business Insider, describing the “millennial lifestyle subsidy,” so named for the way growth-focused companies with billions of dollars in funding could, for years, price their products and services below those which weren’t on an intravenous drip to Founders Fund fentanyl, embedding themselves in the lives and routines of consumers. But the more noteworthy dynamic at play is that such a strategy could make billions for investors while the companies themselves remained unprofitable, a math equation that doesn’t seem like it should be possible. Two plus two can’t equal $100 million, can it? 

In the popular 2023 paper “Venture Predation,” Matthew Wansley and Samuel Weinstein argued that, for some investors, whether a startup could actually recoup its costs later was less important than whether it appeared plausible enough to the next round of investors that it might, eventually. In other words, early-stage investors, having distorted a market through a flood of capital and blitzscaling strategies, made their returns not by funding a new technology or efficiency that enabled profit, but by exiting before the business had to do something as blasé as actually making money, passing the hyped-up hot potato to the next batch of buyers. This phenomenon, they said, can “harm consumers, distort market incentives, and misallocate capital away from genuine innovations,” and should be thought of like an antitrust issue.

This is notable because venture capital is a form of private equity that has long traded on its reputation for being an investment style that drives our world forward. Even the no-nonsense data dealers at the St. Louis Federal Reserve publish papers solemnly commending it as an engine of “innovation and growth.” To prove this point, it cites VC’s prevalence during eras of technological explosion: “World War II and the start of the Cold War ushered in new technologies, such as jets, nuclear weapons, radars, and rockets, along with a splurge of spending by the U.S. Department of Defense,” they write, adding that a “handful of VC firms were formed to leverage the commercialization of scientific advances.” The wars “ushered in” invention, as if by spontaneous generation, “along with” a splurge of spending by the US Department of Defense. This is a strange way to describe a causal relationship, like saying a rainstorm ushered in an umbrella, along with a purchase at Walgreens. (In this analogy, the VC firms are those tasked with expanding the umbrella company’s market share after the US taxpayer puts up the money to invent the umbrella.)

Nitpicking the sterile rhetoric of a FRED paper might be unfair, and it’s indisputable that venture capital has played a role in funding some genuinely remarkable things: search engines, personal computing, artificial intelligence. (And few would argue that Yellow Cabs are perfect.) But the primary innovation taking place over the last decade might have been a breakthrough in financial engineering: creating investment vehicles out of startups that appeared to offer genuinely improved products or uncannily affordable convenience…at first.

Millennials who came of age and purchasing power in the 2010s have traversed a consumer landscape largely shaped by venture capital’s money, aesthetic, and scale: “Digital-first, ultra-modern companies rose to prominence in the 2010s,” CNBC reported, thanks to “a huge wave of venture capital funding propped up by low interest rates,” which meant companies that barely generated revenue (“in some cases, none at all,” Fortune reported) could still, through the magic of a slickly formatted slide deck, go public attached to 10-figure valuations. The founders were often millennials themselves, metamorphosing inside the plush cocoon of a venture fund from members of a stereotypically unlucky generation to overnight multimillionaires. 

Much of the industry’s logic rests on the supposed foresight of a few famous men who could plausibly play supervillains in a Marvel movie (see also: Andreessen, Thiel), gods of capital allocation performing alchemy with their money and brilliance. But it might be less about recognizing winners than anointing them, sidestepping the laws of gravity that tether regular businesses to their balance sheets and instead manifesting the future through the blunt force of billions of dollars.

When we’re throwing around 10-figure sums and the biggest names in an industry that prides itself on its ability to “disrupt,” it can be easy to forget we’re often talking about gussied up food couriers and taxi services, two things that have existed in some capacity since at least the early twentieth century. A 2022 roundup of the top 50 venture-backed companies stretches the definition of “innovation” beyond recognition. Many are riffs on suspiciously recurrent themes—13 of the 50 are grocery or food delivery apps, nine more are for hailing cars or renting bikes. Nearly all of the companies that weren’t food delivery or rideshare apps were “marketplaces”: a marketplace for gardening equipment, a marketplace for baby supplies, a marketplace for used designer handbags. The few that were producing physical products were mostly wrapping a sans serif font and sleek ordering experience around extremely basic commodities that have existed for eons, like the razor, first mass-produced in 1903.

Take e-commerce brand Harry’s, which isn’t just selling a minimalist orange razor and matching shaving cream—it’s a “global, multi-channel grooming brand.” Its origin story, as described in its 2016 investor pitch deck, begins with the brand’s cofounder being inconvenienced while he “waited for a clerk” to retrieve a razor with a design that “didn’t appeal to him” from “behind a glass case,” an experience that distressed him so thoroughly he called his friend afterward—who “empathized”—and they decided that, together, they’d start Harry’s to address this “pain point.” The razor market is dominated by “two major players,” whose razors are “overpriced,” “over-designed,” and “inconvenient to purchase.” The idea, I guess, was that men would rather order razors online than buy them in person like the pilgrims used to do. Harry’s original starter set is $8—it comes with two ounces of Foaming Shave Gel and a single razor. (Amazon tells me that I can get its competitor, a Gillette razor with four refill blades, delivered tomorrow for $15.75. But does the design appeal to me? A question for another day.) To date, the company has fundraised more than $600 million.

I don’t mean to pick on Harry’s. I’m sure the razors are fine, and its subscription model might be perfectly convenient. But it’s illustrative of a pattern that has copy-pasted itself across nearly every industry over the last decade and a half, producing a flurry of pastel-hued, direct-to-consumer companies fluent in Instagram that sell everything from mattresses to coffee to luggage to cookware, often aimed at Gen Z women who have been trained to trust a brand that employs ample negative space on its website and demands a semi-premium price point. All this would be less offensive if the investment style in question wasn’t constantly positioned as uniquely capable of inventing the future.

Rather than introducing something original, many of these capital-rich companies simply erect a new construction on the sturdy foundation of old ideas. The products often do cost less than the incumbents, cultivating a sense of upscale approachability: Compare DTC brand Caraway’s Ceramic Dutch Oven, $135, to the 100-year-old French brand Le Creuset’s equivalent, which runs around $400. Because these brands tend to follow the same design and user experience best practices optimized for making buying stuff as easy as possible, interacting with them often feels like getting gently lobotomized by a robot—their sans serif fonts, flat, bright colors, and twee, hand-drawn illustrations coalesce around cheeky, conversational prompts (“What kind of sorcery is this?” asks the Magic Spoon FAQs, a venture-backed, DTC cereal company). Each element is a user-tested breadcrumb, leaving a trail they hope you’ll follow to the 25% Subscribe & Save checkout option. (For the low, low price of $54, you can get six whole boxes of “protein cereal.” Magic Spoon’s funding as of 2022: $85 million.) 

Venture-backed salad chain Sweetgreen ($472 million in funding) isn’t merely following in the grand tradition of fast, healthy dining blazed first by companies like Chipotle 30 years ago, it’s “leading a movement to reimagine fast food for a new era.” This is the sort of baldly ridiculous mission statement a restaurant must adopt if it accepts half a billion dollars from investors to sling $17 fast-casual salads to people with desk jobs. (Again, the salads: perfectly serviceable. Tasty, even! Just not “a movement,” nor symbolic of “a new era.”) Whether salad or breakfast cereal, much of the differentiation in the DTC world comes down only to marketing and packaging—the products themselves are, more often than not, unremarkable. Recall the Caraway pans: Its $135 Dutch Oven may seem reasonably priced, but its one-year warranty belies what purchasers congregate in subreddits to lament: The pots are practically unusable within two years. By contrast, that fusty old Le Creuset Dutch Oven is guaranteed for a lifetime.  

One might wonder generously if these disruptors are keeping legacy brands on their toes by injecting competition into century-old markets. But it seems the primary lesson the legacy brands have adopted from the young, venture-backed ones is the bottom line-boosting power of the subscription model, the creeping ubiquity of which appeared in the new season of Black Mirror, a plot line that some viewers criticized as being so commonplace as to be predictable.

Many of these companies smell like solutions in search of a problem, reverse-engineering a punchy raison d’être to supplant the less romantic explanation for their existence: that is, generating returns for early investors and enriching founders, even if nothing new is introduced in the process. “If a company is not profitable, then you have to ask, is social value being created? And if social value is created trying to develop a technology and it just never really works, that’s okay because there’s still important learning done there,” one Venture Predation coauthor told Fortune. “But if there was never any real technology to begin with, we question whether it’s creating any value.”

After all, companies like DoorDash and Lyft aren’t finally turning a profit because they unearthed some paradigm-shifting, cost-saving efficiency in the age-old problem of transporting goods and people, but because they simply raised the prices and lowered the pay—the same old boring way businesses have always made money.