Most VCs Are Not Playing The Money Game

There is a sentence you will never read on a venture fund's website,

“our job is to return $10 for every $1 we are given.”

But that is the business. Everyone knows it is the business. LPs know it, founders know it, and the GPs certainly know it. Yet the industry has collectively agreed to talk about everything except this…. “Ecosystems”, “Journeys”, “Partnership”, “Conviction.”

Thousands of websites written in a language whose main function is to avoid saying the truth, which is often the elephant in the room.

Because of this shyness about money, what replaces it instead is ‘status’ games. (cc Naval).

This means many investors in a “feel clever, look smart” game rather than the money game.

As a result, most VC content is optimised for looking intelligent. The money game optimises for making money. These are different objectives, and entire platform teams are being paid to pursue the wrong one.

Commitment communicates more than explanation

‘The money game’ is effectively shorthand for what a firm really believes.

Any fund can write "we are high conviction investors." The sentence costs nothing, so it proves nothing. Sophistication does not fix this - a 3,000 word thesis is the same claim with better production values.

Yet firms spend enormous effort explaining why they are right, and comparatively little effort showing what they are actually doing with their capital.

Look at where the imbalance is most visible - the investment announcement. This is the 1 moment a fund publicly does the thing it is paid to do (allocate money).

Yet, the standard announcement wastes it. A congratulations, a founder quote, a line about being thrilled to partner. The decision itself largely goes unmarketed. Why this company vs the others. Why now. Why at this price. What the firm saw that every fund who passed did not.

The most persuasive material a fund produces is the reasoning behind transactions, and the industry has standardised a format that omits it.

This is what compressing the distance between the work and the marketing means. The work is the marketing.

In money games, commitment communicates more than explanation.

What LPs are underwriting

LPs - contrary to belief - do not buy intelligence. They buy future capital allocation.

When an LP commits $10M to a fund, they question whether they trust these people to make better decisions with the money than they would themselves. Not whether the memos are elegant or how many podcasts partners have appeared on. All of that is weak evidence for the only thing that matters: whether this team can put capital into the right companies.

At Rainwater - one of the most powerful corporate dealmakers in the 90s - Richard Rainwater would evalute investment decisions with a thesis on 1 page of a legal pad, and you told him what % of your net worth you were putting into the deal. He decided on those 2 things.

According to Trae Stephens, Founders Fund do this today too (ofc factoring in each individual team members varying net worths!).

The percentage question is not about the amount of money. It is the closest observable proxy for judgment that exists. It is showing vs. telling.

This is also why the GP Commit for emerging managers is a real marketing lever to LPs. But I see many shy away from this in their materials, but if it is a siginficant % of their net worth - it should be emphasised. The same is true at the other end of the spectrum, few funds, lead with or even mention their monetary conviction in the fund. When they do it’s tucked away like MKCapital - but there is much more leverage here.

After all, Skin in the Game is ultimate BS-Buster (cc. Taleb).

That is the money game.

Marketing is not communication

This is where my view diverges from most every marketing agency, including the ones serving venture funds.

Agencies start from an assumption: the client has expertise, and the job is to communicate it → positioning, messaging, channels. The whole apparatus is built for explanation.

The money game suggests a different job entirely.

• Traditional marketing says: we have expertise, and the job is to explain it.

• Money game marketing says: we have judgment, and the job is to expose it.

Expose is the honest verb, because exposure carries risk, and the risk is the point. Expertise is something you claim (descriptions). Judgment is something people observe (behaviour).

None of this is about persuading anyone you are good. It is about reducing uncertainty around how you will allocate capital, because your future allocation decisions are the thing LPs underwrite. To reference them again, Founders Fund never tells or uses the word 'conviction’ investor. You infer it from the size of the SpaceX position and how long it (was) held. The behaviour does the marketing, more words would be decorative.

Elsewhere, Multicoin Capital in 2018, when the undisputed, universal consensus in the tech world was that Ethereum’s architecture was the definitive future of crypto, and that the only way to scale a blockchain was through "sharding" (splitting the network into pieces).

They wrote massive, highly technical, public essay arguing the opposite of the global consensus.

By putting that specific, contrary reasoning into public, they made their judgment and their monetary position transparent.

If Solana had failed - and it did crash 95% (!) during the FTX saga - Multicoin couldn't hide behind a vague excuse. Multicoin publicly said it’s holding its position and still believes in Solana, even after the fund’s severe drawdown.

This changes what fund content is for.

Most VC content answers 1 question: what do we think?

The better question is: what have we done that reveals how we think.

The first produces opinions… The second, judgement.

How this converts into dollars

I have now sat close to enough fundraises to describe what observable judgment does when money is moving. It is less romantic than the theory, but more useful.

1. Content gets checked vs cited.

LPs almost never mention a specific post in diligence. They compare the story a GP pitches to the story that GP has been telling in public, sometimes for years, and they look for the match. Years of saying the same thing costs time, and time cannot be faked. This was the major benefit of writing in public we covered on USV’s Fred Wilson, and also wrote about how to do that here.

2. The best fund content does part of the LP's job for them.

I have watched LPs tell managers, in writing, that their content feeds their own market mapping. That fund is inside the LP's weekly routine before it is a line in their portfolio. But content that is verbose or platitudes will not achieve this.

3. Nobody asks the real questions, so volunteering the answers lands.

From my experience, LPs rarely ask the deeper questions around GPs reputations, monetary signals, and opportunity cost of running the fund. They hope the answers surface through vibes. Managers who volunteer them anyway, or present their fund around these issues directly can cut through a lot of noise.

The founder side runs on the same physics. When founders choose 1 term sheet over an equal one, the reasons they give are speed, care, and how well the investor understood their space. Each of those is behavioural.

I covered this in “The productisation of Venture Capital” where funds should again demonstrate their value rather than merely claimed. This was also covered in the recent a16z piece about their reverse pitch to founders.

The three fair objections

The first objection: plenty of funds raise on pure platitudes. If empty marketing closes funds all the time, shown judgment cannot matter much.

The second: LPs are not Richard Rainwater. Many manage pension or endowment money and are graded on defensibility. Much of the "look smart" content exists because LPs demand it as cover.

The third: the cold start. A Fund 1 manager has no positions to point at, so the brilliant essay looks like the only tool left.

The material funds are sitting on

Funds tell me versions of their best stories constantly - the deal that did not fit, the pass they regret - and then ask me not to publish them, because they worry honesty reads as indiscipline.

Bessemer settled this argument years ago. The anti-portfolio, their public page honouring the deals they passed on - Google, Facebook and Airbnb among them - is one of the most famous pieces of content venture has ever produced. Look at what it actually did for them. A page of their worst calls became one of the most linked pages in the industry, and nobody has ever read it and concluded Bessemer is undisciplined. Being honest about the misses did not cost the brand. It built it.

So the playbook is not complicated (you don’t need to air your misses necessarily). But next announcement, focus on the true reasons. If there are passes, published with the logic at the time. The off thesis deal, explained rather than hidden. Each of these costs something, which is exactly why each of them is believed.

The most Rainwater-shaped material in venture is sitting in drafts.

Compress the distance

The further a fund's marketing drifts from the reality of its business, the less anyone believes any of it. Everybody knows the game. Platitudes do not hide the game. They signal that you would rather perform than be inspected.

My last blog argued that narrative is the interim product of a venture fund, and that entertainment is how narrative travels. This piece is the constraint on that argument…

The only narrative that cannot be faked is the one written in decisions. What people do with money is the signal. Everything else is commentary.

The firms that win the next decade will make their judgment easier to inspect. That is what great marketing does.

Laurie, Refinery Media

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