Are VCs Accidentally Funding Socialism?

Once upon a time, WeWork handed out desk space like a subsidized public utility. Turns out there’s a name for this: venture predation.¹ It’s what happens when billions of dollars flow from tech investors to consumers in the form of services priced so far below cost they may as well be state-funded. Your $5 Uber ride that has $15 of landed cost? A lifestyle subsidy, of sorts.². And with it, Silicon Valley may have stumbled into the irony of inadvertently reinventing socialism. Not the worker-owned, seizing-the-means kind - but a bizarre version where equity-funded startups provide essential goods at unsustainable prices. A unicorn-powered welfare state, courtesy of Series E funding.

Venture predation is simple: raise a massive pile of cash and set it on fire by offering something below cost, in hopes of capturing enough market share to justify keeping it burning. But unlike traditional predatory pricing, which assumes you’ll eventually need to make your money back, it is less about recouping and more about convincing the next investor that you might.¹ In the meantime, consumers enjoy a temporary subsidy.

Platforms are the preferred vehicle to deliver this welcome discount. Nobody pays the true price, because the bottom line is covered by an influx of low-interest loans. VCs call it blitzscaling;³ but if it systematically creates a loss on the balance sheet of rich investors, while simultaneously sponsoring everyday expenses of working-class consumers, isn’t that just redistribution? When private capital coordinates resource allocation based on reach rather than profit, that starts to resemble socialist economies allocating resources based on need, with no regard for immediate profitability.⁴ Central capital allocation overriding market price signals? Below-cost service provision funded by external capital sources? Cross-subsidization between user groups? The five-year plan became a pitch deck.

Uber spent over $22 billion subsidizing rides before reluctantly raising prices to something resembling sustainability.⁵ That’s wealth transfer from equity-backed loans to people who needed cheap transportation. Airbnb did the same for travel, throwing money at both hosts and guests to make holidays more affordable for everyone (secretly hoping to become the only way people book accomodation). HuggingFace essentially operates a publicly funded AI lab, offering free model hosting and compute - except the “public” in this case is a Series C round. ⁶ DoorDash, after years of subsidized service, essentially just offers meals-on-wheels.⁷ Grocery startups like Flink and Gorillas targeted market dominance in Europe with the promise of oat milk delivered in under 10 minutes for free,⁸ but ended up providing critical infrastructure during COVID. The pattern throughout all this is investors chasing platform dominance, but ending up temporarily underwriting public infrastructure. That’s the invisible hand as raised fist. Socialism, with refined UX and worse labor practices.⁹

The examples are plenty. Business schools now treat MoviePass as a cautionary tale in how to vaporize $300 million while providing low-cost entertainment.¹⁰ Quibi dropped $1.75 billion on free premium content that no one asked for and fewer watched.¹¹ Bird and Lime littered cities with underpriced scooters (a vision of public transit concocted by people who’ve never taken a tram). GitHub effectively funds a digital public commons with unlimited free hosting - though instead of being owned by the public, it’s now owned by Microsoft.¹² Discord bleeds cash hosting free voice calls for millions of users, because apparently nothing says “efficient capital allocation” like providing a communications platform with no realistic way of ever turning a profit. OpenAI offers ChatGPT’s free tier at a daily burn of around $700,000, resulting in a quarter-billion-dollar annual subsidy for free AI access.¹³

At what point does “disruption” become “accidentally implementing basic services” (but with worse governance)? While being perceived as capitalistic posterchildren with eagerly awaited IPOs, these companies won’t struggle because their product is bad, but because they can’t figure out sustainable pricing. They seem too good at redistribution and too bad at capitalism. And ironically, actual socialists are studying VC funding mechanisms to design better cooperative ownership models,¹⁴ while VCs are hosting competitions for how to loose money at scale as long as you call it “growth”. Is the most efficient way to deliver public goods secretly to trick venture capitalists into providing them for free?

Unfortunately, no. What consumers want are basic services at sustainable prices: reliable transit, affordable housing, good education. What they get is a flashy tricycle with two square wheels, because capitalism insists on LARPing public infrastructure in an effort to turn a profit. Here’s a scooter that costs 3x more per kilometer than a bus and takes up more public space. Here’s a short-term rental app that drives up local rents and hollows out neighborhoods. Here’s an AI that confidently hallucinates while public libraries are being closed.

Of course, VCs aren’t running a charity. They’re running long cons. While riders enjoyed their $5 Uber trips, the company quietly dismantled decades of regulated transit infrastructure.⁵ Cheap food delivery? Restaurants saw their margins evaporated by platform fees and ghost kitchens pushed local spots out of business.⁶ That Airbnb discount? Paid for by draining the housing stock of cities. GitHub’s free hosting? It trained a generation of developers to rely on a digital monoculture. Even the spectacular failures carry consequences. MoviePass not only bankrupted itself, but also nearly the theaters it paid for, by teaching customers to expect entertainment for free.¹⁰ WeWork not only inflated kombucha popularity, but also commercial real estate prices, and normalized precarious “flexible” working conditions.¹⁵

The long con is making consumers complicit in dismantling their own public infrastructure. Why fund public transit when you can get a subsidized Uber? Why support local businesses when DoorDash delivers for “free”? Why demand actual worker protections when the gig economy offers “flexibility”? “Disruption” is not redistribution with extra steps. It’s a gilded trojan horse, luring with freebies in anticipation of future dependency. And it induces surprised Pikachus when, inevitably, the offer that got the foot in the door has to be “enshittified” to remain fundable. As it turns out, if you want reliable infrastructure that doesn’t disappear when the growth metrics turn sour, funding it with (gasp) taxes isn’t the worst idea. At least when the government runs something into the ground, they don’t pivot to NFTs. But that would be socialism, and who wants that? This revolution is brought to you by SoftBank.