There are three parts to this essay, He doesn't explain this point adequately until the end of the second. But you still won't get what he's saying unless you're already a follower and have digested the ideas in his blog.
Venkat trades in big, hairy concepts. The one he's using here is legibility. It's when information is structured in rigorous ways, defined by those using it as an instrument of power. It is the primary tool governments use against the people. An example is making every person have a current address listed on their driver's license. Governments stack these legibility requirements up so as to control commerce and extract rents. (taxes)
Venkat's argument is that investors won the game by forcing founders to be legible, reducing the information advantage they enjoyed historically. While it may look like founders have never had more power, in reality they've lost a crucial ability, to hoard critical inside information. It's really the only advantage they have, without it, they're at the mercy of investors. The ability to dictate terms is really inconsequential, more a function of fashion than actual power. Who cares if you get 2x the money you should have gotten? With information asymmetry, founders could easily wrangle 100x.
So, the opportunity to swindle investors, the Market for Lemon Startups that created the dotcom bubble is gone. How is that a bad thing? Assuming, of course, that you are trying to infuse capital into a real business and not run a Ponzi scheme.
Intuitively, a deal in which investors have reduced risk should have more favorable terms for the founders, too, since investors don't have to discount for the risk of the business becoming another gigantic flop. Maybe you are losing the extremely remote possibility to become a billionaire and leave a trail of very disgruntled millionaires behind you, but that sounds like a good trade-off for me.
EDIT: I've read the three parts. What I took from them is that, as creating a startup becomes a "science" that you can learn at school instead of an "art", entrepreneurs become something close to outsourced product managers, and frankly, I still don't see the problem.
Why take all the risk of designing, building, and marketing a product if all it gets you is a mediocre dead-end job in a big company? Entrepreneurship used to be where the brightest could make fortunes, now that ship as all but sailed. It might not bother you, but it should. All that talent is now going to seek opportunity elsewhere, rather than building useful products and services. Is this a good outcome for society?
Here's the thing: you can always take the risk of building a product in the frontier. But the web is no longer the frontier. You can estimate the size of your market in two weeks, spending a few thousand dollars. You don't have to build a product from scratch; in fact, you could build a whole webapp running on S3 and connecting to pluggable services.
Is this a waste of our best and brightest? Frankly, I don't know. But how many brilliant, young entrepreneurs got burned out after a catastrophic failure in the old model and never recovered?
Are there historical (in the last 20 years) examples of founders who wrangled 100x investment from investors, who would now not be able to do this because this supposed information asymetry no longer exists.
His main example was Facebook. But really, you should read the essay in its entirety and get his arguments directly.
Looking further back, Bill Gates managed to steal the future right out from underneath IBM through information asymmetry. Venkat is drawing large arcs here, and he would consider IBM an "investor" for the purposes of the discussion.
Facebook's leverage was growth, not information asymmetry. Zuckerberg's personal strengths are that he is savvy, and he had knowledge gleaned from Sean Parker et al. If anything YCombinator and others help make acquiring that knowledge easier. YCombinator's strengths are as much in its alumni sharing information within the network, much the same as Sean Parker shared information with Zuck, as in anything else that happens physically at YCombinator.
I have no idea how YCombinator, the lean startup movement or any of the other miscellaneous "villains" Venkatesh identifies would prevent a new Zuckerberg from raising money at the such favorable terms again.
Re: IBM/Microsoft - As Jobs did with Xerox, as Jack Dorsey may do with Visa one day. Savvy players beating non savvy players is a trend that has happened throughout history. I do not see how any recent developments preclude that. Venkat is framing this into an elegy for the savvy entrepreneur when there is no necessity for that.
I did read the essay - all 3 parts of it. There are some interesting points about return to city states and an understanding of politics being a huge strength for entrepreneurs towards the end, and several valid points about acqui-hires becoming more and more mainstream towards the beginning. I wish he had stuck to making those points instead of trying to weave a grand theory of entrepreneurs as the new labor which does not hold.
I do agree that he's unnecessarily harbingering and that the future is brighter than he paints it. But I also think that if really smart, savvy founders aren't already starting to keep away from incubators like YC and the acqui-hire path, they will pretty soon as they all start to get branded as alternative education paths.
I know I wouldn't apply to any incubator if I had a startup, I've felt this way for awhile now. They just don't seem to offer much value, rather being just a grand distraction, YC being the only one worth anything and even that's arguable. Capital isn't as valuable as it used to be, why give up control when you can generate it yourself? But it's really the only value an incubator adds.
> If anything YCombinator and others help make acquiring that knowledge easier.
Err, I seriously doubt that. He talks about these sorts of power dynamics in his Gervais series, and personal experience leads me to believe that it can't be taught. It can only be learned by making real power plays with real stakes, and losing. If you're really sharp, as Zuckerburg was, you can develop savvy early. Otherwise it takes lots of hard lumps. YC in my estimation wouldn't be any better or worse for learning power than just going it alone.
I'll assume you are not intentionally mis-stating my argument. I separated Zuckerberg's strengths into two parts: (1) savvy and (2) knowledge of how investors operate. (1) is intrinsic or learned through experience and nothing external in the current milieu precludes it's use. (2) can be taught, as it was to Zuckerberg.
Venkat trades in big, hairy concepts. The one he's using here is legibility. It's when information is structured in rigorous ways, defined by those using it as an instrument of power. It is the primary tool governments use against the people. An example is making every person have a current address listed on their driver's license. Governments stack these legibility requirements up so as to control commerce and extract rents. (taxes)
Venkat's argument is that investors won the game by forcing founders to be legible, reducing the information advantage they enjoyed historically. While it may look like founders have never had more power, in reality they've lost a crucial ability, to hoard critical inside information. It's really the only advantage they have, without it, they're at the mercy of investors. The ability to dictate terms is really inconsequential, more a function of fashion than actual power. Who cares if you get 2x the money you should have gotten? With information asymmetry, founders could easily wrangle 100x.