By no means I pose myself as someone qualified to offer any "expert" notion on any of the following topics. My thoughts are (for the most part) subjective and come from my understanding of the world and they should not be taken as direct facts. But, some observations can be universally true and can apply to 99 percent of the situations. I hope, and I believe, my observations and conclusions are pushed into that list of "universal" observations.

What is Skin in the Game?

Nassim Taleb came about a little concept that explains most of the things in our society. Skin in the game he called. Wrote an entire book about. A part of his famous Incerto series. The concept became quite famous.

If I make a decision, and if it affects me, then I have skin in the game. Whatever game I play. I can have more or less skin in the game depending on how big or small the decision is. And "skin," as you might have guessed it by now, refers to you.

Politicians usually have less skin in the game than pilots. If a politician makes a bad decision, he is not losing a limb, going maim, or dying. A pilot's bad decision, however, can cost him his life. We surely don't want to generalize anything, but you get the idea. That's skin in the game. Simplified.

More on that after I touch upon the venture fund state in Uzbekistan.

Venture Capital Ecosystem in Uzbekistan

It's basically a government jobs program wearing a Silicon Valley costume.

The "ecosystem" runs on state bank money, presidential decrees, and IT Park subsidies. And when new VC funds are launched by any state-owned banks, we can't call it venture capital. That's a slightly different form of bureaucracy, the one involving pitch-decks and due diligences.

Earlier last year, people have been hyping up about the growth rate in the ecosystem. The 230x funding growth story. That's just one company: Uzum. If we remove it, we end up with a 17M US-dollar market across 38 deals. That's an average check of around 460k US dollars.

The exit market virtually doesn't exist. Billz was acquired. MyTaxi and Express24 in the earlier years. But the exit market is relatively very small. That's actually expected. The entire startup ecosystem is very young. We might need some time to expect larger exits.

Yes. We got much to improve. The opportunity is there. But the hype is 4-5 years ahead of the current startup/vc infrastructure.

Skin in the game in Venture Capital

The fund manager loses their own money if they're wrong. Their reputation, their carried interest, their personal LP relationships. All on the line. That's what aligns incentives.

Things are a bit different here in Uzbekistan.

Most of the ventures that I won't write the name are deployed by salaried employees of state-owned institutions following a presidential decree. If the portfolio burns, nobody gets fired.

The bank absorbs the loss, the government recapitalizes it quietly, and the fund manager moves to another department. There is no Taleb-style downside. The person writing the check doesn't feel the check bouncing.

There is more.

IT Park is a landlord pretending as a venture capitalist. It provides space, grants, mentorship subsidies. All cool and useful infrastructure. But a landlord whose tenant fails just finds a new tenant. No skin lost. This means IT Park's incentive is occupancy and optics. Number of startups, number of deals announced, number of press releases. This doesn't return anything.

This also affects the founders.

In a market where government grants (president tech award) and subsidized loans are abundant, a founder can run a startup for 2-3 years essentially on public money. They can fail and walk away fully intact.

The cost of failure is unimaginably low. Which means the quality of founder commitment is self-selecting downward.

People who would sell their apartment to build something are the minority. The majority are rational individuals taking a low-risk government-subsidized career experiment.

And I can continue this rant for hours. There are abundant problems. But let's pause a second.

Do I think government involvement in the ecosystem is good? No. It is not conducive for the ecosystem to become independent and grow. "Venture" means "undertaking a risky journey." "Venture capital" is about undertaking a risky journey using your capital (your money, your cash). And if that money isn't yours, it is not a venture capital.

But do I think there is a progress? Absolutely. Not all ecosystems grow in a standard form. Maybe this approach is more fitting with the nature of Uzbekistan? Maybe it will result in a better growth rate than if the privates had occupied the ecosystem? We don't know. I don't know.

But all I can say for sure it, there is progress. There is some movement. And if there is anything we ought to learn from Charles Darwin, it is that "nature doesn't prefer the unmoving."