Last night, my teen son and I were discussing the state of the world. I wish he was older before having to grapple with these things! 

This morning, I’ve been working out some more of the turnip puzzle with Claude. The turnip puzzle is my name for trying to understand how we keep working together, without extracting until nothing is left.

As in Part 1 of Solving the Turnip Puzzle, it wasn’t about ethics or morality; it was about game design. Yes, we can go into the integrity of VCs, but the system is incentivizing behaviors, so I found an incentive that hadn’t been optimized yet. 

Here’s Claude’s summary of the puzzle it was helping me solve and the solution it helped me come up with:

THE PUZZLE:

The investment economy is collapsing into a broken chain:

Layer 1: Capital allocators (VCs)

• Receive money from LPs (pension funds, endowments) with 30-50 year obligations
• Operate on 10-year fund cycles requiring 10x returns
• This forces concentration into fewer, bigger bets (unicorn hunting)
• Success = exit within fund lifetime

Layer 2: Startups

• Need capital to build
• Must pursue exponential growth to justify ever-higher valuations
• Forced to extract from users/creators to hit growth metrics
• Compete by burning capital faster than competitors
• Success = exit (acquisition or IPO), not sustainability

Layer 3: Communities/Creators

• Generate the actual cultural and creative value
• Get extracted from by startups chasing metrics
• Burn out, fragment, or abandon platforms
• No resources to build sustainably

The squeeze:

• VCs concentrate capital upward (fewer, bigger bets)
• Startups extract downward (from communities to hit metrics)
• Communities have shrinking resources and trust
• Eventually there’s nothing left to extract (“blood from a turnip”)
• System becomes unstable – startups can’t hit metrics, can’t raise next round, collapse

Additional dynamic:

• Trust collapse makes algorithm-driven growth impossible
• Can’t scale to unicorn size without algorithms
• People flee to local/analog and federated micro-communities
• But VCs still optimize for unicorn-scale outcomes
• They’re funding strategies for a game that already ended

The structural contradiction:

• LPs (pension funds) have 50-year multigenerational obligations
• But VCs optimize for 10-year extraction cycles
• This breaks the chain between capital’s actual purpose and its deployment
• Money meant to compound over generations gets burned in decade-long sprints

THE SOLUTION:

The race isn’t linear (fund startup, extract, exit, done). It’s cyclical:

Capital → Communities → Builders → Sustainable Value → Returns → Next Generation of Builders

Communities are the key to multigenerational returns:

• They produce the next generation of builders
• They compound culture and knowledge over time
• They maintain trust and context that can’t be algorithmed
• They generate sustainable value creation (not just extraction)
• They provide the deal flow and validation VCs actually need

Right now, communities are stuck in Layer 3:

• Underfunded and under-resourced
• Getting extracted from by Layer 2
• Fragmenting under trust collapse
• Their generative potential is wasted

The solution structure:

Resource communities NOW (not after hitting unicorn scale):

• Fund community infrastructure for decades, not startups for exits
• Provide tools and support for sustainable building
• Let culture and trust compound over generations
• Create federated networks that work post-algorithm

This solves multiple problems:

1. Deal flow: Communities produce builders VCs want to fund – with trust and validation built in
2. Turnip problem: Resources circulate back to Layer 3, maintaining the capacity for value creation
3. LP alignment: Actually matches the 50-year obligations of pension funds
4. Trust environment: Federated communities rebuild trust that algorithms destroyed
5. Sustainable returns: Ongoing value creation over generations, not one-time extraction

The incentive alignment:

VCs that resource communities:

• Get trusted deal flow for decades
• First look at what communities validate and build
• Lower risk (community vets ideas before capital deploys)
• Multigenerational pipeline of builders
• Actually aligned with LP mandates
• Win the infinite game (not just first fund)

VCs that only extract:

• Might return one fund successfully
• Lose access to next generation of builders
• Communities stop trusting them
• Deal flow dries up
• Turnip problem hits
• Fall behind funds that built community relationships

It’s not altruism – it’s survival strategy for multigenerational wealth building.

The unoptimized incentive is time itself – treating investment as generational wealth compounding rather than decade-long extraction cycles.