Has Venture Lost Its Soul?

The base of the Eiffel Tower is a strange place to have a panic attack. However, for 20-100 tourists a year, that is exactly what happens with “Paris Syndrome.” People afflicted with the malady suffer from a wide variety of symptoms all under the banner of mental distress. Paris’s majesty has been built up to such a degree that the real thing can’t/won’t match the baguette-filled paradise they hoped for and tourists’ brains break. 

Nerds (like me) visiting Silicon Valley for the first time experience similar psychological distress. On the outside looking in, I imagined SF as this cyberpunk epicenter. A land of hackers building technology, innovating under neon lights. Instead, I found a lot of entitled millionaires with “We Believe In Science” signs in their front yards. The only building people were interested in was the building of wealth. All of this is totally fine! Just very different then what I had thought it would be.

And if you think about it, it is kind of weird that Silicon Valley exists at all, regardless of its lack of Bladerunner aesthetic. There are a lot of other places that probably should’ve been the center of the tech universe. Boston had better universities and more government contracts. New York was and is the financial center of the world. The oft-cited catalyst of hippie culture existed in places besides Northern California. 

The question of Silicon Valley’s existence borders upon the spiritual. It is a region that has birthed nearly every major technology development of the last 40 years. If you believe, as I do, that technology must jump radically forward for the human race to survive, then learning what powered the Valley’s output is worth serious study. 

The answer to the question, unfortunately, appears to be rich assholes. 

To be more specific, the answer appears to be the variety of a-hole known as a venture capitalist.

That, at least, is the thesis of The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby. Mallaby posits that it was a combination of semi-unique social variables (Stanford, Hippie Culture, etc) AND a network of risk-happy, early-stage financiers that catalyzed the region’s meteoric rise. These two factors together created a self-reinforcing network of virtuous capital where each successive generation of funder and funded imparted capital and wisdom to the up and coming cohort of builders. 

To prove his case, he takes the reader to the very beginning of venture capital with the founding of, all the way through the Growth Equity madness of today. 

Let me put it simply: this is the best book on Venture Capital ever written. I’ve read just about all of them and Mallaby’s is the first one to get it right. 

What makes Mallaby’s treatise on the topic so exquisite isn’t the meticulous research or careful writing style. What makes the book great is it is the first to accurately capture the role of venture capitalists. Most books that try to answer this question fall into two camps. The first, typically written by industry participants, are over-aggrandized hagiographies whose goal is brazen brand building. The second, typically written by mainstream journalists, are sensationalized gotchas that over-exaggerate stories in pursuit of professional accolades. Mallaby deftly navigates between the extremes by giving accurate reporting of the people behind the industry, while simultaneously looking with a critical eye at all the industry’s flaws (which are many).

I am an unabashed fan of venture capital. The purpose of startups, of technology, is so exciting that I can’t help but get giddy about this sort of thing. I find a special joy in the industry pre-internet. Before the internet changed everything in the ‘90s, the industry was closer to the hacker land of my imagination. It was a cottage industry, full of eccentric nerds, not consumed by the purely digital, and more focused on the impact of new chips, new computers, and new science. When compared with many of the startups I have pitched to me now, all focused on selling reskinned excel sheets to have ever more esoteric markets, part of me longs for the industry of yesteryear. 

Mallaby’s book finally allowed me to grok what happened—to understand where the soul of venture had gone. 

Between a Rock and a Power Law Place

The best way to comprehend the present is to examine the past. 

Every technology employee today has to express gratitude to one bad manager—William Shockley. The Nobel Prize winner was one of the first to set up shop in the Valley, and was famously callous to his employees. Eventually, 8 of his disgruntled employees, in the summer of 1956, couldn’t take it anymore and went looking for something better. Note: Every single good thing in my life has resulted from me escaping a terrible boss so there may be a grand pattern here. Get a good boss and your life will be fine, so go get a bad boss and you’ll become a millionaire! 

Simultaneously, a young financier out of New York named Arthur Rock, was interested in deploying a new type of risk dollars, “adventure capital.” This name is much cooler than the lame name of venture capital that we use today but it was essentially the same thing. After fortune handed Rock an opportunity to meet the Traitorous 8, he convinced them to form a company of their own versus just going to work somewhere else. This new venture, Fairchild Semiconductor, had the early versions of 3 interrelated elements that would come to define the next 60 years of technology investing: