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The Power Law: Venture Capital and the Art of Disruption
From an award-winning financial historian comes the gripping, character-driven story of venture capital and the world it made
Innovations rarely come from "experts." Jeff Bezos was not a bookseller; Elon Musk was not in the auto industry. When it comes to innovation, a legendary venture capitalist told Sebastian Mallaby, the future cannot be predicted, it can only be discovered. Most attempts at discovery fail, but a few succeed at such a scale that they more than make up for everything else. That extreme ratio of success and failure is the power law that drives venture capital, Silicon Valley, the tech sector, and, by extension, the world.
Drawing on unprecedented access to the most celebrated venture capitalists of all time, award-winning financial historian Sebastian Mallaby tells the story of this strange tribe of financiers who have funded the world's most successful companies, from Google to SpaceX to Alibaba. With a riveting blend of storytelling and analysis, The Power Law makes sense of the seeming randomness of success in venture capital, an industry that relies, for good and ill, on gut instinct and personality rather than spreadsheets and data. We learn the unvarnished truth about some of the most iconic triumphs and infamous disasters in the history of tech, from the comedy of errors that was the birth of Apple to the venture funding that fostered hubris at WeWork and Uber to the industry's notorious lack of women and ethnic minorities.
Now the power law echoes around the world: it has transformed China's digital economy beyond recognition, and London is one of the top cities for venture capital investment. By taking us so deeply into the VCs' game, The Power Law helps us think about our own future through their eyes.
Innovations rarely come from "experts." Jeff Bezos was not a bookseller; Elon Musk was not in the auto industry. When it comes to innovation, a legendary venture capitalist told Sebastian Mallaby, the future cannot be predicted, it can only be discovered. Most attempts at discovery fail, but a few succeed at such a scale that they more than make up for everything else. That extreme ratio of success and failure is the power law that drives venture capital, Silicon Valley, the tech sector, and, by extension, the world.
Drawing on unprecedented access to the most celebrated venture capitalists of all time, award-winning financial historian Sebastian Mallaby tells the story of this strange tribe of financiers who have funded the world's most successful companies, from Google to SpaceX to Alibaba. With a riveting blend of storytelling and analysis, The Power Law makes sense of the seeming randomness of success in venture capital, an industry that relies, for good and ill, on gut instinct and personality rather than spreadsheets and data. We learn the unvarnished truth about some of the most iconic triumphs and infamous disasters in the history of tech, from the comedy of errors that was the birth of Apple to the venture funding that fostered hubris at WeWork and Uber to the industry's notorious lack of women and ethnic minorities.
Now the power law echoes around the world: it has transformed China's digital economy beyond recognition, and London is one of the top cities for venture capital investment. By taking us so deeply into the VCs' game, The Power Law helps us think about our own future through their eyes.
477 pages, Kindle Edition
First published January 25, 2022
1,541 people are currently reading
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About the author
Sebastian Mallaby
13 books247 followersA Washington Post columnist since 1999. Worked for The Economist from 1986 - 1999.
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January 19, 2022
Sebastian Mallaby has this extraordinary ability to identify a random topic in the world of finance and expound on it with the same verve, excitement and panache that is otherwise reserved for elaborating James Bond’s uncomfortably close shaves with a crazy bunch of Yakuza assassins. “The Power Law” – a veritable tome – is no exception to the norm. An eclectic bunch of enterprising entrepreneurs, eccentric founders and egregious financiers waft in and out of the book at a pace that would put Ben Johnson on steroids, and Usain Bolt without them, to utter disdain.
Mallaby’ s sweeping and comprehensive charting of the trajectory of the Venture Capital revolution, commencing with its humble origins in the 1950s to its all-encompassing ubiquitous role today, is an absolute joy to read. Venture Capital made its mark for the first time as a form of “liberation capital”, when eight talented PhD researchers working for Nobel Laureate and famed engineer William Shockley mutinied against the irrational working practices of their intolerable employer and decided to branch out on their own. The “Traitorous Eight” (Gordon Moore of Moore’s Law fame was one of the eight), having had enough of their boss’ high handedness which included taking lie detection tests at work, incorporated Fairchild Semiconductor with $1.4 million of ‘adventure capital’. The eight were freed from the shackles imposed by a man who was one part genius, and two parts tyrant.
Contrast this with a stern warning that venture capital fund Kleiner Perkins received from a California securities regulator In May 1976, concerning the hazardous nature of its $100,000 investment in Genentech, an early biotechnology start-up. But as Peter Thiel elucidated many years later, Kleiner Perkins had got their act completely right. They had grasped a quintessential feature of Thiel’s power law, or the Pareto principle of venture financing – a small portfolio of investments generate most of the returns. Eugene Kleiner and his firm made a whopping return of 42 times on their investment following Genentech going public.
Venture Capital since then, has come a long way, as has the mode of financing itself. If the initial phase of Venture Capital investing was based on the Venture Capital entity acquiring a significant stake in the investing company, a transformation was ushered in when the founders called all the shots, owned the decision making stocks and also had Venture Capitalists eating out of their hands. Facebook and Google being just two examples. There was also a paradigm shift from informed investing to a buccaneering splashing of money. The flamboyant Masayoshi Son of Softbank fame upended the world of Venture Capital by writing out a check of a whopping $100 million dollars in favour of Jerry Yang and Yahoo. He was the unquestioned Bull in the China shop (with headquarters in Japan, of course).
“The Power Law” is laced with extraordinary true life hits and misses as well as intended and unintended hilarity. Venrock, a venture capital fund “offloaded” Apple stocks since they had no confidence in the founder, a young and unremarkable man going by the name of Steve Jobs who hardly believed in showering and was pungent, literally. A malodorous founder literally cost an intransigent financing outfit, billions of dollars in lost opportunity. However, Anthony Montagu, the founder of a London investment company called Abingworth understood the worth of Apple. He manifested at Apple’s office armed with a toothbrush and threated to occupy the lobby in perpetuity until he was offered an opportunity to invest. Impressed by his relentlessness, Steve Wozniak, the co-founder agreed to allow Montagu to invest in his company.
In yet another extraordinary incident, after an impudent duo, Sergey Brin and Larry Page had coaxed both Sequoia Capital and Kleiner Perkins to fund their start up venture called Google, both the VC entities had a hard time convincing Page and Brin that there was an urgent need for them to recruit an external Chief Financial Officer. After much persuasion, the two young entrepreneurs agreed to talk to various heads of companies that were backed by both Kleiner Perkins and Sequoia. After performing their due diligence Brin and Page came back with an audacious proposition to John Doerr, the legendary investor at Kleiner Perkins. While they perfectly understood the need for a CEO to be appointed at Google, they found only one individual who ticked all the boxes – Steve Jobs! However since Steve Jobs was a bit tied up managing Apple, Brin and Page had to make do with the next best bet. The alternative, going by the name of Eric Schmidt turned out to be just to the liking of the pugnacious founders.
Kevin Efrusy of Accel pursued with an unrelenting vigour and maniacal passion, Mark Zuckerberg and Facebook. Inspite of being humiliated, and insulted repeatedly (Zuckerberg not only turned up for a meeting late and in pajamas and flip flops, but also delivered a presentation that read, why not to invest in Facebook), by the arrogance and petulance of youth, Efrusy dug in his heels and battened all hatches. Zuckerberg finally relented and when Facebook went public in 2021, Accel took home a cool $12 billion in profits.
However, as Mallaby illustrates in grim detail, unfettered and obsequious deference to the whims and fancies of maverick founders, has its own perils. The flashy and brazenly outspoken founder of WeWorks, Adam Neumann was an unscrupulous and unethical businessman masquerading as a self-proclaimed genius. Surrounded by sycophants and pliant financiers toadying for his attention, WeWorks was tarnished by such a degree of mismanagement that only a failed IPO brought both the company and its globe trotting founder to their knees. Similarly it took an unfortunate but inevitable act of scheming and plotting on the part of Benchmark Ventures to unseat the misogynistic founder of Uber, Travis Kalanick from a position of colossal power. Kalanick, courtesy his reckless behaviour both personally and professionally, brought Uber to the brink before the aforementioned conniving on the part of the financiers and directors of the company finally resulted in the sacking of Kalanick.
From conducting meetings in bathtubs to hunting down founders closeted in their cubbyholes, “The Power Law” is an engrossing hymn to the strength of cohesion, collaboration and caution. It is also a thorough vindication of the economic empowerment ushered in by venture capital. The book also contains, like every other book, a customary chapter on China and the origins and explosion of venture capital industry in the most populous country on the planet. Goldman Sachs‘ absolute indiscretion in failing to see the potential of Jack Ma’s company, Alibaba, in spite of repeated entreaties by one of their more astute partners, makes for some fascinating reading. Goldman’s loss was Sequoia’s gain. Under the able vision and tutelage of Mike Moritz, Sequoia China played their bets assiduously and adroitly, investing in early start up such as Meituan and Dianping, before reaping rich rewards.
Mallaby ends his book with four simple strategies for bolstering the prospects of both the Venture Capital ecosystem and the entrepreneurial spirt: encourage limited partnerships that also ensure in eliminating double taxation; encourage employee stock options that allows them to have a critical component of skin in the game; invest in scientific education and research and finally think globally by attracting international and relevant talent.
Mallaby also highlights the gender inequality that permeates the Venture Capital world. Even though firms such as Accel, Sequoia and Kleiner Perkins have demonstrated intent to bridge the gender gap, there still needs to be a lot of concerted and concentrated effort in this movement.
“The Power Law” – one of the best business books of 2022. Yes, I know it’s only January!
(“The Power Law: Venture Capital and the Making of The New Future” by Sebastian Mallaby is published by Penguin Press and will be available for sale from the 1st of February 2022)
Thank you, Net Galley for the Advance Reviewer Copy!
Mallaby’ s sweeping and comprehensive charting of the trajectory of the Venture Capital revolution, commencing with its humble origins in the 1950s to its all-encompassing ubiquitous role today, is an absolute joy to read. Venture Capital made its mark for the first time as a form of “liberation capital”, when eight talented PhD researchers working for Nobel Laureate and famed engineer William Shockley mutinied against the irrational working practices of their intolerable employer and decided to branch out on their own. The “Traitorous Eight” (Gordon Moore of Moore’s Law fame was one of the eight), having had enough of their boss’ high handedness which included taking lie detection tests at work, incorporated Fairchild Semiconductor with $1.4 million of ‘adventure capital’. The eight were freed from the shackles imposed by a man who was one part genius, and two parts tyrant.
Contrast this with a stern warning that venture capital fund Kleiner Perkins received from a California securities regulator In May 1976, concerning the hazardous nature of its $100,000 investment in Genentech, an early biotechnology start-up. But as Peter Thiel elucidated many years later, Kleiner Perkins had got their act completely right. They had grasped a quintessential feature of Thiel’s power law, or the Pareto principle of venture financing – a small portfolio of investments generate most of the returns. Eugene Kleiner and his firm made a whopping return of 42 times on their investment following Genentech going public.
Venture Capital since then, has come a long way, as has the mode of financing itself. If the initial phase of Venture Capital investing was based on the Venture Capital entity acquiring a significant stake in the investing company, a transformation was ushered in when the founders called all the shots, owned the decision making stocks and also had Venture Capitalists eating out of their hands. Facebook and Google being just two examples. There was also a paradigm shift from informed investing to a buccaneering splashing of money. The flamboyant Masayoshi Son of Softbank fame upended the world of Venture Capital by writing out a check of a whopping $100 million dollars in favour of Jerry Yang and Yahoo. He was the unquestioned Bull in the China shop (with headquarters in Japan, of course).
“The Power Law” is laced with extraordinary true life hits and misses as well as intended and unintended hilarity. Venrock, a venture capital fund “offloaded” Apple stocks since they had no confidence in the founder, a young and unremarkable man going by the name of Steve Jobs who hardly believed in showering and was pungent, literally. A malodorous founder literally cost an intransigent financing outfit, billions of dollars in lost opportunity. However, Anthony Montagu, the founder of a London investment company called Abingworth understood the worth of Apple. He manifested at Apple’s office armed with a toothbrush and threated to occupy the lobby in perpetuity until he was offered an opportunity to invest. Impressed by his relentlessness, Steve Wozniak, the co-founder agreed to allow Montagu to invest in his company.
In yet another extraordinary incident, after an impudent duo, Sergey Brin and Larry Page had coaxed both Sequoia Capital and Kleiner Perkins to fund their start up venture called Google, both the VC entities had a hard time convincing Page and Brin that there was an urgent need for them to recruit an external Chief Financial Officer. After much persuasion, the two young entrepreneurs agreed to talk to various heads of companies that were backed by both Kleiner Perkins and Sequoia. After performing their due diligence Brin and Page came back with an audacious proposition to John Doerr, the legendary investor at Kleiner Perkins. While they perfectly understood the need for a CEO to be appointed at Google, they found only one individual who ticked all the boxes – Steve Jobs! However since Steve Jobs was a bit tied up managing Apple, Brin and Page had to make do with the next best bet. The alternative, going by the name of Eric Schmidt turned out to be just to the liking of the pugnacious founders.
Kevin Efrusy of Accel pursued with an unrelenting vigour and maniacal passion, Mark Zuckerberg and Facebook. Inspite of being humiliated, and insulted repeatedly (Zuckerberg not only turned up for a meeting late and in pajamas and flip flops, but also delivered a presentation that read, why not to invest in Facebook), by the arrogance and petulance of youth, Efrusy dug in his heels and battened all hatches. Zuckerberg finally relented and when Facebook went public in 2021, Accel took home a cool $12 billion in profits.
However, as Mallaby illustrates in grim detail, unfettered and obsequious deference to the whims and fancies of maverick founders, has its own perils. The flashy and brazenly outspoken founder of WeWorks, Adam Neumann was an unscrupulous and unethical businessman masquerading as a self-proclaimed genius. Surrounded by sycophants and pliant financiers toadying for his attention, WeWorks was tarnished by such a degree of mismanagement that only a failed IPO brought both the company and its globe trotting founder to their knees. Similarly it took an unfortunate but inevitable act of scheming and plotting on the part of Benchmark Ventures to unseat the misogynistic founder of Uber, Travis Kalanick from a position of colossal power. Kalanick, courtesy his reckless behaviour both personally and professionally, brought Uber to the brink before the aforementioned conniving on the part of the financiers and directors of the company finally resulted in the sacking of Kalanick.
From conducting meetings in bathtubs to hunting down founders closeted in their cubbyholes, “The Power Law” is an engrossing hymn to the strength of cohesion, collaboration and caution. It is also a thorough vindication of the economic empowerment ushered in by venture capital. The book also contains, like every other book, a customary chapter on China and the origins and explosion of venture capital industry in the most populous country on the planet. Goldman Sachs‘ absolute indiscretion in failing to see the potential of Jack Ma’s company, Alibaba, in spite of repeated entreaties by one of their more astute partners, makes for some fascinating reading. Goldman’s loss was Sequoia’s gain. Under the able vision and tutelage of Mike Moritz, Sequoia China played their bets assiduously and adroitly, investing in early start up such as Meituan and Dianping, before reaping rich rewards.
Mallaby ends his book with four simple strategies for bolstering the prospects of both the Venture Capital ecosystem and the entrepreneurial spirt: encourage limited partnerships that also ensure in eliminating double taxation; encourage employee stock options that allows them to have a critical component of skin in the game; invest in scientific education and research and finally think globally by attracting international and relevant talent.
Mallaby also highlights the gender inequality that permeates the Venture Capital world. Even though firms such as Accel, Sequoia and Kleiner Perkins have demonstrated intent to bridge the gender gap, there still needs to be a lot of concerted and concentrated effort in this movement.
“The Power Law” – one of the best business books of 2022. Yes, I know it’s only January!
(“The Power Law: Venture Capital and the Making of The New Future” by Sebastian Mallaby is published by Penguin Press and will be available for sale from the 1st of February 2022)
Thank you, Net Galley for the Advance Reviewer Copy!
August 8, 2023
Pleasantly surprised to find this was excellent. It portrays the origins and evolution of a social machine - venture capital - that is very good at causing certain types of new technology or product to come into the world.
The book is focused on Silicon Valley, with a (mostly still Valley-centric) extended digression on China. A few notes on things I learned:
+ VC has repeatedly radically changed the way it works; the picture is of a reasonably rapidly learning ecosystem
+ That learning often comes after major mistakes or missed opportunities
+ VC is thus an ecosystem whose structure is contingent on that history of learning, often through individuals or single firms
+ While you can (relatively) easily duplicate the capital elsewhere, it's much harder to duplicate the learning
+ I had not understood just how remarkable Sequoia is
Little commented on in the book is the role of culture and networks among founders and technologists. There's a lot of unique cultural structures in SV's extended network, far beyond just VC and startups. I'd love to see that discussed as deeply in a book!
The book is focused on Silicon Valley, with a (mostly still Valley-centric) extended digression on China. A few notes on things I learned:
+ VC has repeatedly radically changed the way it works; the picture is of a reasonably rapidly learning ecosystem
+ That learning often comes after major mistakes or missed opportunities
+ VC is thus an ecosystem whose structure is contingent on that history of learning, often through individuals or single firms
+ While you can (relatively) easily duplicate the capital elsewhere, it's much harder to duplicate the learning
+ I had not understood just how remarkable Sequoia is
Little commented on in the book is the role of culture and networks among founders and technologists. There's a lot of unique cultural structures in SV's extended network, far beyond just VC and startups. I'd love to see that discussed as deeply in a book!
March 12, 2022
The Power Law is a fascinating, compelling, detailed but never boring, thoroughly reported and meticulously presented history of the venture capital industry from its inception to the present day, focusing on the people and firms, how they structured their finance and worked with founders and entrepreneurs, the successes (mostly) and a few failures, and how it has all evolved over time. It also is an effective synthesis and evaluation of the industry, both in understanding the causes and consequences of its success and evaluating real shortcomings and rebutting spurious ones.
Sebastian Mallaby is mostly positive about the industry, arguing that it is not just a set of lucky accidents or survivorship bias but instead the successes reflect a rich culture of personal networks as well as critical roles of venture capitalists in coaching, guiding and redirecting brilliant entrepreneurs and founders who can also be anything from inattentive to business concerns to reckless about disregarding them--all of which creates something much larger than the sum of its parts.
Virtually everything about the industry up through about twenty years ago was new to me. The fact that initially one might have bet on Boston with its science-related industry but a combination of accidents (the form of the venture-type companies there) and a corporate culture that was larger and more about secrets meant that did not happen and instead it emerged in Silicon Valley. How venture started with the view that founders needed to be replaced almost immediately with professional CEOs but over time the initial VC stakes got smaller and smaller, the philosophy shifted towards giving brilliant founders room to make high variance bets, and founders themselves (like Peter Thiel) started to set up their own VC firms.
The last twenty years was more familiar to me from reading the news and talking to people but even there I learned a lot about the rise of different stages of finance, how it enabled companies to stay private longer, the rise of the unicorns, and how the spectacular failures of Theranos and WeWork but even more the near implosion of Uber led to a pendulum shift back from founder control. Also the story of the failures of VCs and clean energy were interesting, as they foundered on the heavy capital requirements up front, the inability to get a big margin on their products, and changing and uncertain government policy.
The book left me wanting more on the international aspects of venture. The book's scope is largely the Silicon Valley VCs. It has a rich account of the initial phase of their movement into China and funding some of the initial Chinese super successes (much of the focus is in Alibaba), but it does not have very much on the Chinese VC industry let alone the successful Israeli one or the many failures to set up a rich network of VCs elsewhere in the world. (Some of this is in the conclusion but less in the form of narrative and history like the rest of the book and instead examples to make policy points.)
If pressed to identify a real shortcoming I would say that the book documents twenty successes for every failure and, of course, the industry's track record is almost the exact opposite. Moreover it has very few "normal" failures, the Go Network being the main one (and then Theranos and WeWork are the more spectacular one). But failures happen at lots of different stages, most of them failing to even take off into the high valuations before they crash. What are these like? Presumably the VCs in many cases played an active mentoring and coaching role and they still failed.
Mallaby defends the industry as genuinely contributing to the successes that it has generated and also against antitrust and other concerns (arguing, correctly, that those concerns should be addressed when companies misbehave not when they are initially growing and being financed). He is very critical of the lack of gender and racial/ethnic diversity in the industry (much less than in many other areas of finance) and calls out both the behavior and consequences of this.
Finally Mallaby has a number of policy recommendations both for the U.S.-China relations and for countries that want to set up a VC industry that are broadly thoughtful and sensible (although I would want to apply some critical scrutiny to his enthusiasm for tax breaks).
I would also recommend Mallaby's hedge fund history More Money Than God: Hedge Funds and the Making of a New Elite which shares all of the same strengths as this book: thorough reporting, detailed history, but still a spellbinding story with some broader lessons. (I also loved his biography of former World Bank President Jim Wolfensohn The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations and will one day have the courage to tackle his biography of Alan Greenspan The Man Who Knew: The Life and Times of Alan Greenspan).
Sebastian Mallaby is mostly positive about the industry, arguing that it is not just a set of lucky accidents or survivorship bias but instead the successes reflect a rich culture of personal networks as well as critical roles of venture capitalists in coaching, guiding and redirecting brilliant entrepreneurs and founders who can also be anything from inattentive to business concerns to reckless about disregarding them--all of which creates something much larger than the sum of its parts.
Virtually everything about the industry up through about twenty years ago was new to me. The fact that initially one might have bet on Boston with its science-related industry but a combination of accidents (the form of the venture-type companies there) and a corporate culture that was larger and more about secrets meant that did not happen and instead it emerged in Silicon Valley. How venture started with the view that founders needed to be replaced almost immediately with professional CEOs but over time the initial VC stakes got smaller and smaller, the philosophy shifted towards giving brilliant founders room to make high variance bets, and founders themselves (like Peter Thiel) started to set up their own VC firms.
The last twenty years was more familiar to me from reading the news and talking to people but even there I learned a lot about the rise of different stages of finance, how it enabled companies to stay private longer, the rise of the unicorns, and how the spectacular failures of Theranos and WeWork but even more the near implosion of Uber led to a pendulum shift back from founder control. Also the story of the failures of VCs and clean energy were interesting, as they foundered on the heavy capital requirements up front, the inability to get a big margin on their products, and changing and uncertain government policy.
The book left me wanting more on the international aspects of venture. The book's scope is largely the Silicon Valley VCs. It has a rich account of the initial phase of their movement into China and funding some of the initial Chinese super successes (much of the focus is in Alibaba), but it does not have very much on the Chinese VC industry let alone the successful Israeli one or the many failures to set up a rich network of VCs elsewhere in the world. (Some of this is in the conclusion but less in the form of narrative and history like the rest of the book and instead examples to make policy points.)
If pressed to identify a real shortcoming I would say that the book documents twenty successes for every failure and, of course, the industry's track record is almost the exact opposite. Moreover it has very few "normal" failures, the Go Network being the main one (and then Theranos and WeWork are the more spectacular one). But failures happen at lots of different stages, most of them failing to even take off into the high valuations before they crash. What are these like? Presumably the VCs in many cases played an active mentoring and coaching role and they still failed.
Mallaby defends the industry as genuinely contributing to the successes that it has generated and also against antitrust and other concerns (arguing, correctly, that those concerns should be addressed when companies misbehave not when they are initially growing and being financed). He is very critical of the lack of gender and racial/ethnic diversity in the industry (much less than in many other areas of finance) and calls out both the behavior and consequences of this.
Finally Mallaby has a number of policy recommendations both for the U.S.-China relations and for countries that want to set up a VC industry that are broadly thoughtful and sensible (although I would want to apply some critical scrutiny to his enthusiasm for tax breaks).
I would also recommend Mallaby's hedge fund history More Money Than God: Hedge Funds and the Making of a New Elite which shares all of the same strengths as this book: thorough reporting, detailed history, but still a spellbinding story with some broader lessons. (I also loved his biography of former World Bank President Jim Wolfensohn The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations and will one day have the courage to tackle his biography of Alan Greenspan The Man Who Knew: The Life and Times of Alan Greenspan).
September 30, 2024
How do you motivate people? What is the best way to discover new technologies or rather: how do you find the founders of tomorrows companies? This book is about culture and how a culture of intrepid entrepeneurship was created. There are many lessons to be learned in this book as it provides a history of venture capital which is in essence the history of sillicon valley. Why the Valley? What made that part of the US unique? Was it the hippie culture as is so often purported? Not really according to Mallaby. Venture capital exists somewhere between a company and an entrepreneur; it has the advantages of both but is more flexible and works much more like a network which provides can provide stability to unexperienced founders. This is the real reason why Sillicon valley has succeeded in producing the biggest tech companies in the world.
"The special virtue of the valle's small companies, Saxanian argues, was that boundaries between them were porous, The founder of a disk-drive company would be talking to PC makers, looking for ways to slot his device into their production chains: information on technical standards and design was constantly traded." I kept thinking of Ancient Greece when reading about how this tech cluster worked as Ancient Greece too was a giant cluster of small city-states (roughly 1100) who alternated between competition and cooperation (or to use the language of today: coopetition)
In the tech cluster VCs would provice advice and guide the founders into a more stable and profitable business. A VC would have maybe 10 companies in their portfolio but only expect 1 or 2 to be profitable, but those companies would be EXTREMELY profitable. As the years evolved the business also changed and different schools were established. There were planners and improvisers; the results would dictate whose model would be most successful.
Peter Thiel (et al) focused on providing founders with as much freedom as possible. If a technology was truly revolutionary, then how could leaders of today understand it? A founder would need to be a true visionary, capable of going against all norms to create the world tomorrow. This model was built on radical decentralization where the founder is given as much incentive as possible. On the opposite side were companies like Sequoia sought to provide more hands on guidance. I found it very enjoyable to read about the nitty-gritty of business deals and how much creativity is really involved.
Only downside to this book was its length. Mallaby could've cut it down a bit as the biography of every VC just wasn't as interesting as how VC works in practice.
"The special virtue of the valle's small companies, Saxanian argues, was that boundaries between them were porous, The founder of a disk-drive company would be talking to PC makers, looking for ways to slot his device into their production chains: information on technical standards and design was constantly traded." I kept thinking of Ancient Greece when reading about how this tech cluster worked as Ancient Greece too was a giant cluster of small city-states (roughly 1100) who alternated between competition and cooperation (or to use the language of today: coopetition)
In the tech cluster VCs would provice advice and guide the founders into a more stable and profitable business. A VC would have maybe 10 companies in their portfolio but only expect 1 or 2 to be profitable, but those companies would be EXTREMELY profitable. As the years evolved the business also changed and different schools were established. There were planners and improvisers; the results would dictate whose model would be most successful.
Peter Thiel (et al) focused on providing founders with as much freedom as possible. If a technology was truly revolutionary, then how could leaders of today understand it? A founder would need to be a true visionary, capable of going against all norms to create the world tomorrow. This model was built on radical decentralization where the founder is given as much incentive as possible. On the opposite side were companies like Sequoia sought to provide more hands on guidance. I found it very enjoyable to read about the nitty-gritty of business deals and how much creativity is really involved.
Only downside to this book was its length. Mallaby could've cut it down a bit as the biography of every VC just wasn't as interesting as how VC works in practice.
April 5, 2022
This was pretty good. It's a selection of true stories about venture capital in Silicon Valley, each chosen to highlight some lesson learned or sea change in the business. It could have been a boring series of anecdotes and name drops, but Mallaby makes sure we know that each story has a point and he connects it to the larger meaning.
The main idea in this book is that venture capital is a potent force for good, that it has virtue. Individual investors or funds may make mistakes, come and go, but the venture capital network learns and adapts, corrects errors, and liberates entrepreneurs to work on their ideas. Venture capital has done more to "emancipate the worker" than any union or program of brotherhood and shared sacrifice.
I find that there may be a connection here with the notion of genotype networks from The Origins of Evolutionary Innovations: A Theory of Transformative Change in Living Systems. A genotype network enables evolvability by discovering new phenotypes on the network that enable innovations or new metabolic pathways. This is analogous to how the venture capital network learns, adapting to market conditions and creating new markets.
The parts about China were very interesting to me. I had no idea that the whole Chinese tech miracle was fueled by venture capital from Silicon Valley. The VC network did a beautiful hack on top of loopholes in Chinese law to make it possible to get Chinese entrepreneurs funded.
There are a couple of things in this book that don't make a lot of sense. One example is how Mallaby talks about Y Combinator as if it were the world's first startup incubator. Notably, the first incubator in Silicon Valley was probably Catalyst Technologies which was started by Nolan Bushnell from Atari. Bushnell is a prominent figure in the early part of this book but there's no mention at all of Catalyst.
In the epilogue, Mallaby puts forth good evidence for how VC has succeeded where government programs or public funding has largely failed, and gives compelling reasons for why this would be the case. He defends VC, as a system, from its most common criticisms. One such criticism though is that VC doesn't address certain social issues, to which Mallaby responds that they should be addressed through taxes and public programs. He seems oblivious to the fact that his same arguments apply, which he put forth just a few paragraphs earlier, about the reasons why government programs fail and public funding ends up getting largely wasted.
A minor nitpick is that I find Mallaby's prose style somewhat grating. He uses alliteration ("they had to be mindful of managing the founders' many mood swings") altogether too much, and the whole work is littered with the sort of overuse of the thesaurus that's so common (and annoying) in American academic writing. Please just say what you mean, plainly and simply.
Overall a fun read, and an important work. Recommended.
The main idea in this book is that venture capital is a potent force for good, that it has virtue. Individual investors or funds may make mistakes, come and go, but the venture capital network learns and adapts, corrects errors, and liberates entrepreneurs to work on their ideas. Venture capital has done more to "emancipate the worker" than any union or program of brotherhood and shared sacrifice.
I find that there may be a connection here with the notion of genotype networks from The Origins of Evolutionary Innovations: A Theory of Transformative Change in Living Systems. A genotype network enables evolvability by discovering new phenotypes on the network that enable innovations or new metabolic pathways. This is analogous to how the venture capital network learns, adapting to market conditions and creating new markets.
The parts about China were very interesting to me. I had no idea that the whole Chinese tech miracle was fueled by venture capital from Silicon Valley. The VC network did a beautiful hack on top of loopholes in Chinese law to make it possible to get Chinese entrepreneurs funded.
There are a couple of things in this book that don't make a lot of sense. One example is how Mallaby talks about Y Combinator as if it were the world's first startup incubator. Notably, the first incubator in Silicon Valley was probably Catalyst Technologies which was started by Nolan Bushnell from Atari. Bushnell is a prominent figure in the early part of this book but there's no mention at all of Catalyst.
In the epilogue, Mallaby puts forth good evidence for how VC has succeeded where government programs or public funding has largely failed, and gives compelling reasons for why this would be the case. He defends VC, as a system, from its most common criticisms. One such criticism though is that VC doesn't address certain social issues, to which Mallaby responds that they should be addressed through taxes and public programs. He seems oblivious to the fact that his same arguments apply, which he put forth just a few paragraphs earlier, about the reasons why government programs fail and public funding ends up getting largely wasted.
A minor nitpick is that I find Mallaby's prose style somewhat grating. He uses alliteration ("they had to be mindful of managing the founders' many mood swings") altogether too much, and the whole work is littered with the sort of overuse of the thesaurus that's so common (and annoying) in American academic writing. Please just say what you mean, plainly and simply.
Overall a fun read, and an important work. Recommended.
June 19, 2022
Even if you know all the landmark venture stories, and maybe even had a chance to meet some of the characters both on VC and entrepreneurs side, this book still somehow helps to build the timeline and structure to connect it all. From the early days of Arthur Rock & Fairchild, to the model innovations of YC and Entrepreneur First, to the VC model breaking from famous West Coast partnerships of Kleiner & Sequoia & Benchmark & Founders Fund & A16Z to the global method of operations it is today.
June 18, 2023
Historic retelling was sometimes exciting, sometimes dull. The high level evaluations of the industry were balanced and transparent. Mallaby really likes Sequoia. I took some rough notes.
1961-1968- Davis & Rock, first limited partnership.
1976 - sequoia, with Valentine, buys into Atari. First example of stage-based investing. Both activist investors, so they got involved with company.
Late 70s/early 80s - VC becomes a real network in the valley, weak ties. Quick investments, less due dilligence. Why SV? - no NCE, stanford open to collabs, but mostly the activism of investors. VCs also navigated which protocols became standard for PC.
Then in 80s, we get Accel: expert investors. Can identify follow up deals. Anticipate industry direction. "Prepared mind".
Cisco was invested in the original founders were ousted for other execs.
In early 80s UUNET spent some time bouncing around but finally got investment by Accel. Conclusion: individual VCs fucked up but system as a whole worked.
1995, Moritz part of Sequoia, helps Yahoo mature. Understands advertising business model. Son from SoftBank invests unprecedented 100m.
Pre-ipo investments become bigger called growth venture investmens.
Moritz represents new guard that is a baby boomer instead of depression, more optimistic, holds on longer before cashing in.
Smaller VC firms see their early stake diminish as companies take huge sums from growth investments.
1999: vc boom. But as VCs work together it is spoiling the party to call out the boom. So nobody calls the bubble.
Google raises from angels, and gives minority share to VC. Then at IPO, two-class shares, in which second class (stock market investors) have 1 vote, vs 10 of founders. Founders maintain control. Start of founder cult phenomena.
Startups move to only software, requiring less capital, reducing power of VCs, who are slow, cautious and overcapitalized. Avg vc share decreases.
Late 90s. VC in China, via Sachs for Alibaba. Son buys 20m on a whim, returns 58B 15 years later, biggest VC win. Because of china law all companies had to be incorporated in Cayman islands.
2005 Capital Today launches in china and invests aggressively into JD.com, with employee equity plan similar to Intel's.
Y Combinator w/ Paul Graham, anti-vc sentiment, founder cult. Founders Fund (Thiel) similar sentiment.
Accel gets investment at FB, although parker is antivc. Couple years later the oust him.
Perkins-Kleiner loses their ground, which is striking because reputation gives an edge in VC (so-called path dependenc). But bad cleantech strategy fucks it up.
Milner invests 100m in FB, such that they can afford to delay their IPO. Huge payoff for founders, plus more control.
Early 2000s, schleiffer, with blackstone experience, analyzes incremental margins of companies. Joins Tiger Global, invest into digital economy in china. No one else does.
2009, a16z. Founder centric, but aims at coaching them. Also hired lots of support staff for sysadmin, recruitment. mostly Horowitz and andreessen savy at picking investments tho.and timing
Sequoia becomes top firm again early 2000s and stays there. Very disciplined. Very team focused, nurturing new talent. Goetz brings prepared mind from Accel, they catch mobile internet wave and "World of the developer" wave.
Apply behavior psychology insights to prevent premature profit taking out of risk aversion.
Scout investing: angel investing by current founders who's wealth is still in paper, but are most in touch with current tech.
Sequoia early-bird system. Checked app download rankings in all countries to get leads on companies before they took off in the us.
Growth investing takes off. Unicorns overvalued. Three problems
- Lots of new players (PE, Hedgefunds) join, they want huge investments to move their portfolio needle.
- They want stock with liquidation preference, st they pay a premium so companies get overvalued.
- founder hubris.
Gurley from Benchmark want to oust Kavanick.
- threaten with publicly challenging, or resign in dignation. Kalanick does the latter.
- convince Masayoshi Son (vision fund) to invest in uber some more on new (founder unfriendly) terms.
- sue kalanick over google trade secret lawsuit, to get more board seats.
Once second strategy succeeded, lawsuit was dropped
Generally, a lot of growth investing came from non-trad players (mutual fund, hedge funds, saudis). IPO forced some discipline. Uber worked, wework flopped.
Some arguments against vc
- "lucky"
Societally
- blitzscaling can be bad, irresponsible, or undermine incumbents and societal value
- its a clique: white and elite colleges
In favor
- vc funded companies create value basically
- especially suited to intangible assets.
VC Internationally
- israel succes story: used govt fund to fill on limited partner funds. Highest vc to gdp ratio worldwide.
- EU failure: subsidies went to funds that were not LP, so less motivated and less skilled, and they drowned out the professionals. Result: up until 2007, avg annual return was -4%. (I looked it up and it's been 13% since, so not that bad).
Four steps for govt to improve.
Encourage LPs, Encourage stock options, invest in science ed, think globally.
1961-1968- Davis & Rock, first limited partnership.
1976 - sequoia, with Valentine, buys into Atari. First example of stage-based investing. Both activist investors, so they got involved with company.
Late 70s/early 80s - VC becomes a real network in the valley, weak ties. Quick investments, less due dilligence. Why SV? - no NCE, stanford open to collabs, but mostly the activism of investors. VCs also navigated which protocols became standard for PC.
Then in 80s, we get Accel: expert investors. Can identify follow up deals. Anticipate industry direction. "Prepared mind".
Cisco was invested in the original founders were ousted for other execs.
In early 80s UUNET spent some time bouncing around but finally got investment by Accel. Conclusion: individual VCs fucked up but system as a whole worked.
1995, Moritz part of Sequoia, helps Yahoo mature. Understands advertising business model. Son from SoftBank invests unprecedented 100m.
Pre-ipo investments become bigger called growth venture investmens.
Moritz represents new guard that is a baby boomer instead of depression, more optimistic, holds on longer before cashing in.
Smaller VC firms see their early stake diminish as companies take huge sums from growth investments.
1999: vc boom. But as VCs work together it is spoiling the party to call out the boom. So nobody calls the bubble.
Google raises from angels, and gives minority share to VC. Then at IPO, two-class shares, in which second class (stock market investors) have 1 vote, vs 10 of founders. Founders maintain control. Start of founder cult phenomena.
Startups move to only software, requiring less capital, reducing power of VCs, who are slow, cautious and overcapitalized. Avg vc share decreases.
Late 90s. VC in China, via Sachs for Alibaba. Son buys 20m on a whim, returns 58B 15 years later, biggest VC win. Because of china law all companies had to be incorporated in Cayman islands.
2005 Capital Today launches in china and invests aggressively into JD.com, with employee equity plan similar to Intel's.
Y Combinator w/ Paul Graham, anti-vc sentiment, founder cult. Founders Fund (Thiel) similar sentiment.
Accel gets investment at FB, although parker is antivc. Couple years later the oust him.
Perkins-Kleiner loses their ground, which is striking because reputation gives an edge in VC (so-called path dependenc). But bad cleantech strategy fucks it up.
Milner invests 100m in FB, such that they can afford to delay their IPO. Huge payoff for founders, plus more control.
Early 2000s, schleiffer, with blackstone experience, analyzes incremental margins of companies. Joins Tiger Global, invest into digital economy in china. No one else does.
2009, a16z. Founder centric, but aims at coaching them. Also hired lots of support staff for sysadmin, recruitment. mostly Horowitz and andreessen savy at picking investments tho.and timing
Sequoia becomes top firm again early 2000s and stays there. Very disciplined. Very team focused, nurturing new talent. Goetz brings prepared mind from Accel, they catch mobile internet wave and "World of the developer" wave.
Apply behavior psychology insights to prevent premature profit taking out of risk aversion.
Scout investing: angel investing by current founders who's wealth is still in paper, but are most in touch with current tech.
Sequoia early-bird system. Checked app download rankings in all countries to get leads on companies before they took off in the us.
Growth investing takes off. Unicorns overvalued. Three problems
- Lots of new players (PE, Hedgefunds) join, they want huge investments to move their portfolio needle.
- They want stock with liquidation preference, st they pay a premium so companies get overvalued.
- founder hubris.
Gurley from Benchmark want to oust Kavanick.
- threaten with publicly challenging, or resign in dignation. Kalanick does the latter.
- convince Masayoshi Son (vision fund) to invest in uber some more on new (founder unfriendly) terms.
- sue kalanick over google trade secret lawsuit, to get more board seats.
Once second strategy succeeded, lawsuit was dropped
Generally, a lot of growth investing came from non-trad players (mutual fund, hedge funds, saudis). IPO forced some discipline. Uber worked, wework flopped.
Some arguments against vc
- "lucky"
Societally
- blitzscaling can be bad, irresponsible, or undermine incumbents and societal value
- its a clique: white and elite colleges
In favor
- vc funded companies create value basically
- especially suited to intangible assets.
VC Internationally
- israel succes story: used govt fund to fill on limited partner funds. Highest vc to gdp ratio worldwide.
- EU failure: subsidies went to funds that were not LP, so less motivated and less skilled, and they drowned out the professionals. Result: up until 2007, avg annual return was -4%. (I looked it up and it's been 13% since, so not that bad).
Four steps for govt to improve.
Encourage LPs, Encourage stock options, invest in science ed, think globally.
February 3, 2025
This book is an expansive dive into the origins of venture capital, tracing its evolution from an obscure concept to a driving force behind the technology that shapes our world today. It covers the key players, the risks, the paradigm shifts, and the network effects that transformed Silicon Valley into the global epicenter of innovation.
The East vs. West Coast Divide
In the 1950s and early 1960s, venture capital didn’t exist as we know it. The East Coast, dominated by financiers, was where early tech investments happened—mostly at MIT, Harvard, and Yale. Investors there were risk-averse, demanding near-total control and outrageous terms in exchange for funding. Their philosophy: If it’s not a sure thing, it’s not worth investing in.
Meanwhile, the West Coast saw opportunity in taking big risks on unproven ideas. Here, the foundational belief emerged: market risk is inversely proportional to technical risk. Solve a deep technical problem, and competition becomes irrelevant. This is where the book’s title, The Power Law, comes into play—mirroring Pareto’s 80/20 principle, where a small percentage of investments drive the majority of returns. Investors realized they didn’t need to win often; they just needed to win big.
The Silicon Valley Multiplier Effect
One of the most transformative forces in Silicon Valley’s rise was its network effects. Founders could quit their jobs one day and have funding the next. Ideas traveled fast, talent circulated freely, and capital found its way to the most ambitious projects. This density of resources, connections, and risk-taking made the Valley a breeding ground for technological revolutions.
Yet, even as West Coast investors were more founder-friendly than their East Coast counterparts, many still meddled too much. Some guidance was useful—like keeping Atari’s CEO from running meetings from his bathtub—but other interventions stifled innovation. This led to a growing tension between investors and founders.
The Shift in Power: From VCs to Founders
Paul Graham’s manifesto called out venture capitalists for steering companies toward short-term gains at the expense of their original vision. Peter Thiel reinforced this idea, arguing that founders succeed because they are unconventional—trying to mold them into something else was counterproductive. This shifted power dynamics, with modern founders increasingly viewing VCs as a necessary evil rather than trusted partners.
One of the book’s most striking insights is that even VCs acknowledge they won’t hire industry veterans to lead disruptive companies. Traditionalists—whether bankers, lawyers, or corporate executives—rarely challenge the status quo. The most transformative founders are outsiders, the ones constantly asking, Why are we doing it this way?
Silicon Valley’s Unique Relationship with Failure
Unlike most of the world, Silicon Valley embraces failure as an expected cost of ambition. Investors know most startups will fail—but the lessons from those failures create better entrepreneurs. This mindset contrasts with broader society, where fear of failure discourages risk-taking, and people mock those who try and fall short.
This connects to a broader truth about success: it requires both bold conviction and the humility to adapt. The most successful figures in history walk a thin line between revolutionary and delusional. You need confidence to push forward despite overwhelming odds, yet enough self-awareness to recognize when you’re wrong.
But success itself is a paradox. It can be as destructive as failure. The more you achieve, the easier it is to believe you’re infallible. You start mistaking past success for inevitable future wins, surrounding yourself with yes-men, making reckless bets, and losing touch with reality. This pattern is visible in nearly every meteoric rise—and fall—of once-great visionaries.
Final Thoughts
This book brilliantly captures not just the history of venture capital, but the mindset, risks, and contradictions that define Silicon Valley. If you read between the lines, you’ll see recurring patterns of ambition, disruption, and hubris play out. A definite 5-star read—highly recommended.
The East vs. West Coast Divide
In the 1950s and early 1960s, venture capital didn’t exist as we know it. The East Coast, dominated by financiers, was where early tech investments happened—mostly at MIT, Harvard, and Yale. Investors there were risk-averse, demanding near-total control and outrageous terms in exchange for funding. Their philosophy: If it’s not a sure thing, it’s not worth investing in.
Meanwhile, the West Coast saw opportunity in taking big risks on unproven ideas. Here, the foundational belief emerged: market risk is inversely proportional to technical risk. Solve a deep technical problem, and competition becomes irrelevant. This is where the book’s title, The Power Law, comes into play—mirroring Pareto’s 80/20 principle, where a small percentage of investments drive the majority of returns. Investors realized they didn’t need to win often; they just needed to win big.
The Silicon Valley Multiplier Effect
One of the most transformative forces in Silicon Valley’s rise was its network effects. Founders could quit their jobs one day and have funding the next. Ideas traveled fast, talent circulated freely, and capital found its way to the most ambitious projects. This density of resources, connections, and risk-taking made the Valley a breeding ground for technological revolutions.
Yet, even as West Coast investors were more founder-friendly than their East Coast counterparts, many still meddled too much. Some guidance was useful—like keeping Atari’s CEO from running meetings from his bathtub—but other interventions stifled innovation. This led to a growing tension between investors and founders.
The Shift in Power: From VCs to Founders
Paul Graham’s manifesto called out venture capitalists for steering companies toward short-term gains at the expense of their original vision. Peter Thiel reinforced this idea, arguing that founders succeed because they are unconventional—trying to mold them into something else was counterproductive. This shifted power dynamics, with modern founders increasingly viewing VCs as a necessary evil rather than trusted partners.
One of the book’s most striking insights is that even VCs acknowledge they won’t hire industry veterans to lead disruptive companies. Traditionalists—whether bankers, lawyers, or corporate executives—rarely challenge the status quo. The most transformative founders are outsiders, the ones constantly asking, Why are we doing it this way?
Silicon Valley’s Unique Relationship with Failure
Unlike most of the world, Silicon Valley embraces failure as an expected cost of ambition. Investors know most startups will fail—but the lessons from those failures create better entrepreneurs. This mindset contrasts with broader society, where fear of failure discourages risk-taking, and people mock those who try and fall short.
This connects to a broader truth about success: it requires both bold conviction and the humility to adapt. The most successful figures in history walk a thin line between revolutionary and delusional. You need confidence to push forward despite overwhelming odds, yet enough self-awareness to recognize when you’re wrong.
But success itself is a paradox. It can be as destructive as failure. The more you achieve, the easier it is to believe you’re infallible. You start mistaking past success for inevitable future wins, surrounding yourself with yes-men, making reckless bets, and losing touch with reality. This pattern is visible in nearly every meteoric rise—and fall—of once-great visionaries.
Final Thoughts
This book brilliantly captures not just the history of venture capital, but the mindset, risks, and contradictions that define Silicon Valley. If you read between the lines, you’ll see recurring patterns of ambition, disruption, and hubris play out. A definite 5-star read—highly recommended.
September 4, 2022
We can imagine the top figures in high tech [...] milling in a large casino. Over at this table, a game is starting called multimedia. Over at that one, a game called Web services. In the corner is electronic banking. There are many such tables. You sit at one. How much to play? you ask. Three billion, the croupier replies. Who’ll be playing? We won’t know until they show up. What are the rules? Those’ll emerge as the game unfolds. What are my odds of winning? We can’t say. Do you still want to play?
High finance at this level is not a game for the timid.
-Increasing Returns and the New World of Business, W. Brian Arthur, 1996
A narrative history of venture capital in Silicon Valley, starting from the 1960s and continuing to a few months before publication. Mallaby praises the venture capital firms, and what they have the potential to produce, but he does not make saints of them. He does not focus entirely on the winners - those "unicorns" that succeed in the "power law" and compensate their investors a hundred or a thousand fold. The median fund under-performs the S&P, and most people would be better off sticking their money in an index fund. There are some insightful chapters on the decline of some venture capital firms, as well as massive fraud cases like Theranos.
Mallaby notes the unique performance of Silicon Valley as result from the combination of a "patina of the counterculture" combined with a "lust for riches". Venture capital had little interest in abiding by the strictures of established investment funds or established financial centers such as Boston, and investors would throw their money at any new project, as one 100 times return, or 1000 times return can make up for dozens of failures. Masayoshi Son, of Softbank, sank a hundred million dollars of millions into Yahoo, firing at the hip, with the threat of taking it elsewhere the moment they'd flop; other firms were slightly more cautious and presented themselves as cerebral, carefully focusing on immigrant founders in particular. Mallaby's account also focuses on multiple Chinese firms that benefited from American investment - Alibaba, Tencent, and Baidu. This would not be possible today.
A story of investors' wagering on young dreamers, and so becoming unimaginably wealthy in the progress, could easily become repetitive. There is some diving into the clash of personalities that results. Some appear talkative, sociable, even charming. Some move on unpredictability. Peter Thiel comes across as a bomb-thrower, having no patience for oversight at all. Thiel got out with a fortune and a reputation for spite; other founders were ousted from their firms or worse. And Mallaby asserts that these later firms failed due to the laxity of their investors; who did not care about fundamentals and were unable to rein company founders' worst impulses or sniff out fraud. Likewise, the tendency of investors to fund people who think too much alike - or indeed look too much alike, with so many young white men aping other successors and deficient at socializing with anyone else, especially women.
Mallaby's account is convincing enough that I almost, almost shed some of my earlier pessimism about the relative costs and benefits of venture capital. But seeing the scale of recent disasters does remind me of how many people chase the short term benefit, and how many are yet unsatisfied with steady long-term profits and the satisfaction of compounding interest.
3.5/5
High finance at this level is not a game for the timid.
-Increasing Returns and the New World of Business, W. Brian Arthur, 1996
A narrative history of venture capital in Silicon Valley, starting from the 1960s and continuing to a few months before publication. Mallaby praises the venture capital firms, and what they have the potential to produce, but he does not make saints of them. He does not focus entirely on the winners - those "unicorns" that succeed in the "power law" and compensate their investors a hundred or a thousand fold. The median fund under-performs the S&P, and most people would be better off sticking their money in an index fund. There are some insightful chapters on the decline of some venture capital firms, as well as massive fraud cases like Theranos.
Mallaby notes the unique performance of Silicon Valley as result from the combination of a "patina of the counterculture" combined with a "lust for riches". Venture capital had little interest in abiding by the strictures of established investment funds or established financial centers such as Boston, and investors would throw their money at any new project, as one 100 times return, or 1000 times return can make up for dozens of failures. Masayoshi Son, of Softbank, sank a hundred million dollars of millions into Yahoo, firing at the hip, with the threat of taking it elsewhere the moment they'd flop; other firms were slightly more cautious and presented themselves as cerebral, carefully focusing on immigrant founders in particular. Mallaby's account also focuses on multiple Chinese firms that benefited from American investment - Alibaba, Tencent, and Baidu. This would not be possible today.
A story of investors' wagering on young dreamers, and so becoming unimaginably wealthy in the progress, could easily become repetitive. There is some diving into the clash of personalities that results. Some appear talkative, sociable, even charming. Some move on unpredictability. Peter Thiel comes across as a bomb-thrower, having no patience for oversight at all. Thiel got out with a fortune and a reputation for spite; other founders were ousted from their firms or worse. And Mallaby asserts that these later firms failed due to the laxity of their investors; who did not care about fundamentals and were unable to rein company founders' worst impulses or sniff out fraud. Likewise, the tendency of investors to fund people who think too much alike - or indeed look too much alike, with so many young white men aping other successors and deficient at socializing with anyone else, especially women.
Mallaby's account is convincing enough that I almost, almost shed some of my earlier pessimism about the relative costs and benefits of venture capital. But seeing the scale of recent disasters does remind me of how many people chase the short term benefit, and how many are yet unsatisfied with steady long-term profits and the satisfaction of compounding interest.
3.5/5
January 13, 2024
A great read for those working with VC or startups. Gives a historical context on the industry and clearly outlines the dynamics and interests of VC.
There are numerous examples and stories that are entertaining and educational. Well written, flows well and helps to outline the importance of VC for innovation, the economy and our society.
There are numerous examples and stories that are entertaining and educational. Well written, flows well and helps to outline the importance of VC for innovation, the economy and our society.
March 22, 2025
This is an insightful exploration of venture capital, shedding light on the key factors that shape success in the industry. The book is also engaging, particularly in its reference to recent history.
However, the notable omission of Africa’s VC climate, which highlights how the industry is still in its early stages in the continent is staggering. This, in turn, signals that Africa could be the next frontier for global commercial excellence. Mallaby also unpacks the often-discussed concept of a "global perspective," offering clarity on its significance - something which I have always deemed futile.
Overall, it's a gem of a book—thought-provoking and illuminating, perfect for those seeking to understand the intricate workings of venture capital and its ever evolving role in the world.
However, the notable omission of Africa’s VC climate, which highlights how the industry is still in its early stages in the continent is staggering. This, in turn, signals that Africa could be the next frontier for global commercial excellence. Mallaby also unpacks the often-discussed concept of a "global perspective," offering clarity on its significance - something which I have always deemed futile.
Overall, it's a gem of a book—thought-provoking and illuminating, perfect for those seeking to understand the intricate workings of venture capital and its ever evolving role in the world.
February 21, 2025
It is interesting to read the stories of many companies and a great part of silicon valley in the context of venture capital. Regardless of how companies evolve, they are often founded upon an almost rebellious belief that they can do things differently or make the world better or create a new era. And some of them built the product and indeed changed the world. The changed world has layers of complexity—but that’s probably outside the scope of what VC can do.
A very well written book - I was hooked since page 1.
A very well written book - I was hooked since page 1.
November 18, 2024
La ley de potencia es la relación matemática entre dos variables, donde el cambio de una de ellas tiene un impacto exponencial en la otra. Por ello, en este tipo de función, la distribución de los datos está dominada por el efecto de los outliers. El famoso Principio de Pareto (80/20) lo resume muy bien, fenómeno que ha sido observado en distintos ámbitos cotidianos.
Bajo este concepto, Sebastian Mallaby explica en profundidad la evolución de la industria del Venture Capital en su último libro. En sus propias palabras, el Venture Capital no es meramente un tipo de negocio; es una forma de pensar, una filosofía, una teoría del progreso. Su enfoque es ambicioso: nos brinda una perspectiva de cómo hemos llegado hasta el punto actual. Su impacto en el sector privado y en la sociedad. Las herramientas que se han construido en el camino a través del ensayo-error. Los personajes y los deals más significativos. Y, sobre todo lo anterior, el cambio de mentalidad para ver con otros ojos las oportunidades de negocio.
Ha sido una gran labor de investigación. La obra desborda en detalles y en subtemas imposibles de reseñar en pocas líneas (ej: económicos, geopolíticos, tecnológicos, etc). Comparto algunas oraciones que he resaltado del libro: i) el Venture Capital es un deporte de equipo en donde uno disfuncional pierde; Ii) la mejor forma de gestionar el riesgo es aceptarlo, sin miedo; iii) la ley de Perkin: "El riesgo de mercado es inversamente proporcional al riesgo técnico", porque si resuelves un problema técnico realmente difícil, te enfrentarás a una competencia mínima.
Coincido con el autor sobre por qué Sillicon Valley ha prevalecido como el centro de excelencia de la industria. La base de su triunfo no es el correcto market fit del producto, ni la financiación “ilimitada”, ni la tolerancia al fracaso, ni el tamaño del mercado, ni la última innovación tecnológica; es el triunfo de una razón más sociológica: la fuerza de las redes de contacto. De un ecosistema en el que sus miembros se apoyan entre sí, que se retroalimenta y que ha podido transformarse un sinfín de veces. Por ello, desde una creencia interiorizada y compartida, si uno se siente abrumado por un problema, lo ideal es dirigirse a él. Trata y falla, no falles en intentar. Recuerda la lógica detrás de la ley de potencia: las recompensas por el éxito serán enormemente mayores que los costos de los honorables reveses.
Bajo este concepto, Sebastian Mallaby explica en profundidad la evolución de la industria del Venture Capital en su último libro. En sus propias palabras, el Venture Capital no es meramente un tipo de negocio; es una forma de pensar, una filosofía, una teoría del progreso. Su enfoque es ambicioso: nos brinda una perspectiva de cómo hemos llegado hasta el punto actual. Su impacto en el sector privado y en la sociedad. Las herramientas que se han construido en el camino a través del ensayo-error. Los personajes y los deals más significativos. Y, sobre todo lo anterior, el cambio de mentalidad para ver con otros ojos las oportunidades de negocio.
Ha sido una gran labor de investigación. La obra desborda en detalles y en subtemas imposibles de reseñar en pocas líneas (ej: económicos, geopolíticos, tecnológicos, etc). Comparto algunas oraciones que he resaltado del libro: i) el Venture Capital es un deporte de equipo en donde uno disfuncional pierde; Ii) la mejor forma de gestionar el riesgo es aceptarlo, sin miedo; iii) la ley de Perkin: "El riesgo de mercado es inversamente proporcional al riesgo técnico", porque si resuelves un problema técnico realmente difícil, te enfrentarás a una competencia mínima.
Coincido con el autor sobre por qué Sillicon Valley ha prevalecido como el centro de excelencia de la industria. La base de su triunfo no es el correcto market fit del producto, ni la financiación “ilimitada”, ni la tolerancia al fracaso, ni el tamaño del mercado, ni la última innovación tecnológica; es el triunfo de una razón más sociológica: la fuerza de las redes de contacto. De un ecosistema en el que sus miembros se apoyan entre sí, que se retroalimenta y que ha podido transformarse un sinfín de veces. Por ello, desde una creencia interiorizada y compartida, si uno se siente abrumado por un problema, lo ideal es dirigirse a él. Trata y falla, no falles en intentar. Recuerda la lógica detrás de la ley de potencia: las recompensas por el éxito serán enormemente mayores que los costos de los honorables reveses.
June 28, 2023
Went into this read with high expectations built by 'More Money Than God', all I can say is that Sebastian Mallaby is the guru of documenting the history of the finance world.
Much like how 'More Money Than God' was a comprehensive read on the history of the hedge fund industry, 'The Power Law' is a lucid chronicling of the history of the VC industry - right from Arthur Rock liberating the Traitorous Eight, Kleiner Perkins, Sequoia, Atari, Cisco, Apple, Accel, Doerr, Khosla, Yahoo, Google to the modern times with FB, Uber, WeWork, Alibaba and Kunal Shah - this book covers all the bases !
This book is a goldmine filled with the insights, experiences, critical thought processes, personas and charismas of all those who made Silicon Valley and the VC industry - both on the entrepreneurial side and the financing side. It details in chronological fashion, the various evolutions of the VC world and the stimuli that drove them. The pages of this book beautifully capture the high adrenaline environment of the VC world and its many power-plays clubbed with the eccentricities of its various Goliaths over the decades.
Binging this book with highlighter in hand was quite the experience, and I will definitely be adding it to my desk-top pile of instant reference books.
Yet another top-notch 5/5 read Mallaby read!
Much like how 'More Money Than God' was a comprehensive read on the history of the hedge fund industry, 'The Power Law' is a lucid chronicling of the history of the VC industry - right from Arthur Rock liberating the Traitorous Eight, Kleiner Perkins, Sequoia, Atari, Cisco, Apple, Accel, Doerr, Khosla, Yahoo, Google to the modern times with FB, Uber, WeWork, Alibaba and Kunal Shah - this book covers all the bases !
This book is a goldmine filled with the insights, experiences, critical thought processes, personas and charismas of all those who made Silicon Valley and the VC industry - both on the entrepreneurial side and the financing side. It details in chronological fashion, the various evolutions of the VC world and the stimuli that drove them. The pages of this book beautifully capture the high adrenaline environment of the VC world and its many power-plays clubbed with the eccentricities of its various Goliaths over the decades.
Binging this book with highlighter in hand was quite the experience, and I will definitely be adding it to my desk-top pile of instant reference books.
Yet another top-notch 5/5 read Mallaby read!
February 28, 2022
'One day Manfred Eigen's colleague and friend, Motoo Kimura, came to him and asked him:
"Who survives, the fittest or the luckiest?".
In fact, he said:
"Manfred, shouldn't we reformulate the Darwinian principle as 'survival of the luckiest?'"
Eigen's answer was:
"Yes Motoo, we may do so; but then we have to add that the 'luckiest' always has to be a member of the very élite club of the fittest.".
"Who survives, the fittest or the luckiest?".
In fact, he said:
"Manfred, shouldn't we reformulate the Darwinian principle as 'survival of the luckiest?'"
Eigen's answer was:
"Yes Motoo, we may do so; but then we have to add that the 'luckiest' always has to be a member of the very élite club of the fittest.".
October 30, 2022
I thought this was pretty good. I wanted to understand the impact of and history of US venture capital in relation to startups more.
This book more than delivers on this. I learned a ton.
This book more than delivers on this. I learned a ton.
October 30, 2022
This was quite good. Gives you a clear idea of VC from the 1950s through today. Afterword was weird China vs. US stuff, but the rest is a great overview.
March 12, 2024
A great journey through the history of venture capital. The book reminded me how young the foundations of the modern world are, and how this new form of finance helped to unlock potential around the world.
September 28, 2022
One will find many of these stories in other popular books about Silicon Valley, from Brad Stone's Upstarts, about Uber and Airbnb, to Leslie Berlin's Troublemakers, about Atari, Apple, and other early pioneers. This book just takes a slightly different lens on these Silicon Valley successes, by focusing on the venture funders of these companies rather than the founders. Sometimes that is a distinction without a difference, because, as Mallaby points out, the funders were often former founders and the funders often later helped found companies. Eugene Kleiner was one of the original "traitorous eight" who left Shockley Semiconductors to found Fairchild, with some of the first venture capital assistance, and then went on to found the Kleiner Perkins venture capital fund in 1972, which later incubated, in house, Tandem (a company which created parallel computing processes and gave KP a 100x return) and then Genentech (a company founded by KP's Bob Swanson and two professors, who used genetic engineering to create artificial insulin and secure a 200x return).
At other times, venture capitalists were crucial in shifting companies onto more successful paths. Don Valentine, who founded Sequoia in 1972, was fond of backing oddballs like Nolan Bushnell of Atari and Steve Jobs of Apple, but in other cases he had to be tough on founders. He pushed out the two founders (a couple named Leonard Bosack and Sandy Lerner) from Cisco when their poisonous management threatened to wreck the company. He then brought in John Moggridge from Honeywell, whom he lavished with stock options and made him act like a founder instead of an employee. It was part of what Mallaby calls the "Qume model," after Bill Draper's Sutter Hill made an investment in the printing company Qume in 1973 as long as they dumped their CEO and accepted a new one, and which soon became a basic Valley model. Valentine also forced Mike Markulla, formerly of Fairchild, to get involved with Apple as arguably the first "angel investor," and then recruited some experienced management for the company. Benchmark capital forced Meg Whitman on Pierre Omiydar at Ebay and thus cemented the company's rise. Michael Moritz, the former Oxford-history graduate and journalist who came to lead Sequoia, helped install Bill Harris as head of X.com and then pushed it into a merger with PayPal despite a bloody fight between the companies. Marc Andresseen helped bring the original founders of Skype back into the firm after their conflicts with its owner eBay and then used his board seat at Facebook to broker a connection between the two companies. At each of these moments, VCs were crucial to the success of the company, in ways far beyond their funding.
Given Mallaby's appreciation of VC intervention, he is somewhat skeptical about the more founder-friendly investors of the post-2000 era. He admits that Masayohsi Son, Paul Graham, and Founders Fund, by aiming to support founders with little coaching or intervention, had some spectacular successes, including LinkedIn, Facebook, and SpaceX. But he also thinks the transition to founder-friendly boards, supervoting rights for CEOs, and late-term private growth investments (kick-started by Yuri Milner's $200 million 2009 investment in Facebook), led to problems with unaccountable founders like Adam Neumann at WeWork and, more controversially, Tavis Kalanick at Uber. He also notes that one of the great venture capitalists, John Doerr at Kleiner Perkins, who once funded Amazon and Google, helped bring down the reputation of the firm with his focus on "cleantech" and politicized hiring. By contrast, Mallaby celebrates the "prepared mind" approach of Accel and the modern Sequoia, which, led by Moritz and Doug Leone, and then by former PayPal CFO Roelof Botha and former Accel investor Jim Goetz, managed to both assist and push new founders when necessary. Sequoia managed to coax the WhatsApp founder out of obscurity, and then worked with Dropbox and Stripe to grow and professionalize the firms. The firm was also willing to take successful leaps like Sequoia China.
Mallaby has two overarching takeaways. One is that venture capital is the real reason that the "network effects" of Silicon Valley worked (as Mallaby points out, 3Com, the Ethernet company founded by Bob Metcalf, who created "Metcalfe's law," illustrated the benefits of networks, even though Metcalf himself was a tough self-starter who hated to cede power to VCs or MBA types). Another is that most countries have not achieved the right mix of low-tax stock options, limited partnerships, and liquid large markets for IPOs that have fueled America's VCs, and thus they will have trouble replicating America's success. Although one will hear many of these stories elsewhere, on the whole this is a welcome look at an industry that still hasn't attracted the attention requisite to its importance.
At other times, venture capitalists were crucial in shifting companies onto more successful paths. Don Valentine, who founded Sequoia in 1972, was fond of backing oddballs like Nolan Bushnell of Atari and Steve Jobs of Apple, but in other cases he had to be tough on founders. He pushed out the two founders (a couple named Leonard Bosack and Sandy Lerner) from Cisco when their poisonous management threatened to wreck the company. He then brought in John Moggridge from Honeywell, whom he lavished with stock options and made him act like a founder instead of an employee. It was part of what Mallaby calls the "Qume model," after Bill Draper's Sutter Hill made an investment in the printing company Qume in 1973 as long as they dumped their CEO and accepted a new one, and which soon became a basic Valley model. Valentine also forced Mike Markulla, formerly of Fairchild, to get involved with Apple as arguably the first "angel investor," and then recruited some experienced management for the company. Benchmark capital forced Meg Whitman on Pierre Omiydar at Ebay and thus cemented the company's rise. Michael Moritz, the former Oxford-history graduate and journalist who came to lead Sequoia, helped install Bill Harris as head of X.com and then pushed it into a merger with PayPal despite a bloody fight between the companies. Marc Andresseen helped bring the original founders of Skype back into the firm after their conflicts with its owner eBay and then used his board seat at Facebook to broker a connection between the two companies. At each of these moments, VCs were crucial to the success of the company, in ways far beyond their funding.
Given Mallaby's appreciation of VC intervention, he is somewhat skeptical about the more founder-friendly investors of the post-2000 era. He admits that Masayohsi Son, Paul Graham, and Founders Fund, by aiming to support founders with little coaching or intervention, had some spectacular successes, including LinkedIn, Facebook, and SpaceX. But he also thinks the transition to founder-friendly boards, supervoting rights for CEOs, and late-term private growth investments (kick-started by Yuri Milner's $200 million 2009 investment in Facebook), led to problems with unaccountable founders like Adam Neumann at WeWork and, more controversially, Tavis Kalanick at Uber. He also notes that one of the great venture capitalists, John Doerr at Kleiner Perkins, who once funded Amazon and Google, helped bring down the reputation of the firm with his focus on "cleantech" and politicized hiring. By contrast, Mallaby celebrates the "prepared mind" approach of Accel and the modern Sequoia, which, led by Moritz and Doug Leone, and then by former PayPal CFO Roelof Botha and former Accel investor Jim Goetz, managed to both assist and push new founders when necessary. Sequoia managed to coax the WhatsApp founder out of obscurity, and then worked with Dropbox and Stripe to grow and professionalize the firms. The firm was also willing to take successful leaps like Sequoia China.
Mallaby has two overarching takeaways. One is that venture capital is the real reason that the "network effects" of Silicon Valley worked (as Mallaby points out, 3Com, the Ethernet company founded by Bob Metcalf, who created "Metcalfe's law," illustrated the benefits of networks, even though Metcalf himself was a tough self-starter who hated to cede power to VCs or MBA types). Another is that most countries have not achieved the right mix of low-tax stock options, limited partnerships, and liquid large markets for IPOs that have fueled America's VCs, and thus they will have trouble replicating America's success. Although one will hear many of these stories elsewhere, on the whole this is a welcome look at an industry that still hasn't attracted the attention requisite to its importance.
Read
February 8, 2022Esse livro é MUITO legal?? Recomendo demais. Os livros sobre o assunto focam mto na inovação, nos caras que criam as startups e pouco nas pessoas que apostam nelas e esse aqui faz esse caminho inverso: quem são essas pessoas que dão dinheiro pra aleatórios com ideias malucas na esperança de que aquilo vire um negócio grande?
February 14, 2023
Dissertation szn. A full fiver.
February 22, 2024
A well written and informative history of venture capital in silicon valley. My only criticism would be it's occasional boosterism
May 8, 2022
Pattern matching is a key skill recognised by top venture capitalists that allows them to spot the next breakout startup. This book provides a whirlwind history of the top venture capital teams and their most exciting and challenging deals. Readers are able to develop not only a history of the world of VC but identify the patterns that characterise the best teams and startups.
The meta discussions around the philosophical value and downsides of venture capital I found less interesting than the deals themselves. In particular I really enjoyed reading about how new venture firms emerged that brought new insights and innovation to the format. Paul Graham and Y Combinator inventing the batch accelerator model. Tiger Global developing the growth stage fund and pioneering China. Even the stories of SoftBank's founder using size and scale to win deals was disruptive and exciting for the industry.
Especially fascinating was the section on Sequoia and the analysis of how they had maintained top tier leadership in venture for so many years while their peers faltered. Moritz and Leone's dynamic partnership and their relentless discipline, hard work and humilty combined with a constant need to "bet the firm" and build new franchises in China, Growth Investing, Hedge Funds and Endowment investing.
A thoroughly interesting read, I made a ton of highlights and will certainly be returning regularly to this book. Its also inspired me to read deeper into some of the iconic companies and their founding stories. Having recently read Super Pumped and Cult of We I feel like I know understand the excesses of too much capital and too little corporate governance that characterised the later 2010s. I have a book on Dot Com up soon.
The meta discussions around the philosophical value and downsides of venture capital I found less interesting than the deals themselves. In particular I really enjoyed reading about how new venture firms emerged that brought new insights and innovation to the format. Paul Graham and Y Combinator inventing the batch accelerator model. Tiger Global developing the growth stage fund and pioneering China. Even the stories of SoftBank's founder using size and scale to win deals was disruptive and exciting for the industry.
Especially fascinating was the section on Sequoia and the analysis of how they had maintained top tier leadership in venture for so many years while their peers faltered. Moritz and Leone's dynamic partnership and their relentless discipline, hard work and humilty combined with a constant need to "bet the firm" and build new franchises in China, Growth Investing, Hedge Funds and Endowment investing.
A thoroughly interesting read, I made a ton of highlights and will certainly be returning regularly to this book. Its also inspired me to read deeper into some of the iconic companies and their founding stories. Having recently read Super Pumped and Cult of We I feel like I know understand the excesses of too much capital and too little corporate governance that characterised the later 2010s. I have a book on Dot Com up soon.
January 11, 2023
This book wasn’t quite what I was hoping for. Some critiques:
- The author was too descriptive on a topic that didn’t need it - there were only so many times I needed to visualize another white man entering the space. As a result, the book felt long and repetitive. I feel like I could have been handed a list of wikipedia pages and would have achieved the same result in less time.
- 95% of the book was a historical regurgitation. Only the last 5% of the book addressed the “So What?” aspect that I was looking for. I arrived at the book less interested in the cold, hard facts of each and every venture firm/venture capitalist etc and more interested in the philosophical component of what the industry means and how it’s changed our world for the better or worse. I wanted that level of the analysis throughout the book to help me develop my own opinion instead of throwing it in at the end.
- Not a critique of the book so much as a personal reflection - this read reaffirms my desire to stay away from VC in the early parts of my career. It really does feel like betting without getting your hands dirty and having a true stake in the game. I love working on a team and building something together, not just dumping money after schmoozing a founder then crossing my fingers (that’s a little crude and the level of involvement of VC firms in company development was a key theme of this book, but still).
I had some take home learnings, but I imagine I’ll forget a lot of the random facts about niche VC history (which I’m not complaining about)
- The author was too descriptive on a topic that didn’t need it - there were only so many times I needed to visualize another white man entering the space. As a result, the book felt long and repetitive. I feel like I could have been handed a list of wikipedia pages and would have achieved the same result in less time.
- 95% of the book was a historical regurgitation. Only the last 5% of the book addressed the “So What?” aspect that I was looking for. I arrived at the book less interested in the cold, hard facts of each and every venture firm/venture capitalist etc and more interested in the philosophical component of what the industry means and how it’s changed our world for the better or worse. I wanted that level of the analysis throughout the book to help me develop my own opinion instead of throwing it in at the end.
- Not a critique of the book so much as a personal reflection - this read reaffirms my desire to stay away from VC in the early parts of my career. It really does feel like betting without getting your hands dirty and having a true stake in the game. I love working on a team and building something together, not just dumping money after schmoozing a founder then crossing my fingers (that’s a little crude and the level of involvement of VC firms in company development was a key theme of this book, but still).
I had some take home learnings, but I imagine I’ll forget a lot of the random facts about niche VC history (which I’m not complaining about)
May 29, 2022
Great history of Venture Capital, focused on technology and Silicon Valley, but with coverage of the adventures of these funds outside Silicon Valley as well. I wasn't as familiar with the early stages (Arthur Rock, who funded Intel and Apple), how changes in tax laws (ERISA/etc.) affected venture, and some of the origins of now-standard provisions like the 20% carry (an accident of 20% on an early deal).
As it moved closer to current times, there were perhaps more divisive takes on major firms, founders vs. VCs, etc. (the Uber and WeWork episodes, particularly), but from my experience as an entrepreneur originally in Silicon Valley, it's pretty accurate and mainstream-accepted (e.g. that Softbank was a money-flood, and that Benchmark was more cautious than others, and that KPCB basically doomed themselves.)
Overall, unclear who this book is really useful for (things change too quickly for this to be super useful to entrepreneurs raising from funds); maybe useful for historical interest, or people trying to replicate Silicon Valley success elsewhere, or perhaps new VCs? I did really enjoy it, though, and it's probably best as an argument for VC vs. other forms of funding, and for the inherent benefits of the capitalist system.
As it moved closer to current times, there were perhaps more divisive takes on major firms, founders vs. VCs, etc. (the Uber and WeWork episodes, particularly), but from my experience as an entrepreneur originally in Silicon Valley, it's pretty accurate and mainstream-accepted (e.g. that Softbank was a money-flood, and that Benchmark was more cautious than others, and that KPCB basically doomed themselves.)
Overall, unclear who this book is really useful for (things change too quickly for this to be super useful to entrepreneurs raising from funds); maybe useful for historical interest, or people trying to replicate Silicon Valley success elsewhere, or perhaps new VCs? I did really enjoy it, though, and it's probably best as an argument for VC vs. other forms of funding, and for the inherent benefits of the capitalist system.
January 5, 2023
You succeed in venture capital by backing the right deals, not by haggling over valuations.
There are quite a few books about the rise of information technology. Most of them focus on founders and their teams. Some of those books are more complimentary (see: Amazon Unbound), others are less so (see: Super Pumped). Very few of them talk about the people who provide additional financial capital to these companies - even when they do, it's only a small part of the story.
The Power Law changes that. Here, the focus is squarely on the venture capital and the people that created this industry. It provides a different point of view to many of the stories I've already read about (the list includes Apple, Google, Uber, and WeWork). The point of view is fascinating, even if it sometimes feels a bit biased. By the end of the bthought I felt that the autoptimisticositive about venture capitalists, instead of simply present public opinions.
I felt that the book was quite coherent, despite telling stories about multitude of financiers and their companies. The author managed to weave the disparate parts into something that connected well for me.
Overall, it was mostly an exciting and insightful read that made me think about investing from a different angle.
There are quite a few books about the rise of information technology. Most of them focus on founders and their teams. Some of those books are more complimentary (see: Amazon Unbound), others are less so (see: Super Pumped). Very few of them talk about the people who provide additional financial capital to these companies - even when they do, it's only a small part of the story.
The Power Law changes that. Here, the focus is squarely on the venture capital and the people that created this industry. It provides a different point of view to many of the stories I've already read about (the list includes Apple, Google, Uber, and WeWork). The point of view is fascinating, even if it sometimes feels a bit biased. By the end of the bthought I felt that the autoptimisticositive about venture capitalists, instead of simply present public opinions.
I felt that the book was quite coherent, despite telling stories about multitude of financiers and their companies. The author managed to weave the disparate parts into something that connected well for me.
Overall, it was mostly an exciting and insightful read that made me think about investing from a different angle.
June 10, 2022
I was skeptical of how captivating a 17-hour book on venture capital could be, but I was pleasantly surprised at how much of a page turner this turned out to be.
I enjoyed learning about the nascent days of VC, hearing stories of how legendary VC forms and startups got started, and pondering the role and value of VC. I especially liked the sections on how/why Silicon Valley as a region (as opposed to other possible places) emerged with VC, the contrasting approaches various firms (e.g., Sequoia, A16Z, Kleiner Perkins, Y-Combinator, Founder Fund, Tiger) took, and the impact of VC on global economies like China.
The author does a nice job balancing storytelling versus analysis—while there are a lot of interesting recounts of the past, there are also various arguments on the societal value of VC, the impact skill vs reputation on VC success, lack of diversity in VC, etc.
Highly recommend if this is a topic that you find interesting
I enjoyed learning about the nascent days of VC, hearing stories of how legendary VC forms and startups got started, and pondering the role and value of VC. I especially liked the sections on how/why Silicon Valley as a region (as opposed to other possible places) emerged with VC, the contrasting approaches various firms (e.g., Sequoia, A16Z, Kleiner Perkins, Y-Combinator, Founder Fund, Tiger) took, and the impact of VC on global economies like China.
The author does a nice job balancing storytelling versus analysis—while there are a lot of interesting recounts of the past, there are also various arguments on the societal value of VC, the impact skill vs reputation on VC success, lack of diversity in VC, etc.
Highly recommend if this is a topic that you find interesting
July 8, 2023
At the outset, Mallaby lays out two objectives for his book: (1) to explain the venture capital mindset, and (2) to evaluate its social impact (such as in creating meaningful products or ensuring diversity or better corporate governance). He succeeds in his first objective extremely well, covering the history of investments from its early days in companies such as Fairchild (that changed the history of the chip industry) to recent fiascos such as Theranos and WeWork, exploring investors’ changing mindset and approach through that journey. His treatment of the second objective is relatively superficial though, whether in his discussions on the creation of meaningful products or on the diversity in venture funds and their investment criteria or on corporate governance. However, we also get a bonus third objective from the book — the narration of several interesting “war stories” in companies ranging from Atari, Genentech and Intel, to Apple, Google and Facebook to more recent ones such as Uber.
The power law occurs when the winners advance at an accelerating and exponential rate, rather than a linear one. The 80:20 rule such as the one where 20% of the population own 80% of the wealth is one example of this. The book covers the various phases of venture investments in detail, starting with those by rich entrepreneurs to early innovations such as pooled capital (from limited partners) and activism capital (where investors played a key role in choosing managers and strategies), the era of creation of networks and “coopetition” (co-operation and competition at the same time), the no-holds-barred growth-investing style perpetuated by Softbank’s Masayoshi Son in the late 1990s, structured angel investments by the likes of Y Combinator, a tilt in the balance towards founders brought about by companies such as Google and Facebook and finally, the return to activist investing in companies such as WeWork and Uber. The book covers the history in multiple geographies, mainly in the US and in China, and to a small extent, in India as well. It also covers the history of several of the more significant firms such as Kleiner Perkins and Sequoia.
The role and importance of venture capital is a hotly debated topic. While it cannot be denied that it has played and continues to play an important role in our progress, do venture capitalists create innovation or do they merely show up for it? Could they have done more to avoid some of technology’s adverse social impact or to encourage technologies such as greentech? Mallaby largely speaks out in favour of the venture capitalists but this part of the book is not as fleshed out as the rest of it. He argues that the future can only be discovered and not predicted, and this is the only form of capital that can enable this discovery by willing to take a large amount of risk (it was hence initially referred to as adventure capital). Mallaby argues that venture capitalists succeeded more due to skills than luck and companies such as Cisco and Google became what they are due to extensive coaching. He exonerates the investors from governance nightmares in companies such as Theranos, WeWork and Uber by arguing that more than three-quarters of late-stage venture funding in the United States between 2014 and 2016 came from non-traditional investors such as mutual funds, hedge funds, and sovereign wealth funds. He does acknowledge the diversity issue however given the fact that a large proportion of the partners in these firms and the founders of their investee companies tend to be white men.
Overall, the book is well-researched, laid out well and importantly, is easy and interesting to read. While I do have reasonable prior knowledge of the industry, I think a lay person would enjoy this equally. So, a 5-star book for me!
Pros: Extremely well-researched history, several interesting anecdotes, an interesting read
Cons: Superficial treatment of the social aspects
PS: Please visit http://ananthabookreviews.blogspot.com for other book reviews
The power law occurs when the winners advance at an accelerating and exponential rate, rather than a linear one. The 80:20 rule such as the one where 20% of the population own 80% of the wealth is one example of this. The book covers the various phases of venture investments in detail, starting with those by rich entrepreneurs to early innovations such as pooled capital (from limited partners) and activism capital (where investors played a key role in choosing managers and strategies), the era of creation of networks and “coopetition” (co-operation and competition at the same time), the no-holds-barred growth-investing style perpetuated by Softbank’s Masayoshi Son in the late 1990s, structured angel investments by the likes of Y Combinator, a tilt in the balance towards founders brought about by companies such as Google and Facebook and finally, the return to activist investing in companies such as WeWork and Uber. The book covers the history in multiple geographies, mainly in the US and in China, and to a small extent, in India as well. It also covers the history of several of the more significant firms such as Kleiner Perkins and Sequoia.
The role and importance of venture capital is a hotly debated topic. While it cannot be denied that it has played and continues to play an important role in our progress, do venture capitalists create innovation or do they merely show up for it? Could they have done more to avoid some of technology’s adverse social impact or to encourage technologies such as greentech? Mallaby largely speaks out in favour of the venture capitalists but this part of the book is not as fleshed out as the rest of it. He argues that the future can only be discovered and not predicted, and this is the only form of capital that can enable this discovery by willing to take a large amount of risk (it was hence initially referred to as adventure capital). Mallaby argues that venture capitalists succeeded more due to skills than luck and companies such as Cisco and Google became what they are due to extensive coaching. He exonerates the investors from governance nightmares in companies such as Theranos, WeWork and Uber by arguing that more than three-quarters of late-stage venture funding in the United States between 2014 and 2016 came from non-traditional investors such as mutual funds, hedge funds, and sovereign wealth funds. He does acknowledge the diversity issue however given the fact that a large proportion of the partners in these firms and the founders of their investee companies tend to be white men.
Overall, the book is well-researched, laid out well and importantly, is easy and interesting to read. While I do have reasonable prior knowledge of the industry, I think a lay person would enjoy this equally. So, a 5-star book for me!
Pros: Extremely well-researched history, several interesting anecdotes, an interesting read
Cons: Superficial treatment of the social aspects
PS: Please visit http://ananthabookreviews.blogspot.com for other book reviews
July 20, 2023
Cartea lui Sebastian Mallaby, The Power Law, oferă o istorie fascinantă a venture capital, uitându-se la evoluția acestei forme de finanțare cu risc și recompensă ridicată, de la începuturile în care erau finanțate start-up-uri cu semiconductori în Silicon Valley până la industria globală de astăzi. După cum arată Mallaby, în spatele unor companii emblematice precum Apple, Google și Facebook s-au aflat VC investitos care au căutat fondatori ambițioși și au pariat pe idei care au schimbat lumea.
Mallaby se uită, de asemenea, și la toxicitatea și nesăbuința pe care cultura VC le poate genera atunci când este lăsată necontrolată. Theranos și WeWork sunt exemplele principale. Cu toate acestea, Mallaby susține că, în ciuda defectelor sale, venture capital, ca sistem, a fost un motor puternic de inovare și creștere economică. Teza e că atunci când fondurile de tip VC funcționează ca super-conectori între idei, talente și capital, acestea pot avea un impact disproporționat.
Mi s-a părut interesantă și analiza privind rolul guvernului în susținerea unui ecosistem de capital de risc înfloritor. Perspectivele lui Mallaby cu privire la rolul guvernului mi-au dat de gândit (mai ales amintindu-mi unele vise cvasi-megalomanice de a fi ca Israelul pe partea de start-up-uri, deși e clar că Israel sau Singapore sunt mai curând excepțiile). După cum se vede la fața locului, apreciez argumentul său pentru „a face mai puțin, dar a face mai bine„. Subvențiile directe tind să eșueze, fiind înlocuite de investitori publici slab stimulați. Dar o politică inteligentă, cum ar fi scutirile fiscale pentru parteneriatele limitate, opțiunile de cumpărare de acțiuni și finanțarea cercetării științifice, poate aduce dividende prin atragerea de capitaluri de risc private calificate. Mai presus de toate, guvernele ar trebui să gândească la nivel global, promovând un sistem deschis în care capitalul uman și ideile pot circula liber peste granițe.
Au fost super interesante și referințele la China și la rolul jucat de capitalul american în dezvoltarea unor mega-proiecte tehnologice acolo. La fel și analiza privind ce provocări apar într-o epocă a concurenței dintre SUA și China. În timp ce America ar trebui să își apere interesele, restricționarea investițiilor se poate dovedi contraproductivă pe termen lung. După cum subliniază Mallaby, cheia pentru SUA este "să încerce mai mult să depășească" China prin îmbunătățirea educației, a cercetării și prin facilitarea accesului la investitori înțelepți în capital de risc pentru a pune în legătură fondatorii vizionari cu resursele de care au nevoie pentru a prospera. Iar asta cred că e o lecție pentru mai mulți.
Oricum, o carte foarte intereasantă, bine scrisă și din care eu am învățat multe lucruri de care habar nu aveam.
Mallaby se uită, de asemenea, și la toxicitatea și nesăbuința pe care cultura VC le poate genera atunci când este lăsată necontrolată. Theranos și WeWork sunt exemplele principale. Cu toate acestea, Mallaby susține că, în ciuda defectelor sale, venture capital, ca sistem, a fost un motor puternic de inovare și creștere economică. Teza e că atunci când fondurile de tip VC funcționează ca super-conectori între idei, talente și capital, acestea pot avea un impact disproporționat.
Mi s-a părut interesantă și analiza privind rolul guvernului în susținerea unui ecosistem de capital de risc înfloritor. Perspectivele lui Mallaby cu privire la rolul guvernului mi-au dat de gândit (mai ales amintindu-mi unele vise cvasi-megalomanice de a fi ca Israelul pe partea de start-up-uri, deși e clar că Israel sau Singapore sunt mai curând excepțiile). După cum se vede la fața locului, apreciez argumentul său pentru „a face mai puțin, dar a face mai bine„. Subvențiile directe tind să eșueze, fiind înlocuite de investitori publici slab stimulați. Dar o politică inteligentă, cum ar fi scutirile fiscale pentru parteneriatele limitate, opțiunile de cumpărare de acțiuni și finanțarea cercetării științifice, poate aduce dividende prin atragerea de capitaluri de risc private calificate. Mai presus de toate, guvernele ar trebui să gândească la nivel global, promovând un sistem deschis în care capitalul uman și ideile pot circula liber peste granițe.
Au fost super interesante și referințele la China și la rolul jucat de capitalul american în dezvoltarea unor mega-proiecte tehnologice acolo. La fel și analiza privind ce provocări apar într-o epocă a concurenței dintre SUA și China. În timp ce America ar trebui să își apere interesele, restricționarea investițiilor se poate dovedi contraproductivă pe termen lung. După cum subliniază Mallaby, cheia pentru SUA este "să încerce mai mult să depășească" China prin îmbunătățirea educației, a cercetării și prin facilitarea accesului la investitori înțelepți în capital de risc pentru a pune în legătură fondatorii vizionari cu resursele de care au nevoie pentru a prospera. Iar asta cred că e o lecție pentru mai mulți.
Oricum, o carte foarte intereasantă, bine scrisă și din care eu am învățat multe lucruri de care habar nu aveam.
February 20, 2022
"Circa Dec 2004:
A Sequoia partner had arranged for a meeting with 20 year old Zuckerberg. He arrived late, dressed in pajamas and T-shirts. Don Valentine, Sequoia founder, by now retired, had come into the office that day and spied the boys in the lobby. The pajamas were a provocation, a challenge. To have a chance of investing in Zuckerberg’s company, Sequoia would have to do the 2004 equivalent of what Valentine had done with Bushnell (Atari). Stay calm. Strip off. Get into the hot tub.
Valentine hurried to the boardroom to prepare his colleagues for the visual shock. “Do not notice what he’s wearing. It’s a test. Don’t ask him why he’s wearing pajamas,” he barked fiercely. Zuckerberg claimed to have overslept—hence the pajamas. The message was: “Sequoia? Who cares?” A meeting with this celebrated firm was no reason to set an alarm clock.
Not everyone believed the oversleeping story. Zuckerberg appeared fresh from a shower; his hair had not dried yet. But the alternative explanation for the late arrival was hardly more encouraging. Zuckerberg had risen, washed, and then decided to dress up in pajamas and show up insolently late. A deliberate snub was worse than an unintended one."
Interesting and fascinating throughout!
Quotes:
1. Venture capital is short for adventure capital.
2. On upending the meat industry: It’s a trillion-and-a-half-dollar global market being served by prehistoric technology!
3. Ideal entrepreneur: Evidently brilliant, gate-crashing a new field, determined, willingness to put their neck on the line, glorious hubris and naïveté.
4. The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund.
5. Venture capitalists look for radical departures from the past. Tail events are all they care about.
6. There was no point in gambling for success unless the success was worth having.
7. The winners advance at an accelerating, exponential rate so that they explode upward far more rapidly than in a linear progression.
8. To overcome the risk-aversion identified by decision science, the partners included a “pre-parade” section in each investment memo—a description of how the company would turn out assuming everything went perfectly.
9. Four of the six early PayPal employees had built bombs in high school. Elon Musk spent half the earnings from his first startup on a race car; when he crashed it with Thiel in the passenger seat, all he could do was laugh about the fact that he had failed to insure it.
A Sequoia partner had arranged for a meeting with 20 year old Zuckerberg. He arrived late, dressed in pajamas and T-shirts. Don Valentine, Sequoia founder, by now retired, had come into the office that day and spied the boys in the lobby. The pajamas were a provocation, a challenge. To have a chance of investing in Zuckerberg’s company, Sequoia would have to do the 2004 equivalent of what Valentine had done with Bushnell (Atari). Stay calm. Strip off. Get into the hot tub.
Valentine hurried to the boardroom to prepare his colleagues for the visual shock. “Do not notice what he’s wearing. It’s a test. Don’t ask him why he’s wearing pajamas,” he barked fiercely. Zuckerberg claimed to have overslept—hence the pajamas. The message was: “Sequoia? Who cares?” A meeting with this celebrated firm was no reason to set an alarm clock.
Not everyone believed the oversleeping story. Zuckerberg appeared fresh from a shower; his hair had not dried yet. But the alternative explanation for the late arrival was hardly more encouraging. Zuckerberg had risen, washed, and then decided to dress up in pajamas and show up insolently late. A deliberate snub was worse than an unintended one."
Interesting and fascinating throughout!
Quotes:
1. Venture capital is short for adventure capital.
2. On upending the meat industry: It’s a trillion-and-a-half-dollar global market being served by prehistoric technology!
3. Ideal entrepreneur: Evidently brilliant, gate-crashing a new field, determined, willingness to put their neck on the line, glorious hubris and naïveté.
4. The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund.
5. Venture capitalists look for radical departures from the past. Tail events are all they care about.
6. There was no point in gambling for success unless the success was worth having.
7. The winners advance at an accelerating, exponential rate so that they explode upward far more rapidly than in a linear progression.
8. To overcome the risk-aversion identified by decision science, the partners included a “pre-parade” section in each investment memo—a description of how the company would turn out assuming everything went perfectly.
9. Four of the six early PayPal employees had built bombs in high school. Elon Musk spent half the earnings from his first startup on a race car; when he crashed it with Thiel in the passenger seat, all he could do was laugh about the fact that he had failed to insure it.
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