Tag Archives: Silicon Valley

Silicon Valley Bank and Venture Capital

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I have been very surprised by the bankruptcy of Silicon Valley Bank (SVB). Silicon Valley finance was (and I think still is) about venture capital and not banking, about equity and not loans/debts. So how is it possible that a bank fail by serving startups?

When I was in venture capital, and this is 20 years ago, startups would marginally borrow money. Banks indeed did not trust these fragile entities and they were statistically right. Of course startups could borrow money if they had sound collaterals like equipment and this is when Silicon Valley Bank and its peers were used by startups: for leasing for example (office space, equipment that could be reused).

Apparently things have changed as I recently learned. Some venture capitalists managed to convince SVB to go further. Money was cheap and if “powerful” VCs were financing a startup, then SVB thought the startup was solid.

As the article by the New Yorker below says, it appears to have been a combination of incompetent management, lax regulation, and some powerful people in Silicon Valley crying fire in a crowded theatre.

You may read additional material from the New Yorker with
– The Old Policy Issues Behind the New Banking Turmoil (March 13)
– Why Barney Frank Went to Work for Signature Bank (March 15)
Another interesting article is In Their Own Words: What Silicon Valley Bank Meant To The Valley

There is also this interview about Peter Thiel’s role in SVB collapse

Some quotes include :
“Silicon Valley has an image problem but remains hugely popular.”
“The issue is not that VCS are powerful but more not as smart as they think they are”.

Finally, there is no doubt that the money had become very easy, in too big quantity as indicated by the wikipedia page about SVB. The end of megarounds and the recent new startup crisis have played their part.

This probably needs to be looked at over the long term. When I wrote my book, I had a look at the correlations between the Nasdaq Index, VC fund raising and the economic crisis. Here is what it gave:

and here is what it looks like in 2022 with, among other things, the 2008 crisis

I post this article because I was invited to debate about Silicon Valley, Venture Capital and how can technology startups my impact the banking system on France Culture in Entendez-vous l’éco ? (in French). I now have to read the new book of the other guest, Olivier Alexandre, La tech. Quand la Silicon Valley refait le monde (Seuil, 2023) (Tech. When Silicon Valley changes the world) which seems very interesting. Probably a futrure post.

What makes Silicon Valley Venture Capital unique?

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Friends from IMF sent me a link to a very interesting article entitled How Unique is VC’s American History?. You may have access to it here or there. It is an analysis of a book, Tom Nicholas’ VC: An American History that I have not read (yet). But the article is quite fascinating about the lack of answers about Venture Capital uniqueness of and reasons for its success.

Let me summarize by quoting & emphasizing:

1- A theme throughout the book is that the development of the VC industry and the structure and governance of VC investments can be understood through the lens of the allure of long-tailed, highly skewed returns, whereby sparse successes need to make up for a multitude of failures. Nicholas argues that skewed, long-tailed payoffs are a distinguishing feature of VC and its American antecedents and suggests that part of America’s comparative success at VC may be due to Americans’ relative affinity for such payoffs. […] Like modern VC investments, nineteenth-century whaling voyages were long-term projects that faced huge risks. Ships could be lost at sea or fail to find whales, and even completed voyages could have disappointing payloads. The result was a skewed, long-tailed distribution of returns similar to that of modern VC. […] We agree with Nicholas’s conclusion that American historical precedents such as the financing of whaling and cotton-spinning technology, and others detailed in the book, are highly related to modern VC. There is also little doubt that American VC has been uniquely successful in the world. However, it is less clear to us that the historical precedent is unique to the United States, or even uniquely successful, making it difficult to draw a causal link between VC’s American history and the success of modern US venture capital. In particular, the Dutch in the 16th and 17th centuries established trading ventures to East Asia on a massive scale for the time. Like whaling, these earlier expeditions share many similarities with modern VC, including skewed, long-tailed returns and complex governance mechanisms. Yet a modern VC industry with similar success to the U.S. did not arise in the Netherlands.

2- We also agree that positively skewed, long-tailed returns are indeed a hallmark of VC. But long-tailed returns are by no means unique to VC. As we discuss in Section 4 below, long-tailed returns arise naturally as a consequence of long-term holdings of risky assets more generally, including for instance the returns of public equities if they are held for many years. Thus, it is difficult to ascribe too much of the governance and structure of VC to the long-tailed nature of its returns.

3- Nicholas describes the unique position Silicon Valley enjoys today as the result of an agglomeration over time of a number of factors, including returns to scale from academic innovation (largely from Stanford University), military investment, the presence of influential early firms that led to entrepreneurial spinoffs, the weather, immigrants, and of course the development of the VC sector. What is much less clear is whether the agglomeration is simply due to serendipity. For instance, William Shockley founded Shockley Semiconductor in Silicon Valley because he happened to have a desire to move back to the San Francisco Bay area from the east coast to care for his ill mother. Departing employees from Shockley Semiconductor in turn founded Fairchild Semiconductor, Intel, and the VC firm Kleiner Perkins, among many others. Had Shockley Semiconductor instead been formed on the east coast, in many ways a more natural place at the time, the evolution of Silicon Valley could easily have been very different.

Nicholas also outlines the genesis of some of Silicon Valley’s oldest and most successful VC partnerships. He stresses the different investment styles of the founding VCs. For example, Arthur Rock of Davis & Rock (later Venrock) emphasized investing in people, Tom Perkins of Kleiner Perkins focused on the technology, and Don Valentine of Sequoia Capital emphasized product markets. Each of these VCs was so successful that they are now legends in the VC community. Yet, given the disparity of styles, it is difficult to draw any firm conclusions about the makings of a good VC. Moreover, consistent with the long-tail distribution of returns, the reputation of each of these VCs was cemented largely on the basis of a few homerun investments, such as Kleiner Perkins’s early investment in Genentech. It is difficult to rule out the possibility that these few early successes involved a large portion of luck, which became self-perpetuating because of increased access to the best new ventures (Nanda, Samila, and Sorenson 2020). If so, like the eminence of Silicon Valley itself, the early success of these top-tier VCs may have been serendipity.

Probably all of this is well-known but I found it particularly convincing in its synthetic shortness.

The myth of the entrepreneur – Undoing the imaginary of Silicon Valley (2/3)

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I have finished reading Anthony Galluzzo’s book which I already mentioned in part 1 a few days ago. I hesitate between irritation and a more positive appreciation because I do not know if the author simply wants to undo the imaginaty of the region or to criticize its functioning more broadly. Indeed in the last two pages of his excellent book he writes: “After reading this book, some may wonder about the possibility of “undoing” the entrepreneurial imaginary; not only to deconstruct it, but to lead it to defeat”. Then he adds: “Many commentators have already noted this: to undo an economic and social system it is not enough to demystify the beliefs and refute the syllogisms conveyed by its ideology. It is also necessary to simultaneously think of another economy and another imaginary, to make other desirable representations and incarnations of human existence prosper.”

Silicon Valley as an ecosystem and its dark sides

I do not know what to think. An imaginary does not make a system, even if it is undoubtedly an important ingredient. Behind story telling and the myth of the heroic entrepreneur, there is an ecosystem that Galluzzo talks about more in the interview he gave to Echo (To understand the economy, you have to tell it through ecosystems, not trhough individuals – Pour comprendre l’économie, il faut la raconter par les écosystèmes, non par les individus) than in his book. Silicon Valley is an ecosystem and not (just) a myth factory to hide a darker situation [1].

Of course, there are dark sides in Silicon Valley. He shows it well in the beginning of his book, which I relate in my previous post, for example through the war for talents or the invisibilization of the State. His description is darker and darker in the end, even if the new elements are just as true:
– a glaring imbalance in the population of entrepreneurs with few women or African Americans,
– an under-representation of trade unions which would have deserved a more in-depth analysis,
– employees at the bottom of the ladder who are less well treated (assuming that these jobs have not been relocated),
– an unbalanced taxation [page 206] which would also have deserved a more in-depth analysis.

Galluzzo mentions tokenism as the reason for story telling. In the sociological literature, the practice of symbolically integrating minority groups to escape the charge of discrimination is called “tokenism” [Page 204]. Galluzzo also admits that there is not always story telling. Larry Page and Sergey Brin, the creators of Google are at the origin of one of the main powers of Silicon Valley and yet are relatively unknown to the general public. They have always been quite discreet, with rare and well-defined speeches. They did not invest in storytelling and personal branding [Page 218]. Nor does Galluzzo mention the thousands of unknown and often failed entrepreneurs who are a vital component of the region.

He adds that Silicon Valley would have flourished with almighty Thatcher neoliberalism. But it seems to me that he forgets that Silicon Valley really flourished in the two preceding decades, that of the 60s (Fairchild, Intel) which allowed the development of semiconductors and that of the 70s (Microsoft, Apple) for computers . He seems to forget, even if he mentions it, that without the structuring of venture capital in these two decades, but also without the arrival of highly qualified migrants in the decades that followed, there would probably be no such Silicon Valley such as it exists (and not as it is mythologized). I don’t think the subject is so “swept under the rug”. As early as the 1980s, a relatively mainstream author showed the darker sides of the region in his book Silicon Valley Fever. You can also read The Capital Sins of Silicon Valley.

What is an entrepreneur?

The pages [pages 196-98] on the definition or traits of an entrepreneur are also very interesting.

How to define the “entrepreneur”? A first approach consists in considering him simply as a business creator: someone who starts and organizes an economic activity. We mix the small craftsman and the big boss; the baker and the wealthy start-up founder. To focus on the latter, should we add to our definition an order of magnitude as to the economic success of the company and if so, which one? Should we limit the category to those who have founded a small business in hyper-growth? Another solution is to introduce the notion of risk. The entrepreneur would be the one who mobilizes resources in a situation of uncertainty; he would be the one who succeeds in his bets on the future. [Page 196]

Faced with these problems, it may seem essential to use the criterion of innovation. The entrepreneur would be the one who organizes a new combination of means of production: the one who develops a new product, develops a new method of production, creates a new market, conquers a new source of supply or disturbs the organization of a whole sector. […] However, defining the entrepreneur as an innovator requires de facto to separate innovation from the process, to extract it from the continuum, to attribute it, often very artificially, to a single actor. [page 197]

When research in entrepreneurship developed in the 1980s, it quickly focused on the questions of who was the particular personality of the entrepreneur. […] Among the traits that have been the subject of several studies, we note the propensity to risk, the tolerance for ambiguity, the need for accomplishment and the locus of internal control [the locus of internal control indicates the tendency that individuals have to consider that the events that affect them are the result of their actions] This research did not yield any conclusive results. [Page 198]

Galluzzo could have mentioned the definition of a startup given by Steve Blank which has been almost universally adopted, it gives a fairly convincing perimeter to the tech entrepreneur, the one in question here: “Start-ups are temporary entities looking for a scalable and repeatable business model.”

Finally on several occasions, Galluzzo seems to show his preference for the builder more than for the creator, Markkula rather than Jobs in the early days of Apple, Cook rather than Jobs in its last days: Bloomberg recently ranked all the CEOs in Apple history based on how the company’s valuation has evolved under their leadership; Steve Jobs (1997-2011, +12.4%) is far behind Mike Markkula (1981-1983, +64%) and John Sculley (1993-1993, +106%). Tim Cook outperforms them all with a +561% increase. I did not have access to the article and I could have been wrong but I arrive at different results for the growth rates from my multiples: Markkula, 4x in 2 years or 100%, Sculley around 1x or 0 %, Jobs (second period) 100x in 14 years or 40% and Cook, 10x in 12 years or 25%. Finally Jobs (1st period – in reality Scott) 1600x in 4 years or 500%. But this last subject is all the less important as I am not sure of all these figures. Founder, builder, storytelling and reality, these are subjects that remain fascinating. Thanks to Anthony Gazzullo for his excellent book and the thoughts it prompted me.

[1] Here are elements that describe an ecosystem and that I took from a post dated October 2015:

“5 needed ingredients of tech. clusters”
1. Universities and research centers of a very high caliber;
2. An industry of venture capital (i.e. financial institutions and private investors);
3. Experienced professionals in high tech;
4. Service providers such as lawyers, head hunters, public relations and marketing specialists, auditors, etc.
5. Last but not least, an intangible yet critical component: a pioneering spirit which encourages an entrepreneurial culture.
in “Understanding Silicon Valley, the Anatomy of an Entrepreneurial Region”, by M. Kenney, more precisely in chapter: “A Flexible Recycling” by S. Evans and H. Bahrami

Paul Graham in How to be Silicon Valley? “Few startups happen in Miami, for example, because although it’s full of rich people, it has few nerds. It’s not the kind of place nerds like. Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people.” He also added about failed ecosystems: “I read occasionally about attempts to set up “technology parks” in other places, as if the active ingredient of Silicon Valley were the office space. An article about Sophia Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and Nortel. Don’t the French realize these aren’t startups?”

Finally, entrepreneurial ecosystems need 3 ingredients – I quote:
– capital: by definition, no new business can be launched without money and relevant infrastructures (which consist of capital tied up in tangible assets);
– know-how: you need engineers, developers, designers, salespeople: all those whose skills are necessary for launching and growing innovative businesses;
– rebellion: an entrepreneur always challenges the status quo. If they wanted to play by the book, they would innovate within big, established companies, where they would be better paid and would have access to more resources.

Optimism and Disillusionment in Silicon Valley. Part 3 : Goomics, the end of Googleyness?

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First, it’s important to remember that Aaron Swartz died 10 years ago. He was, maybe, the first casualty of the end of the Internet as we dreamed it, a free or at least easy access to the world information.

What is Googleyness? Laszlo Bock’s Definition of Googleyness is #1 Enjoying Fun, #2 Intellectual Humility, #3 Conscientiousness, #4 Comfort with ambiguity, #5 Evidence that you’ve taken some courageous or interesting paths in your life. In page 134 of Goomics, Manu Cornet mentions “Data-Driven and Transparent, Selfless and Humble, Proactive, with a Sense of Humour & Silghtly Irreverent, Respectful and Fair”.

So what happened between the Volume I of Goomics, (that I had 3 posts about here, there and there) and this second volume, with subtitle Disillusionment? Let us quote the author through a few of his drawings. First of all, Google is an innovative company, as Manu Cornet reminds us through the following and funny quiz, the answers to which you will find at the end of the article.

However, the author has lived his last years at Google with some difficulty. Here are some examples:

His feelings that Google is becoming a normal company with its bad habits of bureaucracy, lack of transparency and even worse bad treatment of harrassment are rather scary.

Let’s end on a refreshing note though, written by a true nerd!

Post-scriptum (before the anwsers to the quiz):

A post-scriptum to close the loop of these 3 articles about disillusionment in innovation. A recent scientific article seems to support some of Michael Gibson’s arguments in Paper Belt on Fire. France Culture in Les publications scientifiques deviennent de moins en moins “innovantes” (see the end of the page) quotes a publication by researchers from the University of Minnesota, Papers and patents are becoming less disruptive over time. An interesting read for those intrigued by the subject.

Answers to the quiz

Postscript (as of August 22, 2023): Page and Brin don’t give many interviews, the latest one I found is this one:

Optimism and Disillusionment in Silicon Valley. Part 2 : Steve Jobs in Playboy

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It is the third time I can relate Playboy magazine to technology startups. Strange.

In 1971, Intel went public the same day as Playboy and its co-founder, Gordon Moore, funnily recounts in Something Ventured: And a few years later one of the analysts: “The market has spoken. It’s chips over chicks, 10-to-1.” He did not exactly say that but something similar. I will let you search if you wish…

In 2004, the playboy interview of the Google founders, The Google Guys, America’s newest billionaires, was very controversial. Not because of the publisher, but of the timing. You can read
Google says Playboy article could be costly.

Finally I recently discovered that in 1984 was published a lengthy 13-page interview of Silicon Valley’s newest star: Steven Jobs, a candid conversation about making computers, making mistakes and making millions with the young entrepreneur who sparked a business revolution. Here are some extracts.

About computers

We’re living in the wake of the petrochemical evolution of 100 years ago. The petrochemical revolution gave us free energy – free mechanical energy, in this case. It changed the textures of society in most ways. This revolution, the information revolution, is a revolution of free energy as well, but another kind: free intellectual energy. It’s very crude today, yet our Mackintosh computer takes less power than a 100-watt light bulb to run and it can save you hours a day. What will it be able to do ten or 20 years form now, or 50 years from now? This revolution will dwarf the petrochemical revolution. We’re on the forefront.

Computers will be essential in most homes. The most compelling reason to buy a computer for the home will be to link it into a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people – a remarkable as the telephone.

It’s often the same with any new revolutionary thing. People get stuck as they get older. Our minds are sort of electrochemical computers. Your thoughts construct patterns like scaffolding in your mind. You are really etching chemical patterns. In most cases, people get stuck un those patterns, just like grooves in a record, and they never out of them. It’s a rare person who etches grooves that are other than a specific way of looking at things, a specific way of questioning things. It’s rare that you see an artist in his 30s or 40s to really contribute something amazing. Of course, there are some people who are innately curious, forever little kids in their awe of life, but they’re rare.

About innovation

What happens in most companies is that you don’t keep great people under working environments where individual accomplishment is discouraged rather than encouraged. The great people leave and you end up with mediocrity. I know, because that’s how Apple was built. Apple is an Ellis island company. Apple is built on refugees from other companies. These are the extremely bright individual contributors who were troublemakers at other companies.

Polaroid did that for some years, but eventually Dr Land, one of these brilliant troublemakers, was asked to leave his own company – which is one f the dumbest things I’ve ever heard of.

About growing

Anyway, one of our biggest challenges and the one I think John Sculley and I should be judged on in five to ten years is making Apple an incredibly great ten- or 20-billion-dollar company. Will it still have the spirit it does today? We’re charting new territory. There are no models we can look to for our high growth, for some of the new management concepts we have. So we’ve to find our own way.

The way it’s going to work is that in our business, in order to continue to be one of the major contributors, we’re going to have to a ten-billion-dollar company. That growth is required for us to keep up with the competition. Our concern is how to become that, rather than the dollar goal, which is meaningless to us.

There may be some imitators left in the $100,000,000-to-$200-000-000 range, but being a -$200-000-000 company is going to mean you are struggling for your life, and that’s not a really a position from which to innovate. Not only do I think IBM will do away with its imitators by providing software they can’t provide, I think eventually it will come up with a new standard that won’t even be compatible with what it’s making now – because it is too limiting.

[Jobs was visionary but could be always right. Look at Dell, Compaq, Lenovo, HP and Intel/Microsoft…]

I used to think about selling 1,000,000 computers a year, but it was just a thought. When it actually happens, it’s a totally different thing. So it was. “Holy shit, it’s actually coming true!” But what’s hard to explain is that this does not feel like overnight. Next year will be my tenth year. I had never done anything longer than a year in my life. Six months for me, was a long time when we started Apple. So that has been my life since I’ve been sort of a free-willed adult. Each year has been so robust with problems and successes and learning experiences and human experiences that a year is a lifetime at Apple. So this has been ten lifetimes.

There’s an old Hindi saying that comes into my mind occasionally: “For the first 30 years of your life, you make your habits. For the last 30 years of your life, your habits make you.” As I’m going to be 30 in February, the thought has crossed my mind. And I’m not sure. I’ll always stay connected with Apple. I hope that throughout my life, I’ll sort of have the thread of my life and the thread of Apple weave in and out of each other, like a tapestry. There may be a few years when I am not there, but I’ll always come back.

About artificial intelligence

The original video games captured the principles of gravity. And what computer programming can do is to capture the underlying principles, the underlying essence, and then facilitate thousands of experiences based on that perception of the underlying principles. Now if we could capture Aristotle’s world view – the underlying principles of his world view? Then you could ask Aristotle a question. Ok you might say it would not be exactly what Aristotle was. It could all be wrong. But maybe not.

Part of the challenge, I think, is to get these tools to millions and tens of millions of people and to start to refine these tools so that someday we can crudely, and then in a more refined sense, capture an Aristotle or an Einstein or a Land while he’s alive.

That’s for someone else. It’s for the next generation. I think an interesting challenge in this area of intellectual inquiry is to grow obsolete gracefully, in the sense that things are changing so fast that certainly by the end of the Eighties, we really want to turn over the reins to the next generation, so that they can go on, stand on our shoulders and go much further. It’s a very interesting challenge, isn’t it? How to grow obsolete with grace.

Post-Scriptum: It is difficult to add anything to this beautiful conclusion and yet I wish to create a (quite artificial) link between these first two parts. I just discovered it while finishing this article and the coincidence is quite beautiful. I didn’t know about this Steve Jobs interview. Much better known, even famous, is the speech he gave in 2005 at Stanford University, for the graduation of students (the “commencement speech” – my first article in this blog)

Coincidentally, Michael Gibson ends his book, Paper Belt of Fire, by analyzing another commencement speech given in 2005 and considered by some to be one of the most beautiful with that of Jobs. This is “This is water” by David Foster Wallace, the entirety of which you will find in This Is Water: Some Thoughts, Delivered on a Significant Occasion, about Living a Compassionate Life.

Here is its conclusion:

The capital-T Truth is about life BEFORE death.

It is about the real value of a real education, which has almost nothing to do with knowledge, and everything to do with simple awareness; awareness of what is so real and essential, so hidden in plain sight all around us, all the time, that we have to keep reminding ourselves over and over:

“This is water.”

“This is water.”

It is unimaginably hard to do this, to stay conscious and alive in the adult world day in and day out. Which means yet another grand cliché turns out to be true: your education really IS the job of a lifetime. And it commences: now.

Optimism and Disillusionment in Silicon Valley. Part 1 : Paper Belt on Fire

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So I asked Gates: “What do you think of the idea that we’re not seeing as much innovation and scientific progress as we should? That the rate of progress has stalled?”
“Oh you guys are full of shit. Total shit…”

This is how Bill Gates reacts on page XI of Paper Belt on Fire, How Renegade Investors Sparked a Revolt against the University to author Michael Gibson’s ideas that he describes in detail in his recent book.

The book is both exciting and frustrating, convincing sometimes and unnerving at others. But let me mention what was questioning [to me].

The central thesis of the book has four parts. The first is that science, know-how, and wisdom are the source of almost all that is good: higher living standards; longer, healthier lives; thriving communities; dazzling cities; blue skies; profound philosophies; the flourishing of the arts; and all the rest of it.
The second is that the rate of progress in science, know-how, and wisdom, has flattened for far too long. We have not been making scientific, technological, or philosophical progress at anything close to the rate we’ve needed to since about 1971. (Computers and smart phones notwithstanding.)
The third claim is that the complete and utter failure of our education, from K-12 up through Harvard, is a case in point of this stagnation. We are not very good at educating people, and we have not improved student learning all that much in more than a generation, despite spending three to four times as much per student at any grade. Our lack of progress in knowing how to improve student outcomes has greatly contributed to the decline in creativity in just about every field.
The last, chief point is that the fate of our civilization depends upon replacing or reforming our unreliable and corrupted institutions, which include both the local public school and the entire Ivy League. My colleagues and I are trying to trailblaze one path in the field of education. We might be misguided in our methods, but our diagnosis is correct. [Pages XIX-XX]

What are the traits of great founders? [Pages 89-96]

Edge control, crawl-walk-run, hyperfluency, emotional depth & resilience, a sustaining motivation, the alpha-gamma tensive brilliance, egoless ambition, and Friday-night-Dyson-sphere.

Edge control: a willingness day after day, to defy the boundary between the known and the unknown, order and disorder, vision and hubris.

Crawl-walk-run: a founding team needs to have the smarts to build what they are going to build. […] The best way to screen for these traits is to see them at play in the wild. It takes some time to see their evolution.

Hyperfluency: the best founders have the charm of a huckster and the rigor of a physicist. […] They speak with fluent competence.

Emotional depth & resilience: the founders of a company have to have the social and emotional intelligence to make hires, work with customers, raise money from investors, and gel with co-founders. The complexity of this total effort is incredibly demanding and emotionally exhausting.

Tensive brilliance: what we’ve noticed is that creative people tend to have a unity born of variety. That unity may have a strong tension to it, as it tries to reconcile opposites. Insider yet outsider, familiar yet foreign, strange, but not a stranger, young in age but older in mind, a member of an institution but a social outcast – all kind of polarities lend themselves to dynamism. This is in part, I believe, why immigrants and first-generation citizens show a strong productivity for entrepreneurship. They are the same, but different.

Egoless ambition: on the one side there is an intense commitment to do great things. But on the other side is an element of detachment, a footloose, untroubled attitude that treats triumph and disaster just the same.

Friday-night-Dyson-sphere: the physicist Freeman Dyson once imagined a sphere of light-absorbing material surrounding our entire solar system on its periphery. One of the most electrifying moments for us is when a team convinces us, through a series of plausible steps backed by evidence, that they are capable of growing a lemonade stand into a company that builds Dyson Spheres. What’s more, it’s clear this is the thing they’d rather be tinkering on during a Friday night when all the cool kids are out partying.

The 1517 fund [1]

“We’re named after the year Martin Luther nailed his ninety-five theses to a church door in a tiny German town. That began a revolution, the Protestant Reformation. But it all started because he was protesting against the sale of a piece of paper called an indulgence. In 1517, the church was saying this expensive piece of paper could save your soul. In 2015, universities are selling another expensive piece of paper, the diploma, saying it’s the only way to save your soul. Well, it was bullshit then. And it’s bullshit now.” [Page 144]

For one thing, most venture capital funds fail. Blind folded monkeys throwing darts to pick stocks would perform better than the investor who picked the average venture capital fund. The median VC returns about 1.6 percent less than if someone just put their money in an index-tracking mutual fund. [Page 147]

To accelerate progress, we need young people working at the frontiers of knowledge sooner than they have in the past. They also need greater freedom. What that means is institutions that trust them to take risks and demonstrate some edge control with their research. We must hold it as a fairly predictable law of creativity that the unknown must always pass through the stranger before we can understand it.
Universities have served this research function in the past and will continue to do so. But they are plagued by four realities. The first is the slow speed of a formal, credential-based education. It takes four years to earn a bachelor’s degree and then another seven or eight to earn a PhD. Second, universities have become hives of groupthink. Third, grant-giving is driven by prestige, credibility, and a cover-your-ass mentality. Fourth, the incentives of academic institutions reward shrewd political calculation, incrementalism, short-term horizons, and a status hierarchy in which demonstrating loyalty earns more reward than advancing knowledge. [Page 261-2]

About education

The good news is that two cheap, relatively easy to use methods stand out as the most effective at boosting student performance: practice testing and distributed practice. Distributed practice is when students establish and stick to a consistent schedule of practice over time. (Its antithesis is cramming.) Practice is not mere repetition, but a deliberate effort to improve performance in the Goldilocks zone where success is neither too easily gained, nor the challenge too hard. Self-resting as a technique should not be confused with high stakes standardized testing but instead as a way of frequently probing the edge of knowledge in a field. […] Consistent self-testing and distributed practice are the most effective learning techniques, but they are also the most painful, as both of these strategies require discipline, energy, and individual effort.
Then there are the more intangible questions that require our attention. How can we encourage students to pursue the truth, independent of other people’s approval? How do we teach civil disobedience, training our young to fight for what’s right? Or how to practice delayed gratification for worthy long-term goals? Are these even possible to teach? No one has bothered to ask. [Pages 301-302]

If you are not unnerved and still intrigued, then you may read his final chapter around James Stockdale and David Foster Wallace.

Now what I found unnerving is the huge difference between exceptions, anecdotes in a system and a social statistical problem. I will only quote a great and rather unknown novel: Les Thibault by Roger Martin du Gard: « Je vous avoue que je ne sais plus très bien ce que je lui ai conseillé. J’ai dû – naturellement – l’engager à ne pas abandonner l’école. Pour des êtres de sa trempe, notre enseignement est, somme toute, inoffensif : ils savent choisir, d’instinct ; ils ont – comment dirais-je – une désinvolture de bonne race, qui ne se laisse pas mettre en lisière. L’Ecole n’est fatale qu’aux timides et aux scrupuleux. Au reste, il m’a paru qu’il venait me consulter pour la forme et que sa résolution était prise. C’est justement l’indice d’une vocation, qu’elle soit impérieuse. C’est bon signe qu’un adolescent soit en révolte, par nature, contre tout. Ceux de mes élèves, qui sont arrivés à quelque chose étaient tous de ces indociles. » [Page 754 of volume 1, collection folio and this gives in English “I confess to you that I no longer really know what I advised him. I had to – naturally – urge him not to drop out of the School. For beings of his caliber, our teaching is, after all, harmless: they know how to choose, instinctively; they have – how shall I put it – a good-natured casualness, which does not allow itself to be put on the edge. The School is fatal only to the timid and the scrupulous. Besides, it seemed to me that he came to consult me for the form and that his resolution was taken. It is precisely the sign of a vocation, that it be imperious. It is a good sign that a teenager is in revolt, by nature, against everything. Those of my students who achieved something were all of these rebellious ones.”]

[1] I did not mention until now and will in this footnote that Gibson, in a way, belongs to the PayPal mafia of anarcho-libertarians that include Peter Thiel and Elon Musk. Gibson co-managed the Thiel Fellowship and now the 1517 fund. There are notable Fellows as shown on Wikipedia. Now quoting Peter Thiel did the recipients did better than what he dreamed of: “We wanted flying cars, we got 140 characters instead” or did they really answer his famous question “What’s something you believe to be true that the rest of the world thinks is false?” [Page 60]

Time and Space Maps of Silicon Valley (in the 80s)

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I had published in the past genealogies (time maps) of Silicon Valley startups and venture capital. Here they are again:

SiliconValleyGenealogy-All
Genealogy of Silicon Valley startups (1957-1986)

WCVCGenealogy-All
Genealogy of West Coast Venture Capital (1958-1983)

But there have been other (“artistic”) maps, strangely in the 80s also. Here are three similar versions from 1983-1986.


Maps of Silicon Valley by Pacific Ventures (1983-86)

Of course these ones have a background history with Steinberg’s New Yorker cover in March 76. And for my Swiss friends what about this Zuricher one?

What is interesting to me is its nostalgic value. So what names are worth noticing? On the left one or below, of course, Apple, Intel HP, IBM but also Tandem, National Semi, Varian, Fairchild, Ask, and a little surprisingly Stanford University, all in between highways 101 and 280, finally Genentech, Atari, Rolm between San Jose and San Francisco and behind the Bay Area, Berkeley, New York, technology clusters Route 128 in Boston, Research Triangle in North Carolina & Austin’s Silicon Gulch. Finally emerging and threatening Japan in the mid 80s…

What to add to the one in 1984? Not much except that both HP and Intel, but not IBM anymore, are in the foreground… Do you remember the Apple vs. IBM 1984 advertising?

So what about 1986? Well I see 3com, Borland, Sun, Silicon Graphics. Silicon Graphics went public in October 1986, Sun on March 4, 1986 (by the way Oracle had gone public on March 12, 1986 and Microsoft on March 13, 1986…). 3Com’s IPO was in 1984. Borland was always strangely structured with an IPO in London in 1986 before doing it in the USA in 1989. 1986 is a bit of a turning point: software became an industry in itself, Sun, Silicon Graphics, 3Com represent also the beginning of networked computers.

Forget nostalgia. Silicon Valley has changed a lot. Apple is still around, Oracle too but have a look at this new illustration! Apple is in a new building. Facebook (sorry Meta) and Google (sorry Alphabet) are the new giants. HP is also mentioned through its garage! There are the old ones (Intel, AMD, IBM, HP), the already old like Yahoo, not to forget Cisco, Adobe, YouTube, LinkedIn, Intuit and more “iconic” landmarks like Sand Hill Road, or Cafe Borrone and Buck’s restaurant.

But always remember. Silicon Valley is not about buildings as Folon rightly showed. And you know what, it is dated 1985…

Silicon Valley will soon be 65. Should it be Retired ? – The Darwinian Dynamics of the Region

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Silicon Valley will soon be 65. 65? Yes, I usually say that the region began its growth with the foundation of Fairchild Semiconductor in 1957 (even if the name itself was created in 1971).

endeavor-insight-sv-2-retina

The region is increasingly criticized for both good and bad reasons (see for example here and there) and perhaps it is a little out of breath. Too old ? Ten years ago I had looked at its “Darwinian dynamics” in Darwinian and Lamarckian innovation – by Pascal Picq. I had noted there the remarkable dynamics of creation (and destruction) of businesses. “Twenty of the top 40 SV companies in 1982 did not exist anymore in 2002 and twenty one of the 2002 top 40 companies had not been created in 1982.” So I just did the exercise again.

The table below gives the data for 1982 and 2002 again, then those for 2020. I should have waited for 2022 and the 65th birthday of Silicon Valley, but I didn’t have the patience! Ten of the 40 largest companies did not exist in 2000 and seven more did not exist in 1995. Sixteen of the top 40 of 2002 no longer exist in 2021. The region is therefore a little less dynamic but it remains quite remarkable… The retirement seems to me far away in reality !

As a final comment, five years ago, I had mentioned the evolution of the American capitalism in The top US and European (former) start-ups and in particular The Largest Companies by Market Cap Over 15 Years. You could compare it with the dynamics of French CAC40.

Forty Largest Technology Companies in Silicon Valley
(the same data are provided in jpg format at the end of the post)

1982 2002 2021 Revenue Market Cap
1. Hewlett-Packard 1. Hewlett-Packard 1. Apple $294,135 $2,153,363
2. National Semiconductor 2. Intel 2. Alphabet e $182,527 $1,169,351
3. Intel 3. Cisco b 3. Facebook d $85,966 $787,268
4. Memorex 4. Sun bc 4. Intel $77,867 $194,491
5. Varian 5. Solectron c 5. HP Inc. $57,667 $31,545
6. Environtech a 6. Oracle 6. Cisco $48,026 $192,007
7. Ampex 7. Agilent b 7. Oracle $39,403 $191,539
8. Raychem a 8. Applied Materials 8. Tesla d $24,578 $77,574
9. Amdahl a 9. Apple 9. HP Enterprises $26,866 $15,677
10. Tymshare a 10. Seagate Technology 10. Netflix e $24,996 $236,117
11. AMD 11. AMD 11. Gilead $24,689 $74,058
12. Rolm a 12. Sanmina-SCI 12. SYNNEX $23,757 $6,588
13. Four-Phase Systems a 13. JDS Uniphase c 13. PayPal e $21,454 $277,047
14. Cooper Lab a 14. 3Com c 14. salesforce.com e $21,252 $208,200
15. Intersil 15. LSI Logic 15. Applied Materials $18,202 $78,716
16. SRI International 16. Maxtor b 16. NVIDIA $16,675 $328,615
17. Spectra-Physics 17. National Semiconductor c 17. Western Digital $16,327 $16,183
18. American Microsystems a 18. KLA Tencor 18. Adobe $12,868 $241,275
19. Watkins-Johnson a 19. Atmel b 19. Uber d $12,078 $93,549
20. Qume a 20. SGI c 20. Lam Research $11,929 $69,264
21. Measurex a 21. Bell Microproducts bc 21. eBay e $10,713 $36,576
22. Tandem a 22. Siebel bc 22. AMD $9,763 $115,364
23. Plantronic a 23. Xilinx bc 23. Square d $9,498 $106,173
24. Monolithic 24. Maxim Integrated b 24. Intuit $7,717 $99,872
25. URS 25. Palm bc 25. Opendoor d $7,324 $1,221
26. Tab Products 26. Lam Research 26. Sanmina $6,875 $2,117
27. Siliconix 27. Quantum c 27. KLA Tencor $6,073 $40,492
28. Dysan a 28. Altera bc 28. Equinix e $5,999 $63,238
29. Racal-Vadic a 29. Electronic Arts b 29. Electronic Arts $5,670 $41,368
30. Triad Systems a 30. Cypress Semiconductor bc 30. NetApp $5,590 $14,480
31. Xidex a 31. Cadence Design b 31. Agilent $5,530 $36,607
32. Avantek a 32. Adobe Systems b 32. Intuitive Surgical e $4,551 $92,762
33. Siltec a 33. Intuit b 33. ServiceNow d $4,519 $110,315
34. Quadrex a 34. Veritas Software bc 34. Juniper e $4,445 $7,478
35. Coherent 35. Novellus Systems b 35. Workday d $4,318 $57,934
36. Verbatim 36. Yahoo bc 36. Synopsys $3,821 $39,023
37. Anderson-Jacobson a 37. Network Appliance b 37. Autodesk $3,790 $67,066
38. Stanford Applied Eng. 38. Integrated Device 38. Palo Alto Net. d $3,783 $33,851
39. Acurex a 39. Linear Technology 39. Twitter d $3,716 $44,436
40. Finnigan 40. Symantec b 40. Airbnb d $3,378 $94,765


NOTES: This table was compiled using 1982 and 2002 Dun & Bradstreet (D&B) Business Rankings data and Blommberg data for 2020. Companies are ranked by sales.
a – No longer existed by 2002.
b – Did not exist before 1982.
c – No longer existed by 2021.
d – Did not exist before 2000.
e – Did not exist before 1995.

Same table in jpg format

How Venture Capitalists Are Deforming Capitalism

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This is the title of a great article from the not less great New Yorker, dated November 23, 2020 and written by Charles Duhigg:

How Venture Capitalists Are Deforming Capitalism,
Even the worst-run startup can beat competitors if investors prop it up. The V.C. firm Benchmark helped enable WeWork to make one wild mistake after another—hoping that its gamble would pay off before disaster struck.


Illustration by Golden Cosmos (from the New Yorker article)

I am infringing copyright here and hope the magazine and author will forgive me. But the illustration says so well what the author describes! Yes, for a few years now, venture capital has become a crazy money spending machine.

I already posted blog about VC crises as over time the activity as evolved. From frugal investors in technology in the 60s and particularly in the 70s (Apple, Microsoft,..) and 80s (Cisco, Sun, …) The internet “bubble” was not the first period of hubris, there was one in the early eighties with tons of PC clones. But the real hubris came with the social media. Today, startups raise hundreds of millions of dollars before going public and experience huge, huge losses even at IPO as you may want to check in my 600 startups analysis (and it will be probably even worse in my 700 startups analysis to come). Here are past articles:

September 2020: Theranos, the (not so)-Silicon Valley biggest scandal ever – https://www.startup-book.com/2020/09/12/theranos-the-not-so-silicon-valley-biggest-scandal-ever/

April 2016: Is the Venture Capital model broken? – https://www.startup-book.com/2016/04/26/is-the-venture-capital-model-broken/

January 2016: Is Silicon Valley crazy (again)? – https://www.startup-book.com/2016/01/28/is-silicon-valley-crazy-again/

January 2011: Is there something rotten in the kingdom of VC? –
https://www.startup-book.com/2011/01/27/is-there-something-rotten-in-the-kingdom-of-vc/

At this point read carefully what venture capital was according to the author of the article: From the start, venture capitalists have presented their profession as an elevated calling. They weren’t mere speculators—they were midwives to innovation. The first V.C. firms were designed to make money by identifying and supporting the most brilliant startup ideas, providing the funds and the strategic advice that daring entrepreneurs needed in order to prosper. For decades, such boasts were merited. Genentech, which helped invent synthetic insulin, in the nineteen-seventies, succeeded in large part because of the stewardship of the venture capitalist Tom Perkins, whose company, Kleiner Perkins, made an initial hundred-thousand-dollar investment. Perkins demanded a seat on Genentech’s board of directors, and then began spending one afternoon a week in the startup’s offices, scrutinizing spending reports and browbeating inexperienced executives. In subsequent years, Kleiner Perkins nurtured such tech startups as Amazon, Google, Sun Microsystems, and Compaq. When Perkins died, in 2016, at the age of eighty-four, an obituary in the Financial Times remembered him as “part of a new movement in finance that saw investors roll up their sleeves and play an active role in management.”

But some famous experts of innovation are quoted about the current situation:

Steve Blank: “I’ve watched the industry become a money-hungry mob. V.C.s today aren’t interested in the public good. They’re not interested in anything except optimizing their own profits and chasing the herd, and so they waste billions of dollars that could have gone to innovation that actually helps people.” and his answer to the crisis is quite strong: “The first time you see a venture capitalist prosecuted for failing to uphold their duty as a board member, you’re going to see Silicon Valley transform overnight. All it takes is one V.C. doing a perp walk and everyone gets the message—you’re responsible, you have a legal duty, and if you do things that are bad for society you’ll be called to account.”

Martin Kenney, the professor at the University of California, Davis, said, “Obama loved Silicon Valley and V.C.s, and Trump craved their approval.” He went on, “Regulators have been totally defanged from doing real investigations of venture-capital firms. I think people are finally waking up to the damage the tech industry and V.C.s can do, but it’s slow going.” Today’s V.C.s, “money-losing firms can continue operating and undercutting incumbents for far longer than previously.”

Josh Lerner, a professor at Harvard Business School: “Proclaiming founder loyalty is kind of expected now.”

A Harvard Business School professor, Nori Gerardo Lietz, noted that the document exposed WeWork’s “byzantine corporate structure, the continuing projected losses, the plethora of conflicts, the complete absence of any substantive corporate governance, and the uncommon ‘New Age’ parlance,” the S-1 was “misleading, and probably fraudulent.”

I will finish my post with a quote mentioned by Bruce Dunlevie, the partner from Benchmark who was one the WeWork boardmember, a task he did not handled perfectly even if not that badly. Nothing to add. “Power tends to corrupt, and absolute power corrupts absolutely.” Lord Acton and the rest of the quote (not mentioned in the article) is “Great men are almost always bad men…”

Airbnb files to go public – the last giant?

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Airbnb just filed to go public. Finally! It maybe the last IPO of the recent giants (and not the latest only), these giants which emerged in the 21st century, such as

and of course is the cap.table, not that far from what I had tried to guess in 2017 in www.startup-book.com/2017/03/13/what-is-the-equity-structure-of-uber-and-airbnb/