The Definitive History of VC with "Power Law" author Sebastian Mallaby | E1550 | Summary and Q&A
TL;DR
Venture capital history exploration shows the importance of research, relationship building, and adaptability in the industry.
Key Insights
- 🔠 Venture capital success hinges on a mix of audacity, discipline, and networks within the firm structure.
- 😌 Sequoia's enduring success lies in active internal management and strategic partnerships beyond the standard investment approach.
- 🌥️ Growth equity investments have shifted focus towards prolonged investor involvement and larger checks to maximize returns.
- ❓ The intersection of governance, oversight, and founder leadership defines the sustainability and potential growth of VC investments.
Transcript
okay everybody it's thursday quick intro sebastian maliby the author of the power law is going to be on the pod we do a deep dive into the history of venture capital all the great firms all the great moments sebastian did an insane amount of research for his book which is a great book he spent five years writing it 250 people in our industry he int... Read More
Questions & Answers
Q: How did the book "The Power Law" shed light on the significance of venture capital history?
The book delves into the intricate histories of venture capital firms and founders, showcasing the importance of research, relationships, and adaptability in the industry.
Q: What were the key characteristics observed in successful venture capitalists during the research?
The research highlighted that successful VCs often possessed a combination of founder experience, technical skills, and strong networks to make strategic investment decisions.
Q: How has the venture capital landscape evolved in terms of governance and oversight following notable founder oustings?
Governance and oversight have become crucial factors post-founder oustings, emphasizing the need for checks and balances within VC investments, ensuring sustained success and stability.
Q: Considering LP interests, how do LPs play a pivotal role in shaping the direction of the venture capital industry?
LPs play a significant role by driving investment strategies, pushing for innovation, and exploring new horizons like crypto investments, solo VCs, and angel funding, diversifying the venture capital landscape.
Summary
In this video, the host interviews Sebastian Mallaby, the author of the book "The Power Law," which explores the history and impact of venture capital. Mallaby spent five years researching the book and interviewed 250 people in the industry. He discusses the thought process behind venture investment, the impact of venture capital on tech ecosystems, and the selection of stories included in the book.
Questions & Answers
Q: Why did Sebastian Mallaby write the book "The Power Law"?
Mallaby wrote the book for two reasons. First, he wanted to understand the thought process behind venture allocation, which is different from public markets due to the lack of quantitative metrics. Second, he aimed to demonstrate the impact of venture capital on tech ecosystems and dispel the cynical view that investors don't contribute anything.
Q: How did Sebastian Mallaby choose which stories to include in the book?
Mallaby selected stories that he believed would resonate with readers, choosing well-known companies like Apple, Google, and Facebook. However, he also made an exception by including the story of UUNET, an early internet company that played a crucial role in connecting companies to the internet. Mallaby aimed to weave together stories that showcased the impact of venture capital on innovation.
Q: How many people did Sebastian Mallaby interview for his book?
Mallaby estimates that he spoke with around 250 people for at least an hour each. He also maintained contact with some individuals who provided ongoing insights and assistance throughout the research process.
Q: At what point in his research did Sebastian Mallaby start to see patterns in venture capital?
Mallaby initially felt discouraged by the seemingly random nature of venture capital. However, after multiple trips to Silicon Valley and hearing stories about the value-add after investments, he began to see emerging patterns. He witnessed how the mindset of tech investors and their ambition to push beyond the status quo contributed to successful investments.
Q: Did Sebastian Mallaby get to meet Don Valentine, the founder of Sequoia Capital?
Mallaby had some initial difficulty connecting with Valentine, but eventually, he was able to meet him. The meeting took place at Valentine's house in Arizona, and despite some initial resistance, they ended up having a great conversation.
Q: How did Don Valentine's hot tub culture influence venture capital?
The story of Don Valentine's hot tub culture represented the unorthodox nature of venture capital and its human-to-human element. Valentine's willingness to connect with entrepreneurs in unconventional ways, such as in the hot tub or over a bike chat, showcased how relationships and personal dynamics played a role in early-stage investments.
Q: How did the emergence of angel investing disrupt the venture capital industry?
The emergence of angel investing introduced a new dynamic to the venture capital industry, allowing individuals like Naval Ravikant, Chris Sacca, and Jason Calacanis to become front-line investors. They formed relationships with founders before traditional VCs got involved, disrupting the traditional funding model and changing the balance of power.
Q: What was Tom Perkins' impact on venture capital?
Tom Perkins, co-founder of Kleiner Perkins, introduced two significant innovations to venture methodology. First, he emphasized hands-on involvement with founders, taking risks and incubating companies at Kleiner Perkins. Second, he introduced stage-by-stage investing, recognizing that some investments were too risky initially and adopting a gradual approach.
Q: How did John Doerr's leadership impact Kleiner Perkins?
While John Doerr had a phenomenal reputation and was known for his vision and charisma, he lacked the ability to actively manage the partnership and internal dynamics at Kleiner Perkins. This ultimately led to the decline of the firm and a shift in dominance from Kleiner Perkins to Sequoia Capital.
Q: Why did Kleiner Perkins experience a decline while Sequoia Capital remained successful?
Sequoia Capital's enduring success can be attributed to its active management of the partnership and internal strategies. They focused on creating an environment where partners actively supported one another and setting specific expectations for partners' time management and contributions. In contrast, Kleiner Perkins relied heavily on John Doerr's charismatic leadership, which eventually led to internal issues and a decline in performance.
Takeaways
Sebastian Mallaby's book "The Power Law" provides an in-depth exploration of venture capital, its impact on innovation, and the culture and dynamics within venture capital firms. The book highlights the importance of actively managing partnerships within these firms and the need for strong mentorship to ensure long-term success. Additionally, it showcases the emergence of angel investing and how it disrupted traditional venture capital models. Overall, "The Power Law" offers valuable insights into the history and evolution of venture capital and its role in shaping the tech industry.
Summary & Key Takeaways
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Book explores the history of venture capital, emphasizing key moments, firms, and implications for founders and investors.
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Detailed research into successful VCs, highlighting factors like audacity, discipline, networks, and partnerships.
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Adapting to changing dynamics like growth equity investments, founder oustings, and evolving LP interests shapes future prospects.