The Power Law

October 11, 2021
The venture capitalist mindset requires making crazy bets for outlandish returns, according to this sharp take on Silicon Valley’s bankrollers. Washington Post columnist Mallaby (The Man Who Knew) recaps the roles of venture capital firms in the recent history of tech start-ups, including Sequoia Capital’s 1987 funding of network router juggernaut Cisco, Kleiner Perkins’s investment in Google in 1999, and Accel’s early-2000s bet on Facebook. These storied deals followed a “power law” strategy, he argues: instead of seeking safe investments with reliable returns, VCs funded many risky ventures, most of which failed, in order to find a few successes that generated colossal returns. Capital firms provide services other than funding, he contends, as they dispense sound advice to novice entrepreneurs, help shape up management structures, and bring in talented executives and useful collaborators. This is no dry business treatise; Mallaby’s colorful narrative foregrounds the eternal battle between investors and the often eccentric, even abusive, tech visionaries they fund, and their squabbles over how much stock an investment will buy. (WeWork founder Adam Neumann unloaded a fire extinguisher onto one investor, who duly ponied up more cash.) The result is a lucid, thoughtful, and entertaining account of high-wire capitalism at work. Photos. Agent: Chris Parris-Lamb, the Gernert Company.

December 1, 2021
British financial journalist Mallaby delivers a circumstantial portrait of the venture capital revolution, with all its ups and downs. How does one go about getting a hand into the pot of gold that is the venture capital market? By convincing investors that the power law is in play--i.e., that a specific idea will scale up "at an accelerating, exponential rate," yielding riches for a relatively modest stake. For the maker of that idea, one has to hit on something that the world doesn't know it needs until it does. In this highly detailed and sometimes wearisome account, the author opens with one such idea: An inventor conceives an all-plant hamburger that smells and tastes like meat, approaches a venture capitalist with the promise "to make you even more insanely rich than you already are," and voil� Impossible Foods was born. Mallaby, a former contributing editor at the Financial Times, locates the first venture capital funds in Silicon Valley but from a renegade source: In 1957, a group of scientists walked away from a lab and founded a group that was first known by the longer name "adventure capital." The author traces the evolution of venture capital into the 1970s post-hippie culture of the Bay Area, where former communards were now content with the thought of becoming insanely rich, their tinkerings soon to explode in the digital revolution. By anticipating the wave, funders grew rich indeed, "making Silicon Valley the most durably productive crucible of applied science anywhere, ever." Tracing the tumultuous rise of PayPal, Facebook, and other venture-funded projects, Mallaby reveals some of the inner tensions inherent in the game: Founders can be free spirits, but funders demand that they be controlled by outer boards and CEOs. The author closes with a projection into the future, with funders scattered well beyond Silicon Valley while fighting a long and perhaps losing war with an aggressive Chinese fund culture. Though it plods in spots, as forays into economics will, financial wonks will find it indispensable.

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