reading this rn, good history of the vc industry. when viewed through the lens of financial innovations, venture capital has definitely been amongst the most impactful. theres arguably nothing more important for standard of living increases than commercializing new science & tech
and VC in its purest form would appear to be the most effective & efficient vehicle to do this. almost as a bonus, the best vintages at the top funds easily beat the s&p during their lifetime. this is obv an idealistic view on the industry at large but i’m sort of talking about
like venture in its ideal form - it enables ambitious, bright & capable people to take a chance on the future and provides a vehicle through which scientific breakthroughs & technological innovation can be brought to market w capped downside for financial backers & large upside
for both the entrepreneurs & the VCs (which seems to drive more efficiency & overall innovation than would otherwise come from alternatives - corporations have r&d departments but are sometimes hesitant to take big risks and incentives aren’t as aligned in academia or government)
this isnt to say the model is perfect & there’s plenty of valid criticisms but again i’m viewing venture through the lens which its presented in the book - a financial innovation that was born out of the necessity of the time vs viewing it only as like an alternative asset class.
while groundbreaking science & tech projects often originate in academia or through government projects (or some combination) the incentives of starting a business to commercialize the technology seem to be crucial for the tech to have the maximum possible impact on the most ppl.
the book also illustrates how theres been multiple boom/bust cycles where the balance of power shifts back and forth between founders & investors. also interesting is the sociological study done by AnnaLee Saxenia abt why networks in silicon valley created the level of innovation
that they have. she found that the wider, more porous nature of the industrial culture in the valley (ideas & technical help were more commonly shared between people working at startups & new tech companies) allowed ideas to permeate faster & new connections made more often vs
culture on the east coast where the large, established companies were less likely to share ideas & research and employees were also restricted by enforcement of non competes. also interesting is the contrast between stanford profs being encouraged to take sabbaticals vs mit profs
risked losing tenure if they left to work on a startup. also considering the relationship between the government, academia & technology industry during & after world war 2, the east coast failed to capitalize on the infrastructure they had in place to become the central tech hub.
another interesting part is how firms like Accel & Sequoia (amongst others) developed a strategy of having a ‘prepared mind’ meaning they would map about technology trends and then work backwards to understand what companies would likely succeed. this was v successful for cloud,
mobile & developer tools and is probably a healthy exercise for any tech investors w a long term time horizon. The Power Law (as the book is titled) refers to the distribution of returns that almost disproportionately comes from a handful of companies from a particular fund
it wasn’t uncommon for 80-90% of the returns to come from a few of the biggest winners in the portfolio & the book does a great job of illustrating lots of specific instances of this power law which is a helpful lens for understanding the mechanics & incentives of the industry
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