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
