The Power Law: Venture Capital and the Making of the New Future

by Sebastian Mallaby

The median venture fund launched in 1996 or 1997 had achieved an annual return of more than 40 percent, trouncing the return on public stocks. In contrast, the median fund launched in 1999 or 2000 lagged the public market and actually lost money.[40] The normally unflappable Doug Leone recalls the shock. “I woke up one day in 2000, and everything had changed. I was on twelve boards. One company more troubled than the other. Oh my God, what do I do now?”[41] Jim Swartz of Accel had similarly visceral memories of the collapse. “For the first time in my career, I had to walk into a board meeting and say, ‘Look, guys, we got X kajillion dollars in the bank but this model is not going to work in the new world. Let’s just liquidate the company.’”[42] “It was so depressing that it was hard to feel good even about the new deals that got pitched to you,” another VC remembered.[43]