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

by Sebastian Mallaby

If porous boundaries and an abundance of weak ties make for a productive industrial cluster, what created these conditions in the Valley? There are two familiar answers. First, California law prevents employers from tying up employees in non-compete agreements; talent is free to go where it pleases, unlike in most states, including Massachusetts. Second, Stanford has been generous in allowing professors to take sabbaticals to work on startups, and this permissiveness has fostered ties between academia and business; in contrast, MIT professors have risked losing tenure if they spent too much time on side projects. Yet although an absence of non-compete clauses and the porousness of Stanford have contributed to the creative fluidity of the Valley, they are not the whole story. For one thing, some legal scholarship has sought to qualify the significance of non-competes.[8] For another, California tech startups are far more likely to involve Stanford grad students than Stanford professors.[9] The main answer to the Saxenian question—the reason why the Valley has a plethora of weak ties—is to be found elsewhere. It lies in the fact that one tribe of professionals is relentlessly focused on cultivating such ties. This tribe is the venture capitalists.