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

by Sebastian Mallaby

whereas Google’s experimental pricing mechanism did not become the model for later Valley IPOs, the dual-class, ten-votes-versus-one share structure was copied by companies such as Facebook.[63] Google’s extraordinary growth after its flotation—over the next three years, the stock price quintupled—made the VCs’ objections to the dual-class structure look irrelevant. Evidently, investors were only too delighted to buy so-called second-class stock. And the idea that the founders enjoyed too much power was belied by the success with which they steered the company. As the most celebrated Valley star of the era, Google had a profound influence on the way startups raised money. Other entrepreneurs increasingly turned to angels for their early capital. They forced Series A investors to pay through the nose. They rejected the Qume model in favor of running their own show. They dispensed with shareholder democracy. In sum, entrepreneurs used every trick at their disposal to secure more of the wealth and—crucially—power.