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February 1 - October 27, 2022
naïveté.
Brilliant
Which is better: to try and fail, or to fail to try?
Reasonable people—well-adjusted people, people without hubris or naïveté—routinely fail in life’s important missions by not even attempting them;
Many phenomena in life are normally distributed: nearly all the observations in a data set cluster around the average.
But whatever the precise numbers, all these distributions are examples of the power law, so called because the winners advance at an accelerating, exponential rate, so that they explode upward far more rapidly than in a linear progression. Once Jeff Bezos achieves great riches, his opportunities for further enrichment multiply; the more a scientific paper is cited, the better known it is and the more likely it is to attract further citations. Anytime you have outliers whose success multiplies success, you switch from the domain of the normal distribution to the land ruled by the power law—from
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Investors who focus on currencies, bonds, and stock markets generally assume a normal distribution of price changes: values jiggle up and down, but extreme moves are unusual. Of course, extreme moves are possible, as financial crashes show. But between 1985 and 2015, the S&P 500 stock index budged less than 3 percent from its starting point on 7,663 out of 7,817 days; in other words, for fully 98 percent of the time, the market is remarkably stable.
“The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund,”
The revolutions that will matter—the big disruptions that create wealth for inventors and anxiety for workers, or that scramble the geopolitical balance and alter human relations—cannot be predicted based on extrapolations of past data, precisely because such revolutions are so thoroughly disruptive.
the economics profession has long recognized two great institutions of modern capitalism: markets, which coordinate activity via price signals and arm’s-length contracts; and corporations, which do so by assembling large teams led by top-down managers. But economists have focused less on the middle ground that Khosla inhabits: the venture-capital networks that lie somewhere between markets and corporations. And yet networks of venture capitalists deserve closer attention. By means of Khosla-style maverick experiments, they have delivered more progress in applied science than any kind of rival:
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The first transistor was created in 1947, not in Silicon Valley, but at Bell Labs in New Jersey. The first personal computer was the Altair, created in New Mexico. The first precursor of the worldwide web, the network-management software Gopher, was from Minnesota. The first browser was developed by Marc Andreessen at the University of Illinois. The first search engine, Archie, was invented by Alan Emtage at McGill University in Montreal. The first internet-based social-networking site was SixDegrees.com, launched by Andrew Weinreich in New York City. The first smartphone was the Simon
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They would have no choice but to practice finance without finance.
The only asset of tech startups, and the only possible reason to invest in them, was human talent, or what Rock liked to call “intellectual book value.”
Intelligent consistency, gritty realism, fiery determination:
What came next extended the revolution in which talent was rewarded and capital learned its place. To raise money for the new company, which Noyce and Moore called Intel, Rock devised a business plan that inverted the Fairchild model.
In a letter laying out his thinking in August 1968, Rock described a way of balancing the interests of investors and workers: Intel should avoid equity grants to short-term employees but extend them to everyone who made a long-term commitment.
By 1980, Valentine’s first fund had chalked up an annual return of almost 60 percent, matching the achievement of Davis & Rock and trouncing the 9 percent return on the S&P 500.42
Perkins’s law: “market risk is inversely proportional to technical risk,” because if you solve a truly difficult technical problem, you will face minimal competition.
1984, Tandem had generated a bit over 100x on KP’s $1.45 million investment.
It was like going from a system driven by genius to one driven by evolution. A brilliant person can do great things. A large group of people can try many things. Through an evolutionary process of trial, failure, and occasional breakthroughs, the group may advance faster than the individual.
innovator’s dilemma—that new industries were likely to be started by new companies,
“I’ve always resented MBAs,” he confessed. “They always got paid more than I did, and I was smarter than them.”
“If you want money, you ask for advice. If you want advice, you ask for money,” he reflected shrewdly.
Louis Pasteur. “Chance favors only the prepared mind,” Pasteur had observed sagely.
Given what the power law meant for startups, what Moore’s law meant for computing power, and what Metcalfe’s law meant for networks—and given how each law compounded the effect of the others—Mosaic Communications was one of those options you just had to have. After the meeting, Khosla called Doerr. “We should just do it,” he told him.
In August 1995, Mosaic (now named Netscape) went public. At the close of the first trading day, Kleiner’s original $5 million stake was worth $293 million.74 As Netscape’s stock climbed further, Kleiner soon found itself sitting on a profit of $500 million: it had achieved a multiple of 100x, or roughly twice as much as Accel’s multiple on UUNET. In the face of this sort of bonanza, it really didn’t matter how many Kleiner bets went to zero. In the internet age, it was worth paying whatever it might take for stakes in turbo-power-law companies.
Startups came to be assessed not according to this year’s revenues or even next year’s, but rather according to their momentum, traction, audience, or brand—things that could, in theory at least, be monetized in the future.
In 2016, when he was plotting an investment vehicle called the Vision Fund, he talked $45 billion out of Saudi Arabia’s crown prince in the space of forty-five minutes.
Unable to muster equivalent sums, Benchmark lacked the muscle to protect startups from the hubris that came with so much capital. In two notorious cases—the ride-hailing company Uber and the office-rental giant WeWork—Benchmark lived through the painful spectacle of its wards going off the rails.73 Such was the limitation of the cottage-industry model.
“All of the things you think about as creating fundamental value were getting punished. And all of the things you think about as bad behavior were being rewarded.”
Unlike hedge funds, which can bet against a bubble by using derivatives or other tricks,
insular
Might define me!
His partner, Vinod Khosla, explained the point this way: If you thought existing search technology was 90 percent as good as the best possible version, then pushing performance up to 95 percent was not going to win you customers. But if you thought there was more headroom—that existing search technology represented only 20 percent of the potential—then Google might be three or four times as good as its rivals, in which case its margin of engineering excellence would attract a flood of users.
Startups became less common than shutdowns, and few had the stomach to slog away at a young firm, working every waking hour with almost no prospect of a financial payout.
“What I discovered was that business was no great mystery,” Graham wrote. “Build something users love, and spend less than you make. How hard is that?” he demanded.
entrepreneurs just needed a mastery of code, an idea for a product, and a maniacal focus.
spiel
Work for yourself. Capture the value of your own ideas. Rather than climbing a ladder, grow a ladder underneath you.
Entrepreneur First quickly sprouted offices in London, Berlin, Paris, Singapore, Hong Kong, and Bangalore.
Thanks to a tradition of engineering excellence and clever government support for venture funds, Israel became the standout innovation center outside the United States, with breakthroughs ranging from instant messaging to car-navigation software.
Since his early life as a business journalist, Moritz had admired “the purposeful cadence of a relentless, disciplined march”—the stamina and willpower that patiently built success, one advance upon another.
You had to be obsessed—obsessed like Steve Jobs, for whom perfectionism was not a choice,
It could be inventing a new kind of burger (Impossible Foods), a new way of selling eyeglasses (Warby Parker), a fashion concept (Stitch Fix, Rent the Runway), a virtual-reality headset (Oculus), a fitness tracker (Fitbit), an affordable smartphone (Xiaomi), a scooter- and bike-rental service (Lime), a genetics-testing service (23andMe), medical robots (Auris Health), a mental wellness service (Lyra Health), a payments service for merchants (Stripe, Square), or a consumer bank (Revolut, Monzo).
Try and fail, don’t fail to try. Remember, above everything, the logic of the power law: the rewards for success will be massively greater than the costs of honorable setbacks.
