The Economist - USA (2022-01-22)

The Economist January 22nd 2022 Culture 77

Venturecapital

Risky business

N

oteveryoneisa fanofventurecapi talists(vcs).Oneacademicfamously questioned whetherthey were “soulless agentsofSatan,orjustclumsyrapists?” PaulGraham,thecofounderoftheY Com binator startup incubator, published a “unifiedtheoryofvcsuckage”,inwhichhe likenedtheindustry’sinvestmentprocess toa bodycavitysearchbysomeonewitha faultyknowledgeofanatomy.Venturecap italists,heconcluded, resembled classic villains: “alternately cowardly, greedy, sneakyandoverbearing”. Morerecently,vcshavebeenblamed forpropagatingsomeoftheillsofBigTech: themonopolisation ofmarkets,theero sion of privacy and the degradation of workers’rightsinthegigeconomy.Byprio ritising growth over governance at all costs,theystandaccusedoffeedinga reck lessly aggressive capitalist culture that contributedtoscandalsatUber,WeWork andTheranos. In“ThePowerLaw”,SebastianMallaby acknowledges some of the industry’s shortcomings,mostnotablyitsshocking lackofdiversity.Buthezealouslydefends theoverallachievementsofthevcindus try,whichhasfundedmanyofthemodern world’smostusefulinventions(searchen gines,smartphones, vaccines),disrupted cosymonopoliesandgeneratedeyepop pingwealth.Heevenclaimsthatvcs have emergedas a“thirdgreat institutionof moderncapitalism”,combiningtheorga nisationalstrengthsofcompanieswiththe flexibilityofmarkets.Littlesurprisethat thevcmodelhasnowgoneglobal,with particularlystrikingresultsinChina. Inhiswellresearchedbook,leavened bylively portraitsofleadingfigures,Mr Mallabyexploresthehistoryofthevcin dustryandthereasonsforitsvitality.A journalistatTheEconomistinthe1980s90s (and husband of the current editorin chief ),hepreviouslywrotea studyofthe hedgefund industry and an acclaimed biographyofAlanGreenspan. SomehistoriesofSiliconValley,suchas MargaretO’Mara’s “TheCode”, haveem phasisedtheimportanceofAmericanmil itaryspendinginseedingthewestcoast techindustry.MrMallaby’sfocusisover whelminglyontheentrepreneurs,inves torsandfirmsthatnurtureditsgrowth.

Muchofthevcindustry’ssuccessisattrib utedtoitsmentality.Inevaluatinginvest ments,vcs stilltakeafterthepioneering ArthurRock,whozeroedinonthe“intel lectualbookvalue”ofacompanyrather thanthefinancialkind.They acceptex tremefinancialrisk,embraceimmigrants andtolerate nerdsandmisfits, who ac count for somany successfulentrepre neurs.FourofPayPal’ssixearlyemployees reputedlybuiltbombsinhighschool. Whilevcs lovebackingcompaniesthat enjoysocallednetworkeffects,theybene fitfromtheirownversionofthisphenom enon,too.SandHillRoad,wheremanyof the leading vcfirmsare clustered,may havetheairofa rowofgentlemen’sclubs butit hasenabledthefreeflowofideas,fa voursandconnections.Thatispartlywhy theSiliconValleymodelhasbeensohard toreplicateelsewhere. Astheauthordescribes,thevcworld hasexperiencedconsiderablechurninthe past 60 yearsandhaslatelybeendisrupted asmuchasithasbeendisruptive.Capital richoutsiders,includingdstGlobal,Soft BankandTigerGlobalManagement,have allmuscledinonwhatwasoncea cottage industry.Bydeployingmassesofmoney laterintheinvestmentcycle,theseindul gentnewcomershaveenabledstartupsto delaylistingonpublicmarkets.InMrMal laby’sview,thattrendpartlyaccountsfor the misgovernance at some scandal riddentechcompaniesbecauseithascut thetiesbetweeninterventionistvcinves torsandfreewheelingentrepreneurs. Some westcoast vc firms, such as SequoiaCapitalandAndreessenHorowitz, haverespondedtothenewchallengersby raisingeverbiggerfundsanddiversifying, both geographically and sectorally. This hasonlyfuelledtalkthatSandHillRoadis becomingthenewWallStreet.Yeteventhe biggest traditionalvcfirms remain tiny comparedwithgiantpublicmarketfunds. Someinvestorswonderwhytheyshould botherwithriskyvcbetswhenthereturns inpublicmarketscanbesospectacular. Take Apple, which recently popped above $3trn in market value compared withthe$1.8bnitwasworthwhenitfloat edin1980.Itseemsimprobablethatthevc industry,whichhashelpedsomanystart upsto“blitzscale”,caneverdosoitself. n

A history of the venture-capital industry defends its contribution to capitalism

The Power Law. By Sebastian Mallaby. Penguin Press; 496 pages; $30. Allen Lane; £25

................................................................ John Thornhill We identify the reviewers of books connected to The Economistor its staﬀ. Mr Thornhill is Innovation Editor of the Financial Times.

Hip-hoprevolutionaries

Hearing lessons

T

hesubtitleofthisbiographyof the hiphop producer James Yancey—Jay Dee, J Dilla—makes the claim that he “rein vented rhythm”. To test that bold assertion, launch a streaming service and cue up the album “Voodoo”, by D’Angelo, released in

Once the opening track, “Playa Pla
ya”, reaches its groove, around 90 seconds
in, try tapping your fingers against your
thigh in time with the bassline.
You’ll find it almost impossible. Pino
Palladino, the bassist, thought that the
rhythm sounded “wobbly”. The notes fall
in the wrong places—on the wrong beat in
the bar or moved slightly in time, just be
fore or behind where the ear expects them
to be. The effect is to make the music feel
woozy and destabilising.
What you’re hearing is “Dilla time”,
which, Dan Charnas argues fairly convinc
ingly, reshaped the sound of hiphop—and
thus the sound of pop—its wrongness add
ing a human element to music that had
previously been focused on mechanical
precision. Mr Charnas’s book attempts to
be more than a biography: interpolated
between its chapters on Dilla’s life are oth
ers that explain how musical time works,
and how Dilla interpreted it in the tracks he
made for himself and as a producer and
inspiration for others.
“Dilla Time” is at its best when the two
strands come together; in the section on

Dilla Time.By Dan Charnas. MCD; 480 pages; $30 and £23.99

The Economist - USA (2022-01-22)

Get our desktop app

Company

Features

Documentation

Resources