{"id":3649,"date":"2024-05-29T17:03:07","date_gmt":"2024-05-29T17:03:07","guid":{"rendered":"https:\/\/tomeri.org\/notes\/?p=3649"},"modified":"2024-12-07T22:38:23","modified_gmt":"2024-12-07T22:38:23","slug":"the-power-law-venture-capital-sebastian-mallaby","status":"publish","type":"post","link":"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/","title":{"rendered":"The Power Law: Venture Capital &amp;&#8230;, Sebastian Mallaby"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">May 2024<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I did not do a thorough reading of this book due to other commitments; the parts I have read are quite good, and so I am a bit sorry about that. Athough on the other hand this is not aligned with my current projects\/interests, so I will probably let it go. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here are the notes I have: <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/#Precis\" >Precis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/#Some_points\" >Some points<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/#VC_Strategies\" >VC Strategies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/#Pro-VC_Government_Policies\" >Pro-VC Government Policies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/#Importance_of_Randomness_vs_expertise_in_VC_investing\" >Importance of Randomness vs. expertise in VC investing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/#My_Questions_for_our_Visiting_VC\" >My Questions for our Visiting VC<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Precis\"><\/span>Precis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The book explores venture capital and its impact on the technology sector and the broader economy \u2013 looks at its beginnings in the mid-20th century and follows it up to the present day. Its theme is that VC depends on the power law, in which&nbsp;a small proportion of investments result in a few huge wins&nbsp;&nbsp;that more than compensate for all the other losses. Many big risks, a few huge rewards.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Examples covered in the book include:Fairchild; Genentech; Apple; Google; Amazon; Ebay; Twitter; Uber<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Some_points\"><\/span>Some points<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Power law is fundamental to the VC model<\/li>\n\n\n\n<li>VC relies on robust networks&nbsp;&nbsp;where entrepreneurs, investors, and other stakeholders collaborate and share knowledge.<\/li>\n\n\n\n<li>The decision-making processes and intuition of venture capitalists is often based on individual judgment rather than formal metrics or models<\/li>\n\n\n\n<li>VC allows enterprises to rapidly scale, something that is crucial when success relies on the network effect<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"VC_Strategies\"><\/span>VC Strategies<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Sector Specialization<\/strong>&nbsp;&nbsp;(e.g. in technology, biotech, or green energy) allows development of deep expertise.<\/li>\n\n\n\n<li><strong>Stage Specialization&nbsp;<\/strong>&nbsp;(e.g., in seed stage, early stage, or growth stage).<\/li>\n\n\n\n<li><strong>Geographic specialization<\/strong>&nbsp;to leverage regional expertise and networks.<\/li>\n\n\n\n<li><strong>Ecosystem Creation<\/strong>: Investing that aims to create and control a dystem of interrelated businesses.<\/li>\n\n\n\n<li><strong>Critical Factors:<\/strong>&nbsp;Rapidly growing markets, game-changing solutions, proprietary or other locked-in advantages, business models that scale (network effect)<\/li>\n\n\n\n<li><strong>Control<\/strong>: Preferred returns\/liquidation; board representation; anti-dilution provisions; drag-along and tag-along exit provisions.<\/li>\n\n\n\n<li><strong>Syndication<\/strong>&nbsp;via partnering with other VC firms to spread the risk and draw on different areas of expertise.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pro-VC_Government_Policies\"><\/span><strong>Pro-VC Government Policies<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Governments are not typically very effective at stimulating VC type investment, but here are some policies that Mallaby favors:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Tax breaks (esp. via limited partnerships) work better than subsidies<\/li>\n\n\n\n<li>Tax breaks for investors should be coupled with incentives for entrepreneurs (e.g. non-voting stock options)<\/li>\n\n\n\n<li>Invest in scientific education and research<\/li>\n\n\n\n<li>Think globally \u2013 e.g., visas for foreign scientists\/entrepreneurs; support foreign stock exchange listing; etc.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_Randomness_vs_expertise_in_VC_investing\"><\/span><strong>Importance of Randomness vs. expertise in VC investing<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Path dependency is not that great; many VC firms that have done well for a while, and then faded<\/li>\n\n\n\n<li>Examples where skill\/new perspectives obviously critical to success: KP and Genentech and Tandem; late stage approach; Y-combinator<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"My_Questions_for_our_Visiting_VC\"><\/span><strong>My Questions for our Visiting VC<\/strong> <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>How often do funded ventures radically (significantly) shift course? Is the non-financial value of VC assistance in fine-tuning strategies to suit the business and regulatory envirionment?<\/li>\n\n\n\n<li>How often is an effort made to create an ecosystem of businesses, rather than just one<\/li>\n\n\n\n<li>What are some really, in hindsight, significant mistakes you\u2019ve made? What is the smartest mistake you&#8217;ve made (in the sense that with all you knew it should have been the right call, but wasn&#8217;t). And what was the dumbest mistake you made (i.e. that you can&#8217;t believe you made that decision, in hindsight), and why did you make it. <\/li>\n<\/ul>\n<p>Views: 28<\/p>","protected":false},"excerpt":{"rendered":"<p>May 2024 I did not do a thorough reading of this book due to other commitments; the parts I have read are quite good, and so I am a bit sorry about that. Athough on the other hand this is not aligned with my current projects\/interests, so I will probably let it go. Here are &hellip; <a href=\"https:\/\/tomeri.org\/notes\/2024\/05\/29\/the-power-law-venture-capital-sebastian-mallaby\/\" class=\"more-link\">Continue reading <span class=\"screen-reader-text\">The Power Law: Venture Capital &amp;&#8230;, Sebastian Mallaby<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"activitypub_content_warning":"","activitypub_content_visibility":"","activitypub_max_image_attachments":4,"activitypub_interaction_policy_quote":"anyone","activitypub_status":"federate","footnotes":""},"categories":[77],"tags":[],"class_list":["post-3649","post","type-post","status-publish","format-standard","hentry","category-history-and-social-analysis"],"_links":{"self":[{"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/posts\/3649","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/comments?post=3649"}],"version-history":[{"count":4,"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/posts\/3649\/revisions"}],"predecessor-version":[{"id":4337,"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/posts\/3649\/revisions\/4337"}],"wp:attachment":[{"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/media?parent=3649"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/categories?post=3649"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomeri.org\/notes\/wp-json\/wp\/v2\/tags?post=3649"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}