Producer of tomorrow (part 3)

Original author: Tad Friend
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Menlo Park, California

Silicon Valley is fifteen square miles of coastline an hour south of San Francisco. Before the advent of the microprocessor era in the 1970s, the valley bore the name of St. Clara . Battles do not stop in the Valley. Armies of startups attack everyone who sets foot on this earth. The first employees of the companies — sometimes even lawyers and landowners — work for deferred compensation. They hope that options and guarantees will pay off handsomely when the time comes. And such employee loyalty does not extend to specific companies or business ideas, but to the inexhaustible promises of this land itself. “Uber is built on the achievements of thousands of people in the Valley,” explains investor Naval Ravikant) “It is based on the iPhone, and Android, and GPS, and energy-saving technologies, and online payments, all piled together in one high pile.”

Venture capitalists ensure the continuous development of the Valley. Including, supplying her with “ammunition”. They are gunsmiths, ready to take on a crazy idea and your irrevocable youth, and forge them into a team of ruthless coders armed with Thunderbolt monitors ( thunderclap ). In the old days, Apple and Microsoft started with venture capital. The same fate befell Starbucks , Home Depot , Whole Foods Market and JetBlue . Investors study Sun Tzu drawing inspiration from him and borrowing the methods of warfare to conquer markets. At the same time, venture capitalists embarrassedly hide their activities. They claim that they are “just investors,” or “working on technology,” because in the Valley that exalts the entrepreneur, they don’t want to look like ordinary bags of money. “I tell everyone that I am engaged in software development,” one of the most famous venture capitalists of the Valley told me. “I'm ashamed of the truth.”

With a rent of one hundred and eleven dollars per square foot, Sand Hill Road is America's most expensive office property market. A wide street is framed by rows of oaks and eucalyptus trees. Their shadows lie softly on two-story chalets, whose modest facades tell of the realm of the spirit of inconspicuous consumption violated only by Tesla cars napping on the lawns. This is a community of paranoid optimists . The best companies alternately collaborate, then compete. The company is suspicious if it did not manage to receive financing from the top five funds. But she will face envy and jealousy, if suddenly she succeeds. Here, this malevolent relationship is called "conquering" . Companies trumpet their insolence, and at the same time follow each other. They are like lemmings, conducted for new products - pen input, biotechnology, interactive television, superconductors, clean technology - and they step over the edge of the cliff.

It was here that venture capital turned into a profession when, back in 1968, an investor named Arthur Rock ) secured financing for Intel. Gordon Moore (Gordon Moore ), co-founder of Intel, coined the wise phrase “wolf capital” , since venture capitalists strive to nibble you to the bone. If you are lucky, then one of the millionaires who deigned to work several hours a day, habitually being late for the pitch, will take half of your company so that later, without asking for advice, replace you with CEO. But a venture investor can be a blessing to you. The highest approval of the largest funds is so appreciated that entrepreneurs without objection agree to lower the estimate by a quarter, if only to conclude a deal. Patrick Collison , co-founder of Stripe online payment service, says that when he received seed funding from Sequoia, Peter Thiel and a16z, "it was a very noticeable positive signal for the banks we wanted to work with." In the next round, the company's valuation reached one hundred million dollars “for a company that is just getting ready to launch, under the guidance of a completely inexperienced entrepreneur, with well-known customers,” Patrick explains with a grin. Stewart Butterfield ★, co-founder of Slack’s office messenger , says the same thing : “It's hard to overestimate how much the quality of the foundation affects how you are perceived. Investing in you sends a signal to other funds, potential employees, customers, the press. It's like going to college. ”

A venture capital company (say, one hundred and fifty million) convenes bayonets under banners, urging investors such as university and pension funds to become "limited partners" . The company invests for three to four years, then collects profits until the end of the ten-year investment cycle of the fund. In theory, venture capitalists, like entrepreneurs, are motivated by deferred remuneration. The standard deduction rule is two and twenty : two percent of the fund annually, and twenty percent of total profits. (The largest funds, including a16z, charge thirty percent.) Limited partners expect returns at least at the level that can be obtained in the stock market, plus five percent for the illiquidity of investments. The best of the companies dream of an increase of 5 to 10 times.

Currently, the gross volume of venture financing is less than 0.3% of US GDP. “Risky investments are often called rounding errors in the economy,” explains Herbert Allen III , head of investment bank Allen & Company. “But the investments come back handsomely. It is venture capital investment that is the main source of optimism that supports the American myth. . ”High-risk investments accelerate the cycles of American impatience: what is already bad and what comes to replace is good only until the turn comes to supplant these new products.

Corporate culture, social responsibility, support for the foundations of society - all this does not concern venture capital. Andy Weissman , a partner at Union Square Ventures , New York , believes venture capitalists in the Valley are the perfect embodiment of the driving force for capital that economist Joseph Schumpeter called “creative destruction” . Weissman continues: “All Silicon Valley ventures are techno-optimistic. They have an unceremonious belief that it is possible to take geography and remove all obstacles, leaving nothing but free flows of capital and ideas. They consider it a good deed, a good goal, to creatively destroy everything that was here before them. ”Some Valley capitalists believe that these values ​​would have a greater impact if their community left America: just give the Andrissen nerd nation a plane and a piece of land. Peter Thiel prefers "mooring" - the creation of floating cities in the middle of the ocean. Balaji Srinivasan ), more recently, the general partner of a16z, and now the head of one of their Bitcoin companies, has called for "final departure." He assures us that the United States has become numb like Microsoft, and that the power of the Valley exceeded Boston, New York, Los Angeles and Washington combined. Srinivasan believes that its inhabitants should "build a society with voluntary participation, based on technology and driven by them, completely independent of the United States."

Playing in Silicon Valley, while it remains part of California, does not require hellish intelligence or the skills of opposing investment : everyone can turn on. And it’s not even about wealth: it’s easy to become a billionaire just by sitting in the same room with Mark Zuckerberg . The point is the ability to anticipate. It is it that allows you to remove all obstacles to a radical purity of perception. You will not be stopped by rulers, rules, manners, people. Can you not only see the future, but realize it? ▼

Part 1 | Part 2 ← | Part 3 | → Part 4 | Part 5 | Part 6 | Part 7 | Part 8

About the Author: Ted Friend has been a regular contributor to The New Yorker since 1998. The author of a variety of reports and investigations, a multiple winner of awards in journalism.
Photo: LPS.1 (Own work) [ CC0 ], via Wikimedia Commons

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