Sebastian Mallaby on How Venture Capital Made Silicon Valley

Who Knew. We avoided talking about anything having to do with the Maestro or the Federal Reserve, or interest rates or inflation, and instead spent the full conversation discussing Mallaby's new book, The Power Law, Venture Capital in the Making of the New Future. I was so so fan of the green Span book because I'm not a fan of green Span. I loved Mallaby's prior book, More Money than God, all about hedge funds, and and this book is I think his best yet. The History of Silicon Valley told

from the perspective of historian. He he really brings a very different lens and filter uh to looking at how Silicon Valley developed. All the things that are so different relative to um traditional investing, East Coast investing versus West Coast invents that investing, how they embrace risk, what a power law is, while you're why you're not looking for diversification,

why you expect most of your investments to fail. And it's just a handful of companies that are responsible, uh for for the vast majority of your returns, and hence the tendency to spread a lot around money around on a lot of companies and a lot of entrepreneurs and a lot of startups looking for that unicorn that's going to really be the driver of your funds returns. I really really like the book, and I don't just say that.

I I thought it was tremendous. I plowed through it over a couple of weekends in the dead of winter. I think you'll not only like the book, but you'll enjoy the conversation. So, with no further ado, my interview with Sebastian Mallaby. This is Masters in Business with Very Results on Bluebird Radio. HI extra special guest this week is Sebastian Mallaby. He is the Paul Volker Senior Fellow

for International Economics at the Council on Foreign Relations. He is also a two time finalist for the Pulitzer Prize and editorial writing. He has been a columnist at The Washington Post, The Financial Times, The Economist, The Atlantic. He is the author of multiple books, including The Man Who Knew, the Life and times of Alan Greenspan, More Money Than God, all about hedge funds, and the making of a New Elite. His latest book is out February one, The Power Law,

Venture Capital and the Making of a New Future. Sebastian Mallaby, Welcome to Bloomberg. Great to be witty, Barry, Great to have you again. Last we spoke was about five years ago, after the Greenspan book came out, and I have to tell you I've really enjoyed your book on venture capital. But before we get to that, I want to just for people who may not be familiar with your career, Uh, just do a little background. How did how did you get started in journalism and what were you covering early

in your career. Well, I joined The Economist magazine right out of college, and I had stints as the Africa correspondent, the Toke Care correspondent ben A bit later, I was Washington Bureau chief, had some time in London when I was covering sort of fund management and finance UM and I was in South Africa actually when Nelson Mandela walked out of Jailand. I always say, my career has been downhill ever since. Really intrigued. So so you were covering apartheide,

you also wrote a book on that. How did you pivot towards markets and technology and the economy when it was one of those sort of unplanned, step by step journeys, um, as I was saying, you know, I was, I was covering South Africa. Mandela came out of jail. It was incredibly exciting, and that was the springboard for my first book after apartheid, which was about what would happen next

in South Africa? And I wrote that, um, you know, as a sort of young man in a hurry in my late twenties and didn't write another book for for you know, maybe a dozen years or so. And then I wrote a book about the World Bank and development economics, and so there was an overlap with the previous book.

It was, you know, had a bit of Africa in it, and it was about lifting countries out of poverty and development, and but there was also this other side to it, which was the economics, um and that was kind of the segue to then writing about finance. I don't know how the financial journalism, but I hadn't written books about finance, but I I I took on this challenge of writing my hedge funds, and I spent a good long time

on that and all my books. The reason I get to come on your show um at these five year intervals is I need to speed up in the tabolism so I get to talk to you more often. Well, I will tell you. I think the reason is you put so much time and effort and research into the book that it's not the sort of thing that I'm always impressed with the people who can crank out a book every twelve to eighteen months. It's pretty clear that you put a ton of heavy lifting and deep, deep background.

And I'm looking at a advanced copy, so I see all the footnotes of which and end notes of which there are thousands, but I don't see the index. I have to imagine, Um, you put a ton of work, research work into this book. Yes, I mean my view is better the right a book that's really worth the reader's time, um, and to take my time over it and really get it right. I mean I'm a perfectionist by nature, and I indulge that side of my character when I'm when I'm doing these books, so, um, more

money than God. The hand Fund book took me, you know, four or five years. The next book was about Alan Greenspan, so that was another slice of financial history instead of public markets in the central banking m And now I've taken another five years or so to to do a deep dive into technology investing in venture capital. Um so um. You know, one thing leads to the next. So let's start talking about the power law and we'll get to

exactly what that is in a bit. I want to start just so so listeners have an idea of how far back your research goes to nineteen fifty seven and your discussion of what you call liberation capital or defection capital, which is really a group of folks working for a particular company in California and they decide they've had enough and they want to go out on their own. Tell

us a little bit about the genesis of that adventure. Sure, I mean liberation capital is a term I used to capture the absolutely key thing about venture capital and what they were doing right at the beginning of the history

of venture capital. So back in the nineteen fifties, it was the time of big business, big labor, big government, and so on, and and people who worked in these big bureaucratic institutions were famously profiled in the book of the Time Organization Man, and you know, the title kind of tos you what you need to there, all about

loyalty to the organization. And then in along comes this, uh, this financier Arthur Rock, who was really the pioneer of West Coast Center Capital, and he shows up in the valley and he liberates eight scientists who were working at one tech company they didn't like and they want to leave that company, and he raised his capital for them so that they can set up their own company. And

that's called Fetchild Semiconductor. And really that liberation of those those eight scientists, and it was such a radical thing to do at the time. They were known as the eight traitors, like leaving your former employee is a treachery um.

And and from the time that they got that money from Arthur Rock and they were able to be liberated and to found their own company, you know, from that moment on the old corporate ideas about hierarchy and loyalty and lifetime employment and retiring with a gold watch, all that stuff. It was forced into the defenses, and talent

had been liberated and the revolution had begun. So I want to get into some of the details of of exactly how this talent was liberated, but to paint the broader picture, there's a data point in the book that's really quite astonishing. So fair Child dates back to ninety seven. By well over half a century later, seven zero of the of the publicly traded companies in Silicon Valley trace their lineage back to fair Child. That's really an astonishing

data point. And what happened to explain that data point is that once off the Rock that further adventure Capital had sort of liberated the eighth Scientists to set up fair Child. He then turned around and liberated some of the members of that group of eight another time. You know, he would spin them out, raised capital, move them to some other company that he had invested in. And at the end of the story in Um he liberated even the two leaders of fair Child and they set up

Intel with capital raised by Arthur Rock. And one of the eight Scientists was Eugene Kleiner. And I don't want to jump ahead too much in the story, but an Incliner set up kind of Perkins, which in turn invested in all these other value companies. So the point is that, you know, one liberation led to others, and it set off a kind of Cambrian explosion of all these startups

in Silicon Valley. And I think it really illustrates the point that if Arthur Rock had not come along and financed fair Child, Sunly Conductor, the valley as we know it today might never have developed. Huh. That that's really intriguing. One of one of the really fascinating observations you make in the book is the difference between the East Coast form of I don't even know if I could call it venture capital. It's really more private equity or asset management.

It's very risk averse, it's very diversified, it's a little slow and and maybe I can even use the word timid, whereas the West Coast is much more aggressive. To what do you ascribe those really radical differences in risk tolerance? Well, I think the East Coast, um, I mean, as you're

as you're indicating, had a whole financial tradition, um. And if we're thinking about the late fifties, we need to remember that that financial tradition were still shaped by the memory of the nineteen twenty nine crash from the depression in the you know, hadn't really quite recovered um into the nineteen fifties. I mean, people were you know, the companies were called fidelity, they were called prudential. The very

names signaled sort of responsibility and risk aversion. And so although there was some venture capital around Boston, uh and indeed in New York, it was less risk hungry than than the West Coast kind. I remember speaking to one of the Boston one of the early Boston venture capitalists, and he told me kind of proudly, um that he had made I don't know, forty bets or something in his career on different forty forty different startups, and only one of them had lost money. And he presented this

as a great achievement. Of course, if you said that to a West Coast venture capitalist, the response would be, well, you're a loser. I mean you you're not taking enough risk because only one of them fails. You're being way too timid. You could never really make a you know, ten X class return if you're not taking not sticking your neck out more than that. So there is a

different financial culture. I think it began with Arthur Rock, as I've been saying, I think he just he just had a willingness to back outsiders, and he was very quick and very early to understand you know, the key point that I think the East Coast didn't didn't get and the West Coast did get. And that was precisely the parallel the idea that the way to win in venture capital is not to avoid losses, because startups are intrinsically risky and you will lose money on lots of them.

The way to make money is to make sure that when you win, you win. We're really big. This is a home run business. This is not a business where you try to make you a five percent gain, a tempercent gain here and there. This is about swinging for the fences and the best kind of defenses offense. And Arthur Rock would would say this. I mean, I went back and read his speeches that he gave him the early sixties, um and he was pretty clear about saying, you know, it's not about whether I lose on some

of my bets. I mean, you can only lose one times your money. What matters if the bets where you make, you know, ten times fifteen times, twenty times what you what you pretend that's the home game? Huh. And the other factor that I thought was really fascinating that I was aware of but didn't realize how important it was. But you do a nice job of explaining this in the book. California does not allow non compete agreements for

corporations relative to their employees. If you want to quit McDonald's and walk across the street to Burger King, the lord doesn't prevent you from doing that. That was a very different setup then a lot of other states, especially back east, had to tell us what the lack or the illegality of non compete did to the culture in

Silicon Valley. When I think a key insight about how innovation happens and why some innovation clusters are more productive and creative than others is that you've got to You've got to circulate people inside the cluster. It's all about you know, you've got You've got a certain amount of human talent, engineers, marketing executives, people who know it to

make startups work. And these people are conducting experiments. Each each startup is an experiment, and each is a long shot experiment because the majority you are going to sail. And so the whole game here is that that network, that ecosystem needs to circulate talent rapidly UM in order to move the people into the right places where they

can be that a talent can be best put to use. UM. And if you've got a start up and it's raised some capital normally, um, you know the capital is enough runway to last say six months, nine months, and then you identify the talent you want to hire with that money. If you had to wait for six months because of some non compete agreement before that person joins your startup, well then you run out of runway before they even get that. And so the ability to hire people and

have them moving quickly is key. And UM, that's what California law makes easier because you cannot enforce none competes very easy easily in California court. And that's different to

no states in the US. And to put this into context about how easy it was to set up a company and move forward, Bud Coyle, when when the traitorous eight were ready to leave and set up Fair Child, he pulled out ten CRISP one dollar bills and proposed that all eight men should sign each of them and that will was their contract during the early days of liberation capital. Was it really that simple, here, all of us, let's sign a dollar bill and that will loosely be

our our agreement. I mean the bud Cone after Rock's partner on the fair Child financing and when you're right, when he and Rock reached the agreement with the eight fair Child scientists, they all signed dollar bill, and of course it was symbolic, right, this is not a real contract, But I thought it was a pretty vivid signal, right, because it's partly about the informality of venture contracts that although I think they had another contract, a real contract

which was drawn up a bit later, in terms of kind of the blood bond between them all, you know, signing that dollar bill was was the sign that they were all in. And so it's partly the informality and partly the way that fundamentally all of the invention and entrepreneurship in the valley is founded on the financing that underwrites the risk. So the fact that you know, what they signed was money struck me as quite a vivid symbol of how Cilicensanni got going. Huh, quite quite fascinating.

So let's talk a little bit exactly what power laws are. Most of us are familiar with the Bell curve or more traditional Gaussian distribution that are kind of evenly spread out. It's a nice smooth distribution. Power laws are not like that. Could you explain to us what exactly our power laws relative to what we're usually used to, Right, so, whether Bell curve or normal distribution, nearly all the observations are

close to the average. So and a good example is, you know, the average American man is five ft turn inches tool and two thirds of American men are within three inches of that. So you know there are some basketball players there are way more or whatever, but it's it's rare. And stock market returns are another example of something which isn't perfectly normal, but it's kind of approximately close, and really wild market swings happen, and that's why we

have crashes, but they're actually statistically pretty unusual. You know, most of the time the market is just oscillating a little bit from day to day. But some things in life absolutely do not follow anything like that. Normal distributions.

For example, whereas the height of people is a normal distribution, the wealth of people is a power law distribution, meaning, um, you know, some people will be just massively richer than the average, and we'll pull the average up um or take academic citations, some small fraction of academic papers capture the lion's share of all the sites. And these skewed distributions are called power law distributions. And that's what you get with with venture capital and startups. Most startups fail

and the investors return is zero. They lose all their money. UM A few like maybe depending exctly on on you know, which period of time you're looking at, how strong the tech market is and what have you. But if you are gonna just take off into the stratosphere and have this exponential rights and so that that minority, it's a bit like if you think about the cinema, the the analogy of the cinema, and you know, the tallest guy walks out, it's not going to change the average height

in the cinema very much. But if you're talking about the wealth of the people in the cinema and Jeff Bevels is in the cinema and he walks out, it's going to radically change the average. And and that's what you've got you're you're looking at with. With venture capital, there's a few absolutely start come benese um which dominate

the returns that venture capitalists are going to earn. And once you understand that, it means as a venture capitalist you can't just invest by going for a modest return while protecting your downside. The whole game is to get a piece of the exponential winners. Venture capital is a game of grand slams um and I think that power lew is so central to the way that venture capitalists have to think that that's why I took it as

my title. It's a parallel. So so to put some numbers on this venture capital firm, Horseley Bridge ran an analysis over the investments they made over the course of it looks like thirty years into seven thousand startups that they backed, and it turned out that only five of those those startups generated of the returns over the total funds, and some other people have said it's even more lopsided.

Peter Tiel pointed out the biggest secret and venture capital is that the best investment in a successful fund usually equals or outperforms the entire rest of the fund. So so that sounds like that is really very skewed compared to what we typically think of, at least in a diversified portfolio. Yeah, I mean the whole idea of diversification that something that basically got thrown out of the window

when venture capital was invented. UM. You know, if you think about the normal idea, you make a lot of bets, you try to diversify, UM, you're thinking about your risk return balance. UM. That kind of public market mentality is totally alien to venture capital investing, where you're making concentrated, all liquid bets in actual companies that you can't exit UM, and they're either gonna do incredibly well and take off or they're gonna you know, run into the ground, UM

and so. And you know, they're all in tech. It's not avert side. And in fact, a lot of venture capitalists specialized personally in some subsection of tech. You know, they're they're fast dcs or they are um, you know, med tech, medical technology vcs or whatever it is. So they are completely the opposite of diversified UM. And it's kind of like, you know, it's all in boots, boots on the ground, no, no no hedging at all. UM.

And in a way. You know, That's what's partly what sort of attracted me to to writing about venture capital is just so different to public market investing UM in in many ways, but that's one of them. So I really like the way the various ages of venture capital are elucided in the book. You started with Liberation Capital. Let's talk a little bit about the next phase of of venture investing, hands on activism and stage by stage finance.

Let's let's discuss each of these, right, So, after Arthur Rock established the idea of Liberation Capital, the next phase is the seventies, and this was marked by the founding of two famous partnerships, both in Seka Capital and China Perkins. And as you say, the first innovation that these guys brought was really to be hands on, to be to roll your sleeves up and get involved in the shaping of the company. Um And one of the Coya's first

investments was in the pioneering video game maker Atari. They had a game called Pong. It was pretty simple. You pappled the you moved paddle up and down and and you tried to kind of you know, hit the hit that little dot on the screen that was coming towards the paddle. Uh. And I think the instructions were basically one line, avoid missing ball for high school. So you could put this game in a bar and didn't matter

how drunk you were, you could still play. And and so Dog Valentine, the founder of the Choir, backed Attari because the games were popular and they were selling. But at the same time, Attari as a company was an absolute managerial disaster. I mean there were no financial controls. The board meetings were held in a hot tub, and it was you know, people would get paid travel expensive before they traveled, and they would just make off with

the money and never show up again. Um. You know, on Friday afternoons, people would race to the car park to jump in their cars to get to the bank and cash their paycheck because whoever didn't move fast enough to find there was no money to collect any money and no money left in the bank account. Um. So you know, most investors would have looked at this mess. They would have visited the factory and inhaled the marijuana smith of heavy in the air and they would have said, hey,

and I can't do this. But Don Valentine, the founder of Sequia, was not intimidated when they said the board meeting will now take place in the hot tub, he just took his clothes off and got right into that hot tub. By the way, he was a former Navy water polo player, so this business of showing off his

chest actually probably worked in his favor. And because of his physical and intellectual force of character, he basically beat the Atari guys over the head until they had a company that actually did function, and it got to the point where it was functional enough for a serious company, Warner Brothers to buy it, and Sakia got out with a great profit. So the point here is this is, you know, this is not for the faint of heart.

This is you know, you see the glimmer of genius in a creative startup that has got a good team of engineers who are building, um, you know, pioneering video games. You say, I can make something of that, even though the rest of the company is a totally chaotic mess UM.

And so that was that, that was their hands on And then the second thing in the seventies UM, which is you know, equally important, is the idea of investing stage by stage, you know, putting some money in watching the progress and then if there is progress, you put some more money in. And the best example here was probably the company Genentech, the first biotech company which created

artificial incidents. And when the Genetech founders tried to raise money, they went to Tom Perkins, the co founder of Kline Perkins, and they asked for half a million dollars to hire scientists, you know, set up a lab and get close to a first product. And Tom Perkins looked at this and he thought, well, look, you know, making the first ever artificial incident, that is a serious technical challenge, and it's just too much for me to risk half a million

dollars on something which is serious frontier technology. So instead of betting you half a million, which would have been painful to lose, he instead invested a hundred thousand bucks and told Gnantech to use it to eliminate what he called the white hot risks, so, in other words, the most obvious things that could just kill the whole idea of debt. And if they could get past the white hot risks with just a hundred thousands, then he would give them some more money and they could go to

the next set of risks. And that way, if gnantech was to sail at least it would fail cheaply, and that idea stage by stage financing turned a company that would have just been too risky and expensive to bet money on into something that actually became a very attractive investment. And today we would think of that really is angel and then seed and then a round, B, round C round that they were inventing the playbook as they went.

It didn't exist the way it does today. Let's stay with the concept of these new developments and talk a little bit about the network effect what took place in Silicon Valley as they progressed to create a network that

impacted the entire region. Right, So if we if we think about that, the ark of the history um you know, the the late fifties and sixties is about the idea of liberation capital as we discussed the kind of first half of the seventies is about proving these ideas of UM hands on investing and stay ah by stage financing.

And then the next thing that happens is you've got the basic tool of the basic venture capital tool kit and you layer on top of that an explosion in the number of centure capitalists who are out there using these tools. Um and what happened is that, you know, there were a couple of tax changes and regulatory changes about which kinds of institution could put money into into venture capital, and suddenly fundraising by these these went up massively.

So you know, the average in the mid seventies of like forty two million dollars a year. Between seventy eight and eight three, it was nine hundred and forty million a year, so an enormous increase in the amount of money. And that meant that one of a sudden, there are enough centure capitalists running around Silicon Valley that they fundamentally

changed the business culture. Everything speeds up. Startups are getting formed faster, there are more of them, more new technologies are getting built, human talent is circulating from one startup to another one at a higher rate, and all of that creates this flywheel where Cilicon Family becomes just the most productive and creative and inventive innovation cluster in the

world thanks to you. Just it's great to have a few small venture capitalists using the basic tools, but when you have a lot of them all running around at the same time, it's more than just a few deals. It's a whole culture of taking risk, having the guts to start a new company. All of that becomes enabled by venture capital. So there's a fascinating tale about how some companies that seem to have a hard time getting funded instead get passed from venture capitalist events a capitalist.

Rather than just say no, it seems there's this tendency to say, I know somebody who you might be better suited to speak to than me. Tell us a little bit about that network effect and why it makes Silicon valleys such an economic powerhouse. Sure, well, I think it comes back to this idea. I just hinted that a bit earlier as we were talking about how the key to innovative experiments is to have the right people there to to conduct them, and so moving people around a

cluster is super important. This is I mean just a little digression here, but Um, one of the things I was puzzling over as I was working on this book is that you know, in the economics literature, which I was familiar with, UM, when you when you wrote about a clusters, I mean, when economists talked about clusters, they are talking about you know, if you put everybody in the same place who does movies in Hollywood or finance

in New York or what have you. This is good because you know, if you want a particular special effects um actor, you can find them in Hollywood, because it's just like exactly the kind of person who jumps out of a four story window and does a certain kind of you know, somesault on the way down or whatever. Whatever specialty you need in a in a deep labor market which will be provided by a cluster, you can

find it. And so it's this kind of optimal matching of skills to the needs, which is why clusters work. And that's all very well and quite persuasive, but it doesn't tell you why if you have got two clusters that have the same number of people in each, why would one cluster do better than the other cluster. And that's pretty much what was going on around when you compared Silicon Valley to the Boston Tech cluster. There was this route one thing. It grew out of the military

industrial complex. There had been these companies like Raycion and Deck and and Wang and and so on, and so there were these two rival tech centers in the US, and Silicon Valley during the pulled ahead and absolutely crushed Boston.

Why was that? And the best explanation I could find was from a sociologist, not an economist, at Berkeley called analy Saxony and who wrote a book called Regional Advantage, where had a story which I find completely persuasive, is basically that you know, they were vertically integrated, hierarchical, secretive companies around Boston, and if somebody in a Boston company like Deck or Wang or whatever had a brilliant new idea and the boss didn't like it, the idea was dead.

The engineer was not allowed to pursue that idea, and the idea would not be leaked to a rival company because everybody was secretive and there was no cross pollination between these companies, whereas in Silicon Valley there was this bubbling cauldron of startups and you know, people would go to the there was this you know, dina kind of bar players called Walker's Wagon Wheel, and all the engineers would meet there after work and they would trade ideas

about stuff they were working on. Nobody cared about trade secrets um and that meant that you had this circulation of ideas going on. And as we've discussed, there were no noncomplete so you could also move from one company to another. And so the point is, whereas ideas were sort of bottled up in these secrets hierarchies. In one cluster Boston, ideas were circulating, and so we're people circulating in the other cluster, Cilicon Valley. That's why Cilicon Valley one.

And what I'm trying to add with my book um is to put on top of that good work by Unily Saxonian an additional idea, which is to say, okay, So it was the circulation within the cluster, the fast moving of ideas, people and money until they reached their optimal use. That's what made Silicon Valley work. That's what made innovation turbo charged. But where did that fast circulation

come from? And my argument is it comes from centric capitalists venture capitalist of the people who are financially incentivized to get up in the morning, have breakfast with one person who is an entrepreneur that they might fund, and then have fourteen cups of coffee before they get to bed with different people because either it's another deal they're trying to do, or it is a meeting with somebody that they funded last year and now they need from

advice or it's a company that you know, needs to have five more engineers, and so they're going to interview the is the VC is going to interview the engineers. Dcs are like the flowers flying around the garden pollinating the flowers moving or the bees, I guess, moving the problems from one flower or another. And and that's what

connects up the cluster, the the network. And that's sort of just super important for getting all the limited resources of people and ideas and money into the right mixtures to create really fertile experiments that make the value work. And so I think, you know, you know, I'm not sure I've given you quite the answer you wanted, but in a general way, the key thing about venture capital networks is that they connect up networks and they transform

their productivity really interesting. Let's let's talk about two other developments in the venture world, speed and size. And let's start with size talking about soft Bank, when when they came to California from Japan, their approach was, we have very deep pockets, and we want to give you not just a few hundred thousand dollars or a few million dollars, but here's a hundred million dollars and if you don't take our money, we're going to go to your competitor

and offer them a hundred million dollars. There's only room in the space for one of you. And whoever takes our money wins. Tell us a little bit about the impact and advantage of size, right, So that's a story you're you're you're alluding to of the financing of Yahoo when mass Son came and made exactly that proposal. Basically, you know, you said to Jerry Yango Yahoo, Um, I'll write you a check for a hundred million. And when Jerry Yangford I don't want it, I don't need it.

He said, Jerry, everybody needs a hundred million and if you don't take it, our financial competitor um. And what was sort of you know, the significance of that moment was partly that the VC who had funded Yahoo in the Series A round was Michael Morrett's of Sequoia Capital, who was just done emerging as sort of the leader of Sequoia along with Doug Leone, his partner, and Morett took away from that experience an absolutely firm determination that

he wouldn't be muscled again. He wouldn't allow somebody to come in and say, you know, this is a take it or leaving offer. It's an offer you can't refuse, you know, Don corleone style. You know he was going to avoid that. And that is why Sequoia in the late nineties started to try to get its own big

check writing capability off the ground. In other words, a growth fund which wouldn't just be doing as you say, five minute ten million checks to Series A, Series B, but would be writing much bigger checks series C, series D two companies and allowing them to carry on growing before going public. Now you can see the logic right that, if if one player like Massi's son from soft Bank, has that godfather likability, you know, take it or leave it um, others are going to want to muscle up

and get that capability as well. Whether it's good for the venture couple system is a different question. I'm not sure it is, because I think that at a certain point, going public brings transparency to tech companies, and that can be healthy. I didn't think that staying private for too long is necessarily the best way to govern tech companies.

All right, So that's the size discussion. Let's talk about speed, uh and and in particular Tiger Global, who seems to be investing at a record pace and and forcing the rest of the VC industry to to keep up. Is this a smart way to make investments and what are the ramifications of this emphasis on speed? Yeah, great question.

I mean I I spent some time with Tiger Global when I was doing the research, and I and I talked to the two leaders chose Coleman and scotch Life for quite quite a bit, and I was spect him a lot, and I you know, they're very smart investors and they've built an amazing company. And I think the critics outside to say, you know, this is just purely training money at the wall are exaggerating because I think,

you know, these guys are smarter than that. But um, I actually don't think that what they're doing is particularly healthy for the technology ecosystem. I think, you know, it's better when capital, you know, is a bit tougher to raise. Investors cannot be taken for granted, and if you want money, you need to be you know, transparent, responsible and have a convincing plan about how you're going to use the money.

And I think Tiger probably does a much better job than most at being able to combine some sense of what they're investing in speed right, because they've got a whole machine which has figured out which kind of which which sort of segments of the tech space they believe they're going to do well. Who are the market leaders in those spaces? I mean they do almost by a matrix, right, they have this, you know, here are the here are

the turn technologies we think are going to thrive. Here are the number one and number two players in each space. We're going to back the two leaders because we think that this is generally a winner takes Also, one of the top two is going to win. UM. And if you take those boxes, then we don't really need to ask any more questions. We know we want to invest in you, and we will move incredibly fast, beat the competition, and we will not weigh you down. If you're the CEO,

we don't. We understand you don't want your investor cheering up your time because you've got other stuff to do. UM. So that's their playbook. It works for them, it's a good competitive tool. It probably works for their investors. I don't think it's healthy for the for the tech world as a whole, because I think you end up forcing others to be fast, which means they don't do due diligence, which means there's just a kind of a race to write checks. And that's not thoughtful, it's not you know,

discriminating as between good companies and bad companies. And I think in the end that just inflates bubbles. And we may be feeling that right now. So we already discussed power laws, which are the non typical bulk of distribution, where it's a tiny percentage of the sample set are responsible for the vast majority of the performance. Let's talk about some other laws that come up, starting with Moore's law.

Tell us a little bit about Moore's law. Well, Gordon Moore was the one of the founders of fetch Our Semiconductor, that company we started by discussing, and then he went on to be a co founder of Intel, and he made this observation which wasn't really a law, it was just an empirical observation about this is how things were working, is that you know, semi conductors would double empower every two years. And that's sort of one example of something

which some venture capitalists referred to as tech beta. In other words, if you can invest in a company that is making something using semiconductors and you know that the semi inductor is going to become twice as powerful two years from now, you know that whatever you're making is going to improve in performance and quality and stability to delight consumers just because of Moore's law is is is kind of like the wind that you're back, so you can invest in things and if you're skating to where

the part will be um you know, you know that you may be not making much of a margin on the product today, but in two years time, the component in your gadget will be twice as powerful and you will be able to either charge more for it or maybe you'll you know, use fewer of the semiconductors in the gadget because each one is twice as powerful, but

you'll have that technological change in your favor. And it's just you know, that's one of the reasons why venture investing can generate these incredible returns of thirty x you know, your money, because there is this technological progress driving the exponential takeoff of your returns. So if Moore's law is the beta is just the background increase in capability let's talk about Metcalf's law and the value of networks. Tell

us about that. So, Bob Metcalfe was an engineer who invented the ethernet cable to link up computers to devices, or link up computers to each other. And this was the start of local area networks, which came before the Internet. And he in fact started a company called three com

to to market his ethernet invention. And that's one of the story I had in my book that illustrates very nicely the way that you know he he bust his proverbial trying to raise money from East Coast venture capitalists because he came from Boston and he didn't like the West Coast gang. And he ended up coming back with his turtle between his legs and raising West Coast venture capital because they were the guys who really understood risk

and you're willing to back him. Um, But he Bob Metcalfe had the observation as he was building um ethernet cables that created networks of computers, that the value of the network would rise as the square of the number of users. So um, if you think about um, you know, I I've got a computer and I'm linked up to one other computer like coworkers computer. Now there are two of us on the network. Let's say my value as

a square of two, it's four. Now, if you put two more people into our network, that we've got four people we didn't. That's doubling the number of computers on the network. But actually the value to me um now that I can talk to three other computers and they can talk to each other is actually sixteen. It's gone, it's squared, It hasn't doubled. And that's a story that

you know, applies to any kind of network. So when you get to the Internet and you're building any kind of social media a net company, or or a platform like eBay to do auctions or anything that you're building on top of the Internet, where you're recruiting more and more users, you get these network effects where the more people sign up, the more valuable it is to everybody else on the network. And it's just an enormous tail wind. I mean, it's like More's law, but even more dramatic.

And of course, the key thing here is that it wasn't an either or for venture capitalists who are backing companies like eBay. This was both, and you know, you had the advantages More's law, which meant that the hardware that you were using was becoming twice as powerful every a couple of years. And you had the power of metcast law, which said that as you grew the network, the value of the network was rising as the square of the number of people you recruited. And so these,

you know, I called this sort of turbo power law. Companies, companies like eBay that just did extraordinarily well in the nineties and made enormous amounts of money for Benchmark, which was the VC partnership that backed eBay. And one of the laws we didn't talk about is Perkins law. Tell us about I believe that's the Perkin of Kleiner Perkins.

What is Perkins law? Yes, so the co founder of Klina Perkins, Tom Perkins, who was a wonderfully flamboyant figure, you know, who would be criticized occasionally for his unbelievable extravagance um and he would say things like, you know, hey, I'm the king of Silicon Valley, why can't I have the biggest fantas in San Francisco or equivalent comments like that, And he was he was unashamed about, you know, roaring

up in his ferrari outside some cremins startup. He just foundered, and yeah he'd screamed into every dollar on the deal, but there he wasn't a Ferrari. And anyway, Perkins's law stated a very simple idea that it's quite profound, which is that technical risk is inversely proportional to business risk, because if you solve a really hard technical problem, you're not going to face much competition from business competitors because

they don't know how to solve your problem. So if you've got a company where you know, let's say it's genet Tech, and they're gonna they're saying, where the first biotech company we're going to solve for this challenge of building artificial insulin. No one's ever done anything like this before. It's super difficult. So that's a huge technical challenge, so it's very risky to fund it. But if you manage to make the artificial insulin, you're going to have a

big competitive mode. People will not be able to come after you and compete because you know you've done something technically hard and therefore you can charge a big margin on that product. On the other hand, if you've got something which is simple to build, it's just an app um. Then the busines this risk is going to be much more intense. The competition from people coming into your space, it's going to be much higher. And to do a

little compare and contrast. Obviously, any sort of DNA manipulation when Genentech first began was unprecedented. On the other hand, what did Yahoo own. They essentially were just a little early to to manually telling people what they might want to look at on the Internet. But there was no technological mote there, that's right. I mean it was two PhD students who actually, we're not doing something particularly technical.

They were just compiling lists of wacky websites that they found amusing and growing and growing that list and doing it, as you say, mostly by hand. So there was, you know, to to a climb Perkins's law to that there was not much technical risk. Who obviously manual company the website list is easy, but there was a huge amount of business and commercial risk because other people could compete. So let's talk about some other people who compete with the Yahoo.

I love the story of angel investors, typically described as successful executives or entrepreneurs who have already had their exit from their their first company or second company and their board, and they have a big check books, and they want to keep their fingers in the pie. They want to stay involved in technology, and so they'll write checks to

startups to really be give them their very beginning. Who wrote the hundred thousand dollar check to Google where the Google founders said, Hey, this check is men out to Google link. We're not even incorporated, we don't have a bank account yet. Yeah, that was the funny story. So Andy Bestel Time, the legendary Valley engineer who was one of the co founders of Sun Microsystems back in the in the nineties and had done you know, pretty well, he'd done Son, he'd done another company after that. He

had plenty of money. He wasn't bored by the way because he he was still running a company, but he was fascinated by up and coming technologies and young entrepreneurs who kind of reminded himself, reminded him of himself when he had been starting fun And so he heard about uh, you know, Harry and Sergey, the two Google founders, and he came over to meet them one day, and you know,

this as this was described to me. You know, he rolls up in his silver Porsche, you know, jumps out, watches a demo of how Google can search for results much better than any other product on the market at the time, and he says, wow, that's cool, right. You know, he has a hundred thousand dollar check and he just writes it right there, just runs to his porsche, you know, gets the gets the checkbook out, rushes back, says Google link,

hundred thousand bucks. There you go. And you know, as you say, Larry and Serge, the founders of them, we don't have a bank account. He just fine, you know, stick the check in there when you do have a bank account. Whatever, it doesn't matter. And then he leaves. So he hasn't asked, you know what, how many shares he just bought in the company, what the terms of the deal were. Nothing. He just writes the check and he drives off, and you know, a hundred thousand dollars

to any better side. You know, you've done two successful companies. That wasn't a big bite out of his bank balance. But you know you just spread the money and um, that didn't happen. Of course, in the early period of Civicken Valley because there wasn't enough entrepreneurs who had made the cash to be able to do that. But as you get into the nineties and even more later on UM there were people who could write those checks and

then enjoy doing it. And you know, typically what would happen is nobody would have a clue, you know what

shared the company Andy Battels time at board. But when the more serious, more deliberative next investment ran took place, somebody would sit down and say, well, what do we think that that's worse and they would kind of awards some number of shares to the Battles Tim and he, you know, he wasn't really counting, but no doubt he made you know, more money on whatever number of shares he'd got in Google and let's probably end up being worth more to him than some microsystems had been. Yeah,

and he did, Okay, it turned out. So a lot of the famed venture capitalists who who really put together a string of astounding performance in the nineties, eighties and nineties, they haven't done as well since. What are your thoughts as to why the the star funds from from the early days of VC have been lagging over the past decade or two. Not only of them are lacking, but you're right that some do. And think there's a couple

of problems that come up. You know, one of the succession problem, where um, there isn't a good mechanism for handing control from the senior partners who maybe you know, getting to a point where they might think about retiring,

but they don't really want to retire yet. The younger people that maybe plugged into the new technology, the young entrepreneurs, and they really ought to be taking over of control, but the senior people don't want to see that control, and then there's a fight about who gets what and and that that can wind up causing a partnership to break up. Another kind of issue, there is actually a

problem of success. Where a partnership does really well, all the general partners who have a share of the carry are suddenly wealthy enough to go off and start their own venture partnerships by themselves as they want to, and they're kind of sick of putting up with each other, and they split up. And you know, a good illustration of this um is kind of Perkins, which was absolutely

the top venture partnership. You know, Circuit two thousands. You know, the UM top money maker at kind Of Perkins in two thousand one was you know, Coostler, who was the number one on the Fobs Mindus list, and then there was John Door, who was the number three on the Forbes Midus list if I called correctly UM that year. So you have the number one and the number three VC in the whole world, and they're at the same partnership.

They are an absolute dream team. And then there's a bunch of people around them who are also good and who have been them with them, you know, for for a decade or so, and they know each other well enough that they can kind of challenge each other and

beat the check and the balance. If somebody is getting too enthusiastic and over there he is about a potential investment, the other people in the partnership have the standing and the stature to say, wait a second, you know, just just take a deep breath here and and think hard before you do that, because I'm not sure I agree

with you. And just kind of Perkins got to a point where around two thousand three, two thousand four, so just a couple of years after their peak, UM people started to leave and they made so much money that they could go off and do their own fund and the note Coastal left and started um Coastal Adventures his own company, and a few other people left and started their own company, and John Doe was sort of left standing and there was nobody around him with quite the

stature to challenge him. And at that point he fastened onto the idea of clean tech, the investing in clean technologies. And I think if he had had the right culture around him, of a proper partnership where people could challenge him, he might have been a bit more cautious about the way he went into at but he didn't. At that point. He was head and shoulders the most prestigious and successful investor in the partnership, and he just ran with it too far, too fast. Um. And he did the same thing,

by the way, in another good cause. I mean, clean tech is a good cause in terms of saving the planet. He also wanted to advance women, and he perted women and that was a good thing, and in fact, some of the women you know went on to be extraordinarily good investors. You know. Aileen Lee comes to mind. She's

the one who invented the term unicorn. Um, but they didn't become successful investors very much internally within kind of Perkins, because although John Doe was good at promoting women, he was not good at creating a culture amongst the rest of his partners that would really make it possible for

those women to thrive. So kind Of Perkins wound up with a sexual harassment suit, wound up with you know, I mean I should say that, um, they they I think they got the upper hand in the verdict on that trial, though it was a bit of a messy one. But um so, you know, stipulating that in their favor. But they but it turned out to be difficult to build the culture in a new way that allowed women

to thrive. And it also turned out to be hard to make money off clean tech in the first iteration of clean tech, and so kind Of Perkins went from being you know, consistently ranked number one to being not even in the top ten. It was really quite a precipitous decline. And I think that that has to do with, you know, you need to pay attention to the to the glue within the partnership. You can't just be out investing in other companies and making sure that they have

good governments. You need to look at your own company and your own internal governments. Really really interesting. Let's let's talk about a venture funds that has probably, since the the decline of Klana Perkins, become the hardest VC in Silicon Valley, and that would be A sixteen Z and Andrews and Horowitz. Tell us a little bit about your thoughts on them the past few years. They seem to

be very focused on crypto and blockchain. What are your thoughts on on Mark and Reason and Ben Horowitz and what they've built. Yeah, it's funny when you were saying, you know, the hottest partnership in Silicon Valley, I thought you were about to introduce Sikoria Capital. I think they are probably got the best returns and they've also scaled globally. They've got Skoya goes all the way back to the eighties. Right, Yes, so they're not that's right. So if you're talking about

the hottest new entrance, then I agree with you. Anyway, let's talk about A sixteen Z and Reason herrowitz Um. I just wanted to give a mention, Uh, the ka um and Us horrods Um I think you know started out in two thousand nine, they had a bunch of public relations around what was going to make them distinctive. I'm not sure that that anything they said there was

really the key to why they did well. I think they did well because both Mark Andrewson, who of course was the one of the key engineers or maybe the key engineer behind Netscape uh and and the first graphical um web browser. Ah. So he was a towering computer scientist. And then Ben Horowitz, who himself was a terrific computer scientist, had also founded a company and despite the two thousand tech rash, has solded through that and made it, you know,

into a successful exit. So you had to really really strong founding partners in Andrews and Horrods, and they were both computer scientists, and they found it in two thousand nine, right about the time when you know, the iPhone had come on stream, cloud computing was taking off, and software, to quote and recent famous phrase, was about to eat the world. In other words, software was just going to displace all kinds of other technologies as the way to

build value UM. And so you have these two founders. They really understand dn They know which coders are the best. The coders respect them and so they're happy to take their capital and that I think explains how they got into companies like Nissira, UM, Octa, UM, some of the you know, they did a great turnaround deal with Skype, UM the the voice over IP telephony company, UM, so they I think I think it was about having these these two strong individuals who were who were really strong

on the hottest technology of all, namely coding. They're now moving and innovating, and I think that's impressive. They're moving.

They moved strongly into crypto and and blockchain and and Web three, and I think what's fascinating to watch there is that, you know, Web three is kind of at its its moment in terms of Internet time, where you know, the Internet was something that um, you know a few early adopters were really passionate about and excited by, but you haven't got to the killer app, namely Netscape, the graphical browser, which turned the Internet into something that mainstream

consumers would actually want. And now with Web three, you're at the same point. I would say, you know, you've got some gaming stuff that's that's that's breaking out, but it's still in the world where it hasn't quite gone mainstream and despite all the US and I think we're looking for the Kinder app that really establishes this as

as you know, a totally mainstream product. And what Andrews and Herowits are doing is that they've put enough capital into a crypto blockchain Web three focused part of money that they can really experiment with, backing lots of you know, lots of ventures, one of which would probably be the Netscape as it were for web three. I didn't think they found it, or we don't know if they have found it. Sometimes you can only see the things in retrospect.

But it's one of the most interesting stories going on right now in sort of company, really really interesting. Um So, we we talk a lot about the VCS successes, and we talked about the power law distribution. But one of the things we haven't really discussed weren't just the companies that didn't make it. You know, we could look at a movie Pass or Quimby or pets dot Com or whatever,

but the ones that just blow up spectacularly. And and I'm not so much looking at uber or we work as I am Farinos, which really appears to be a a fraud. How do you draw the distinction between an idea that just doesn't catch fire the way it was hoped with outright you know, deception and hey, you know Elizabeth Holmes was you know, just convicted on four accounts of of the frauding investors. How does one make that distinction? Yeah, I think freud is pretty clearly different from just not

making money, right. I mean, when you actually misrepresent your product, you claim that your blood tests done with your machine, but actually you're using the modern machine you brought from another company the results of Ferny. I mean, that is just cross thing a line. Um. I mean, people sometimes when they're criticizing Citic and Valley and trying to use their enough there's a way of um saying it's, you know, this is just a sign of how corrupt Cicnvoudy is.

They kind of blur that distinction between outright fraud and simply business failure. But I think it's a you know, actually it's a pretty clear difference between On the one hand, you know, you set out to make a product and the product either can't be built because it's too technically difficult, or you build up and theybody wants it so you don't get any revenue. Those are just business failures. But

but if you lie, you're crossing a line. And that was just not more than just an occasional lie, that was a consistent pattern of fraud and misrepresentation. And I completely agree with you. You can't lump the two together, regular business failure and fraud. So so before we get to our favorite questions, I have I have one last curveball I have to throw at you, which is something pretty fascinating. I learned about you when I was doing

a little homework when you were in your twenties. Your your father was the UK ambassador to Germany and uh for for five years, and then his next gig was UK an ambassador to France. Tell us about that experience. How did that shape your view of history? I know you studied history at Oxford. What was being the son of an ambassador like for someone who is you know, delving into that space. Well, by the time my dad became an ambassador, you know, I was in my twenties

and I was being a fern curvednded in Africa. And in fact, that the funny story, because you know, I actually litten in Babwe. I made that my base and I roamed around different African countries and um in November there was the election in Namibia to elect the first majority rule government. So that was the end of white minority rule and the start of majority rule. And this

election was being oversee by the United Nations. That was absolutely massive, you know, foreign presence, the historic occasion, the end of colonial the colonial political set up, and all of the press pack that was covering this election Namibia, me included thought great, you know where Africa correspondents normally we get onto page fifteen of the newspaper for a lucky but now finally we're going to be on the

front page. And on the day that the Namibian election result was announced, in war came down and you know, all of these Africa correspondents were on page fifteen, game if they were lucky. And so it was funny for me because there I was, you know, my story had been killed. But whatever my dad's story, you know, he was the UK and BATHTD in Germany. That was the

story that the whole wide world was talking about. And you know, he told me afterwards that he flew straight into Berlin where the war was coming down, and she realized that you know that was the end of the Cold War, and and and that was, you know, super exciting moment for him. So I didn't know if it shaped my view of history directly, but it did make for a funny family story, yeah, to say, to say

the very least. So let's jump in our last few minutes to our favorite questions that we asked all of our guests, Uh, starting with what have you been streaming these days? What has kept you entertained during lockdown when you weren't researching or writing the book? So I think, like probably a lot of people who listened to your show where I love Succession UM the kind of you know, Quazi Murdoch family drama. And I also have quite enjoyed a couple of French UM series My My my mother

was French and maybe that's why. But there's cool My Agent, which about Yeah, that's funny, it's about UM movie Agency. By the way, I always have to tell my American friends that I recommend that too, that the people who play the actors on that show are actually very famous French actors, but to an American they just look like

another French person in the show. Right. I mean, if you don't know that you know, for us, if we would have a Brad Pitt or a Matt Damon show up on a show about you know, talent agents, everyone in America would know who they are when when you watch and I think the French version is called ten percent, but when you watch that show, um, and it's how my wife and I keep our French uh passable. Um. It's always interesting to see the actual actors who show up.

But I interrupted you who what what else have you been streaming besides Succession? Did the other? The other French when I enjoyed for a while is a kind of It's called Le Bux and it's about the French secret uh service like the CIA and the French d I A. And they're fighting all kinds of wars all over the Middle Eastern sort of exciting. My My wife likes it because the French secret agents, you know, devastatingly good looking. And I tolerate that because the female leads are quite

good too. But you know, it has a lot of good French suspense and we've enjoyed that as well. Very interesting. Tell us about your early mentors who helped to shape your career well. I joined the Economist as I was saying at the beginning, right out of college, and there were just a terrific group of talented people there who helped me. And I remember, you know, there was Neil Harmon, who was one of the older journalists who was incredibly

good mentor. And I would fire copy and he would say, you know, he would tip his his his halfmoon spectacles down his nose, look look over them at me and say just just just come sit here for a minute. And he I would watch him edit my words on the screen and just add top spin more and more top spin. You know, he just had this knack for for turning a reasonable phrase into a good phrase, and that that gave me a kind of special appreciation for the magic of of really you know, the craftsmanship of

writing um. And but you know, in other ways too, there were there were colleagues who just thought globally um. They thought across finance and politics and economics. They could handle the ideas without getting um sort of bogged down in detail. But they were also serious about being accurate it. I would say that the whole experience of spending twelve years or thirteen years on the staff of the Economists was was my formative experience. Let's talk about books besides

your own. What are some of your favorites and what are you reading right now? Well, the no favorite which I often mentioned is um is The Money Game. Have you read that, Adam Smith? Sure, yeah, of course I thought you would have done. And I mean it's just you know, full of laugh out loud caricatures with these people in the nineties sixties go go Bullmarket, when side burned gun slingers were ramping stocks, and and and it's it's just a it's kind of you know, financial writing

of comedy, and I always enjoyed that. Um. More recently, I've been really a novel called A Little Life by Hanya Yanagi Hara san noting that right, Um, you that you know that? So it's it's I'm not a great novel reader, but this one is so well done. It's captivating.

It's a long saga of um for New Yorkers who graduate at college together, they come to the city and they they make their lives in different professions, and there's a sort of a bit of as a really engrossing tragedy at the center of the life of the main character. That's a novel, But in terms of non Si shan Um. A bit late I read Um Sheila called hot Cars Black Edge about s AC. I thought that was incredibly well done, sort of suspense story about a hedge fund

that goes wrong. Um. And I enjoyed Black Gold. I think it's I'm getting right digital gold. Maybe it's cooled. Sorry. Um. And that's Nathaniel Popper's book about bitcoin, and was already right, yeah, that's right. Again. I was a bit late to that, but I it basically, it tells the story of how bitcoin got traction because different ways of enthusiasts got on board. So there were the coders who loved the code because it was elegant. There were the libertarians who liked it

for political reasons. There were the people who wanted to do to an ordeals in drugs and um and guns and so forth. That was the sort of road thing. There were Latin Americans who wanted to remit money back to Argentina. Um. Then there were the entrepreneurs who showed up and said, hey, we could do a wallet or

build some some business on top of all this. And I don't think, frankly my own perspective, I don't think any of these individual groups had a killer argument as to why the world really needed bitcoin, but cumulatively they created enough momentum that it's stuck, and I think it's now here to stay. Huh. Really really intriguing. And in our final two questions, what sort of advice would you give to a recent college graduate who was interested in

a career in either finance, investment or journalism and book writing. Yeah, so on the journalism and book writing. I have a standard line which which I role out because people ask me. There's quite a bit, and essentially I try to dissuade people because I think you've got to really really want to do it, um if you're going to go in that direction. And you know, if people listen to what I say and then they do it anyway, I delighted.

But I think there's kind of a thing where, you know, people go to college, they enjoy their work in college, they write papers in college, and I think, how can I extend this and just do more of the same, And they don't necessarily look left and right and think about other things they could be doing with their talent. And I think it's good to experiment and and and

and do other stuff. And then if you decide that you actually really do want to write because you like the process of writing, even though it's solitary, even though it's you know, a huge amount of time to produce something of value. I mean, my books do take me five years, and it's it's a lot of rejection when you're beginning a new project and people think, why would I talk to some book writer who you know, who

knows if this book will even come out? And I have to try to let work my way in and you know, by the end of course, the same flips, and you know you've got enough momentum that people that you didn't call are now calling you because they want to talk to you, because they understand your book is going to be serious and make an impact. But you know that's it's it's it's not all plane sailing, um and um. So I try and dissuade people, but then

I'm happy, I say if they do it. Anyway, if someone would ask you about a a job on Wall Street, what would you say to them? I think Wall Street CHOI. Wall Street is a bit you know, is regulated, is the main feature of it. So if you're a lawyer, that's great. If you're an investor, or an entrepreneur, it's not great, UM, you might want to go to a fintech instead, or go to a hedge fund which is still a bit less regulated, and where know you can

you can really try to apply original thinking to markets UM. Yeah, and our final question, what do you know about the world of finance, journalism, markets investing today that you wish you knew thirty or forty years ago when you were first starting out. I think what I've learned is that the way investors think UM is actually quite useful for life.

And you know, when I was writing my book about hedge funds, the central I guess if epistemological the serfect discovery was this idea of asymmetric pairs that you know, sometimes you don't know if you're right, or you don't know if you're wrong about it's that col But what you should look at is if you were to be right, would the pay out be bigger than the loss would

be if you were wrong. So there are things where you know, you don't know if this is the right direction to go in, but but you should give it a shot because because if it works, it's going to be big. And that's you know, a basic thing about a lot of macro investing in hedge funds is the best basically about you know, you bet against the currency peg. If you're wrong, the peg isn't going to move because the peg won't break, so you won't lose much from

your position. But if you're right, the peg collapses, is going to move twenty percent, You're going to make a huge killing. So this is a This is a basic macro investing hedge fund strategy, but it's also a useful thing for life, about life decisions. And in the same way you know with venture capital, I think the power lower idea that you know, sometimes low probability but high

consequence bets are worth trying. That you know, rather than following the pack, you should try and do something different. Maybe I like this argument because when I go off and bury myself in some specialized corner of finance for five years, you know, I feel a bit like I'm taking myself away from mainstream debate to really get specialized

in deep on one niche um. But I think I think it is healthy too to have those ideas in mind and think about how to differentiate yourself, how to do something risky but that might have a really good outcome if you get it right, really intriguing. Sebastian, thank you for being so generous with your time. We have been speaking with Sebastian Malby, author of The Power Law of Venture Capital and the Making of the New Future.

If you enjoy this conversation, well, be sure and check out any of our previous I keep saying four hundred, We probably crossed that already. Four hundred or so prior interviews where UH we discuss all things finance related. You can find those at un Spotify, Bloomberg, wherever you get your UH podcast from. We love your comments, feedback, end suggestions right to us at m IB podcast at Bloomberg dot net. You can sign up for my daily reading

list at Ridholtz dot com. Follow me on Twitter at Ridolts. I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Marx and Escalchie is my audio engineer. Paris Walt is my producer. Sean Russo is my research assistant. Attica val Bron is our project manager. I'm Barrier Rehults. You've been listening to Master's Business on Bloomberg Radio.