Podcast Info
Podcast Description
Sebastian Mallaby has gained better access to venture capital partnerships in Silicon Valley than any previous writer. Notoriously secretive venture firms, including the famously successful Sequoia Capital, gave him dozens of interviews as well as internal records and memos. Mallaby uncovers what he’s learned in his new book, The Power Law: Venture Capital and the Making of the New Future.
Mallaby is also the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations (CFR). An experienced journalist and public speaker, Mallaby is also a contributing columnist for the Washington Post, where he previously served as a staff columnist and editorial board member. His books include More Money Than God: Hedge Funds and the Making of a New Elite, a New York Times bestseller, and The Man Who Knew: The Life & Times of Alan Greenspan, winner of the 2016 Financial Times/McKinsey Business Book of the Year Award and the 2017 George S. Eccles Prize in Economic Writing.
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TRANSCRIPT
Sebastian Mallaby
[00:05:12] Sean: Sebastian, welcome to What Got You There. How are you doing today?
[00:05:15] Sebastian: Great. Nice to be with you.
Sebastian’s Mindset
[00:05:17] Sean: It’s very good to see you. We’re going to dive a lot into the different mindsets of some of the legendary investors and venture capitalists that you’ve studied over the years, but I would love to know, is there a mindset of yours that you just have found to be instrumental in your progress, development, and success you’ve experienced?
[00:05:35 Sebastian: I think, Sean, patience is really important. What I’m trying to do with my writing is not necessarily to be the most productive guy in terms of how many books I publish, but to write good books that can stand the test of time, and for that, you just need to be patient. You need to wait. If there’s a certain person you need to get to see and it takes you six months, patiently nudge them, figure out different ways of getting to them. Who do they know that you know? Do you know someone who might know somebody within or knows them? You just need to hang in there and not give up, be consistent and gritty. I tell myself this all the time because it’s kind of against the culture. We’ve got a world of social media and instant tweets and all that stuff and it is operating at a very high speed. I think I differentiate myself by being patient.
[00:06:36] Sean: Sebastian, it’s so funny that you mentioned patience. I was just talking to someone yesterday about this, and I’m kind of bouncing back and forth on that teeter-totter between patience and persistence. I think about it as impatience with action, patience with results. I’m wondering how you think about that balance in playing those long-term delayed great gratification games, but also putting forth the necessary effort you need and almost being impatient at times. How do you think about that?
[00:07:04] Sebastian: By patience, I don’t at all mean not working hard. It just means that, with the book or this kind of research that I do, there are always multiple balls that you’re juggling in the air. You might have 15, 20 people that you’d like to get to see, and if one of them is proving to be difficult to reach you persist with the other 19, and you don’t give up. I remember in my book The Power Law, the one about venture capital, I was extremely keen to get inside Sequoia and understand how they functioned. And I’d been trying for a long time, and then I finally figured out that if I went through one of the limited partners who was kind of their customer I might manage to get inside the door.
And so I tried this and this friend of mine who is now LP at one of the major investment firm emails, Sequoia, and I got an email back from Doug Leone, the chief investor there within about 10 minutes, it was a Saturday. And of course, I was right on it. I immediately emailed back. When you get that break, you go for it patiently. So you’re right but other times you’ve got to calm yourself down and however hard you might want to push something, you’ve just got to figure that patience is a virtue.
[00:08:32] Sean: Absolutely. You almost mentioned kind of getting into the side door there. I’m wondering about that framework of going in the side door and finding unique ways in everything you do, or is that just around essentially landing great interviews with people that are usually hard to reach?
[00:08:47] Sebastian: Well, in a way these days writing books itself has a slightly side door activity, especially the long kind of books that I do, which take me five years or so to research and write. As I was saying, the culture is very fast. It’s a very high velocity, quick turnaround type of thing. Even a startup could scale to a billion-dollar valuation in the time it takes me to write a book. A woman could have several babies. I’m operating quite on a slow cadence. And that I think of that sort of my differentiation, my variant perception. You could call it a side door or just a different way of coming at the world which I think yields differentiated results, and gets me into conversations, into connecting with people kind of through a side door because it’s not the obvious way of approaching life.
Exploration & Exploitation
[00:09:45] Sean: Sebastian, what I appreciate about you and your work, and what you’re able to do is that you’ve identified this long-term approach of four years, five years to write a book is my style. This might not be other people’s style, but I’m going to push off that external pressure to all of a sudden come out with a book every single year or just those fast, instant-type things. And I’m wondering for someone younger or earlier in their career, who hasn’t built that foundation yet to be confident in their approach, is there anything you’ve done throughout your career just to enable yourself to have a stronger foundation in terms of how you operate and work best and allow that work to shine through?
[00:10:21] Sebastian: Yeah, and I should make it clear because that’s a good point about how you operate when you’re younger. The first couple of books I wrote, one was in my twenties, one was at the end of my thirties, I wrote a lot quicker, the one in my twenties. I wrote very quickly. It took about 10 weeks to get most of the writing done. I haven’t always operated like this. And, you sort of need the luxury of having a bit of a name brand and therefore the financial security to give yourself the time to spend that long on a book because obviously, you need to run money and if you just spent five years and then it didn’t sell very many copies, you’d be in trouble.
So what I would say to younger people starting is that I’m a big believer that you kind of experiment in your career and your life and you try different things, and when something starts to work, you pursue it. You don’t know ahead of time which thing is going to feel right for you, but I think just energetically going at a lot of different approaches and feelings and finding the way that’s best for you is the right way to get to your niche eventually.
[00:11:34] Sean: It’s funny you bring that up. I don’t know if you’ve seen the recent research paper, I forget if it was in Nature where it was around exploration versus exploitation. And essentially it was saying all of the people who experienced the highest return basically in terms of what they can do in their career, great authors, great creatives, all of that, it was that process you’ve talked about. Try a lot of things, explore, and then all of a sudden when you find that thing, they go super deep and that’s when they’re hot streak.
I think that the paper might’ve been titled something about experiencing hot streaks in your career. And it was all about that. I am wondering though, you mentioned changing the writing style in your twenties, you wrote that book within 10 weeks. Why did that writing style evolve into being such a slow, deep, methodical type process as opposed to that really fast 10 weeks type approach?
[00:12:22] Sebastian: It speaks to your previous point. I didn’t necessarily premeditate those different choices. They were driven partly by circumstance. In the case of that early book, I’d been a correspondent for the Economist Magazine in South Africa. I had been there when Nelson Mandela came out of jail and I figured, wow, all the other books about South Africa are now out of date and irrelevant. I’m going to write the first post-apartheid, post-Mandela release book. I was super excited. I’ve written a lot of journalism about South Africa. I had a lot of material from journalism and I could only negotiate a limited amount of time away from my day job, which was to be an economist journalist.
So I had those 10 weeks and I just knew I had to get it done, and I did. I think later on what’s different is partly the kinds of books I did require a different sort of research. There’s a kind of journalistic overview of multiple books where you sweep together lots of anecdotes and a few big ideas, and you kind of produce a quick book. When you’re trying to recreate and reconstruct a history that nobody’s told before, which is what I’ve done with my most recent three or four books, that just takes more time. You’ve got to go dig somewhere where nobody else has dug before, and you’re going to dig a lot of dry holes when you do that.
You’re only going to hit that gusher that yields usable material every once in three or once in four times. You’ll show up to a lot of interviews and find that you learn nothing. I was taking on tougher research projects. I’d also become more of a perfectionist in my writing. I think that’s not to do with kind of line-by-line writing, which I think I’ve always been a bit perfectionist about, but it’s more in the structure. I think a lot about how movies work. Sometimes the director is giving you a wide-angle cut, other times as a closeup. If you especially watch TV, you see how quickly the scenes change.
Every 15 seconds or something, the cameras are pointing at a different set of characters. You’re cutting in between scenes. And I think although books are a different cadence, you have some of the same tricks. At some points, you’ll be writing in an analytical expository way, and then you don’t want the reader to get tired of that, so you switch to a narrative section and sometimes you’re homing in and sometimes you’re panning out and you’re thinking of moving that camera around all the time. And that just requires quite a lot of patience tweaking to get the balance to where you feel happy with it. I think I’ve just become more ambitious in the research projects I take on and then more ambitious in the way that I write as well.
Gusher-Type Moments
[00:15:26] Sean: It’s always so intriguing to hear about people pulling from other domains. You mentioned that kind of understanding of cinema and film and how you incorporate that into the cadence of the writing process. I think creating a movie in a very similar frame is how you’re starting a company. You’ve got to find the director, you got to get all the stagecraft correct, the costumes, everything like that. You have to get the correct people in place and then kind of form together, and it’s this evolution over time.
So I just find that interesting. I would love to hear more about finding those gushers in your research process. Meeting after meeting not leading to much, and then all of a sudden, oh my gosh, there’s something that’s just going to be so fascinating in the book. For you analyzing your entire career, is there one of those gusher-type moments where you found something or it was an interview, a conversation where you were like, wow, this is going to change things. Anything like that comes to mind for you?
[00:16:15] Sebastian: Sure. There are a few of them, but I’ll pick one from my biography of Alan Greenspan. I spent five or six years on that book, and there have been other books about Greenspan before, of course, because he was the Fed chairman for 18 and a half years. He was a big figure. But I wrote one which went a lot deeper. And one of the times where I felt I had something which was going to differentiate what I did was that I was determined to kind of recapture the culture of Greenspan’s consulting company from before he was Fed chairman and I went off and I interviewed all the people I could find who had worked for him.
This was back in the sixties and seventies, it was quite historical stuff. And I found this man who lived in a kind of a clearing in the woods in Virginia, who had been the operator of the punch cards and the old computers that Greenspan had. It was kind of being the guy who fixed the photocopier. He was in the office, he was not an economist, but he had seen Greenspan closeup and I wanted to go see him and just say, Hey, what was Greenspan like in those days? What kind of man was he? I also knew that Greenspan at the time was really into iron rounds, and he’d given a bunch of lectures about iron rounds economics but nobody had ever told me where to find these lectures.
I looked everywhere and I couldn’t find them. And I got talking to this source in his cabin in the woods, in the middle of nowhere, and all of a sudden he says to me that he loves iron round. So then I put two and two together in my head, I say, oh, so you were working for Greenspan when he was into iron round and he gave those lectures. Do you know anything about those? He said, sure. I love those lectures. I’ve got the entire transcripts of all of them in my basement. So my eyes get three times as wide. I kind of tried to contain my excitement because I didn’t want to seem like hooking a fish, making the fish swim away.
So I kind of pull on the line to hook the source, but not too hard. And I say, wow, that’s pretty interesting. Any chance I could take a look at those transcripts? He says, sure, I don’t see why not. And a week later he’s photocopied 300 pages and I have the entire map of my subject’s mind as he crests his late thirties in a way that nobody had had before. And in those 300 pages, I’m reading them, and suddenly Greenspan’s writing that the creation of the Federal Reserve is one of the greatest disasters in American history. This is the guy who headed the Federal Reserve whose body is central banking, and there he was saying that the creation of the federal rules was a disaster. So that was one gusher that I’ll always remember finding.
Consistent Theme in Sebastian’s Books
[00:19:16] Sean: I can only imagine the amount of internal, personal satisfaction. It’s like you’re exploring the unknown and then you find this buried treasure. I think about this myself, I’ve been fortunate with the podcast, having some guests share some deeply personal things like what’s going on in their mind during interesting parts of their career, or their business that they’ve never shared elsewhere. And seeing inside the mind of someone like that is just truly fascinating to me. So I loved hearing that story. I am intrigued by analyzing just your work and the progression over time. Has there been a through-line for you throughout your entire career? Is there something deeper behind every single book that’s consistent that you’ve been trying to get at?
[00:19:57] Sebastian: It’s a great question. I think the first book was sort of a case of its own, the one about South Africa and Mandela coming out of jail and all that. I later wrote my next book, which was about the World Bank and development economics in poor countries. So there was sort of a connection there because it was about development and South Africa of course, was in some ways a developing country. And so there was a link, but the World Banker was turned out in a way that I didn’t anticipate to be a kind of a hinge book, which got me into writing about development economics, and then I was thinking more about finance.
I’d done quite a lot of financial journalism for the Economist Magazine, but I hadn’t written a book about finance. And then all of a sudden, my editor at Penguin says to me, what about a book on hedge funds? And I was thinking about it, the idea of how you have variant perception in markets, how you’re so confident about the opinion that you bet against the entire market and everybody else that intrigued me psychologically and intellectually. I started to look at it. I did that book and it went well. And after that, I decided that writing about financial history and different cuts of financial and business history in the US post-war era in 1960 to now roughly speaking is what I was fascinated by.
And so my book about hedge funds was the history of public market investing and ideas about how you make money in markets from the 1960s until now. My book about Greenspan was a book about central banking and how you manage finance from the 1960s until now, and my venture capital book, which I’ve just finished, is a book about private market investing, about technology investing from the 1960s until now. So there is a commonality certainly to the last three books.
Commonalities in the People Sebastian has Studied
[00:21:55] Sean: As I mentioned to you, I thoroughly enjoyed the new book, The Power Law, fascinated by the minds of venture capitalists. I’m wondering for you, is there a consistent mindset amongst all of the people you’ve studied? I’m thinking Mandela, Greenspan, some of the legends like Soros, even what Julian Robertson has done at Tiger Capital. Is there something that you’re like, you know what, no matter what they’re doing, this is a very consistent theme throughout?
[00:22:24] Sebastian: I think variant perception and a willingness to kind of take a risk on that variant perception is very important. Most people who make their mark on their world are people who are willing to kind of take a different path from everybody else. Because by definition, if you do what everybody else is doing, it’s pretty tough to be distinctive at it. Mandela, if you think about it, was the person who was willing to believe in his cause enough to be in jail for 27 years and basically to come out at the end of 27 years with the same set of views about justice in South Africa that he had gone into jail with.
That’s a pretty distinctive path. If you think about an investor, there’s less self-sacrifice involved, of course, but there is a sense that you’re going to pursue an opinion of you, a hunch about what the truth is about valuations, about markets, about how the economy is going to develop. And you’re going to pursue that even though everybody else thinks you’re wrong. By definition in the stock market, the price at any given time is the weighted average of everybody’s opinion about what the price should be. So if you’re saying it’s wrong and you’re going to bet against that as a hedge fund investor, it takes a lot of conviction and you probably have had to go off and do a lot of research.
People sometimes have this image of investors as being kind of impulsive sort of swashbuckling risk-takers, who kind of just roll the dice and say whatever. In my experience of interviewing these people, they are normally highly deliberative and they go deep on some intuition and they do the work and they develop enough conviction to bet against everybody else. Clearly in venture capital investing, that’s the case. You’re betting on a startup, which by definition, everybody else thinks is doing something crazy because it’s such a long shot. Most startups and only a minority get this exponential take-off. And, that’s what makes it exciting and emotionally challenging.
Roelof Botha, who is one of the top people at Sequoia Capital, was talking to me once about how it’s an emotional roller coaster. You start investing as a venture capitalist, inevitably, a lot of the early bets you make will fail and go to zero, and that will happen faster than the success stories become successes. And so you’re going to go through this period when you crash emotionally, because you were wrong and you lost your partner’s money, and you feel terrible about that. And then a bit later, if you’re good or you’re lucky or whatever mixture of that ingredients is you’ll have something that goes right, and you’ll be making 10 X, 20 X, 30 X, the money that you put in and you’ll go from despondency to elation, from being crushed to being in danger of hubris. And you have to regulate your emotions in both directions. These powers that take people to make an impact on the world involve risk. They involve emotional risk and they take a lot of gritty resiliency.
Peter Thiel
[00:26:03] Sean: I could go so many different directions because I’m so fascinated by about 10 different things you said right there. But I would love to go a little bit further there on the emotional control these people have because I’m kind of thinking of this as a parallel journey between that self-awareness and your overall success. And I’m wondering of all the people that you’ve studied, who have you been just thoroughly impressed by, in terms of their ability to know thyself and to be able to then cultivate the conditions to most allow their best and highest level of intellectual thinking to shine through. I know that was a lot there. I’m just wondering, like who operates after best and then was intentionally creative in cultivating the conditions to allow their best selves to be able to come through.
[00:26:47] Sebastian: I think a very interesting figure that I’ve studied for my venture capital book is Peter Thiel, super controversial because he is conservative politically in a culture that is broadly liberal. He was the only prominent Silicon Valley guy to support Donald Trump in the 2016 race and to give a speech at the convention. So definitely a controversial figure and I don’t agree with everything he does, but what I would say about Peter Thiel is that he’s a brilliant guy and he’s very self-aware. He thinks through his positions and when he has arrived at some insight, he does have the courage to follow it.
I think his biggest insight which was not original to him, but which he went further in articulating and then acting on is this idea of the power law, which gave me the title of my book. The power law is the notion that 80% of the investments you make we’ll do nothing but 20% or it could be 10% will account for all of the returns in your portfolio. This is an extremely skewed distribution of outcomes. And from this insight, it follows that the only thing you care about is not losing bets, because you can only lose one time the capital that you put in, what matters is trying to get into the ones that are going to go 10 X, 20 X, 20 X.
You don’t know ex-ante, which ones those would be, but what you have to force yourself to do ex-ante before you invest is only to invest in the ones that are so original contrarian and different that they could be a 20 X. And so having decided that Thiel saw that cautious bets, sensible bets, sane bets are just a waste of time and his business is only worth making really outfit, difficult, scary bets. And therefore it follows that you should hire a certain kind of person and you should organize your venture capital partnership in a certain way.
He makes the point in his book Zero to One that of the people who founded PayPal, the payment startup with him, several had built bombs in high school. The point is not their technical ability, it’s their craziness. And the craziness meant that they were crazy but that was a good thing. People often say, oh, you know, people in Silicon Valley are crazy. These geeks are crazy, that’s the culture. Now it’s much more specific than that, unless you are crazy, you won’t do something that is crazily different from other people. Therefore you’ll be following in a crowded area to other people. And therefore, even if your idea is pretty good, 10 other people who have the same idea and they’ll compete with you and your profits will be competed away.
What you’ve got to do is have investors working with you who are so different, that they’re going to come at the whole question of why you should invest differently. And yes, sometimes it will be a crazy different way and you will lose all your money, but so long as you can be right one time in 10, two times in 10, then you will be successful. And I think Peter Thiel has pursued that in a way that inspired me to put that idea of power-law as the title of my book. And it’s one of those ideas that once you get it, and you start looking around at other investors who are doing venture capital, you kind of see the power law everywhere. And I could talk about that, but it was the key that sort of unlocked the secret source of Silicon Valley and technology investing for me.
The Power Law Across Different Domains
[00:31:07] Sean: I would love to talk about seeing the power-law everywhere because it’s one of those things once you see it, you just can’t unsee it, and finding those across all domains of life. You had this line about Thiel in the book that I loved and it’s describing him as dripping with disdain for incrementalism. And I just love that so much. I was just talking about the episode that went live yesterday on What Got You There with Snowflake CEO, Frank Slootman, and he talks about just an utter disdain for incrementalism. So I loved hearing that about Thiel as well.
Before we dive into seeing the power-law everywhere, I just have to go a little bit further because I’m fascinated by Thiel. I think he truly is one of those legendary, once-in-a-century type thinkers. And you mentioned his thinking process, he has great self-awareness. He goes deep inside of his intellectual mind and thinks through things. Are there any insights you garnered about what that process is actually like for him? I’ll give a quick example and why I’m fascinated by this.
One of the people who I think is excellent at what they do is the basketball coach, Phil Jackson coached the legendary Lakers with Kobe, and then also the Michael Jordan, Chicago Bulls. And he was hugely individualizing for 45 minutes before each game going through each scenario, not the successes only but about when this happens, then that is how I handle that setback. And I’m just wondering how this applies to someone like Peter Thiel, who could be one of the most fascinating thinkers in our modern-day. So I’m just wondering what Thiel does specifically while he’s exploring his thinking that might just be interesting.
[00:32:36] Sebastian: I think it’s instructive that one of his favorite hobbies and something he did a lot of when he was younger is chess. He was a very accomplished chess player. And of course, chess is about thinking through scenarios into the future, 15, 20 moves ahead in a very disciplined way that requires a lot of mental bandwidth. And I think, the fact that he was so good at chess probably did translate into being good as an investor because it is that process of thinking multiple steps ahead. I’d say the self-awareness leads him also to sort of discrete insights beyond the big idea.
I remember going to speak to him early on, and he would compare hedge fund investing, which of course he’s also tried his hand at with venture capital investing. And he would just be really smart about comparing the two. And I think that’s again another mark of a creative thinker when you understand two different fields and you can draw from one and apply to the other. It’s a bit like what you were saying earlier on about movies and building a business. I think Thiel is very good at that.
[00:34:00] Sean: I would love to dive further into seeing the power-law everywhere, but you had a story in the book that I thought encapsulates and helps people clearly understand the power law. It’s Matthew Salganik and the sugar man phenomenon. I would love for you to just describe that because I think that’s a concrete example of how the power of law plays out here.
[00:34:20] Sebastian: Sure. I’ve always loved this movie, Searching for Sugar Man which is about this singer Rodriquez who was kind of a cross between Cat Stevens and Bob Dylan in the early seventies. He recorded a couple of albums and in the US they went nowhere. They sank like a stone, and that was the end of his career recording theory. The record label dropped him and he worked construction. And in fact, demolition for much of the rest of his life in Detroit where he lived. And then in this whole power-law story, for anyone who’s written a book or created a song or done anything creative, it hits you here.
This incredible story is about how there can be these parallel worlds, wherein one you fail, in the other you succeed. What happened with Rodriguez is that he’d recorded these two albums, but some tourists from South Africa, and I think also from Australia had been in the US, bought the albums, took them home, started playing them, loved them, shared them with their friends. And then bootleg copies had circulated both in Australia and South Africa and they’d become so popular, they were like super number one. If you were a white teenager of a liberal sort of anti-apartheid disposition in South Africa in the mid, the late seventies, you could not go to a party without hearing the album at least a couple of times.
And you would know every word of every song. And I checked this, I wrote my first book about South Africa. So I called a friend of mine who had been growing up at that time, and he knew every word of every song. So it’s this sort of power-law story. And it got me thinking about the way that when you start to succeed in some fields in life more people know about you, therefore, they tell their friends, therefore, even more people know about you and you have this snowboard effect where success begets more success. On the other hand, if you fail out of the gates you’ll probably never make it anywhere. That’s why you can have these extreme differences in incomes. In the US you can fail, in South Africa, you can succeed.
And then I came across this research, as you were saying by Matthew Salganik. I’ve only read his name, I’ve never met him or spoken to him, so I am also unsure about pronunciation, but the point of the research is that he did this experiment where he created one playlist and he created multiple groups of people who could go listen to this playlist. And he invited people to download a couple of songs that they like best. And so there’d be one group, that’d be a hundred people in the group or something. And the first specimen would go on that download a couple of songs, and after about 10 people, one or two songs would have gotten more downloads than the others and the people who came after that would see the previous downloads and they would be influenced subtly by that.
And so success would feed upon success and the most downloaded songs would then be even more downloaded. And so at the end of the experiment, you’d have one song that was like the runaway winner, the absolute top bonanza hit, but it would be a different song in each of these power-law worlds because Salganik had created these multiple groups. So each time there would be a power-law style winner takes all outcome, but it would be a different winner proving it’s this feedback loop. It’s not necessarily the quality of the winner that determines success. And so that got me thinking about venture capital and more.
It means that you could, in theory, have an investor or an investment partnership that starts in business and after a year or two, it gets lucky. It makes an investment that randomly does incredibly well. This creates a reputation of sort of halo effect. So all of the good entrepreneurs come to that company. And then it creates this self-fulfilling prophecy where because you’ve done well, the best entrepreneurs come to you. You invest in them, you do well again. And all of a sudden, after 10 years you look like you’re a total genius. And I had that model in mind as I was looking at venture capitalists. It made me skeptical as to whether the success came from luck or scale. I concluded by the way that it was scale. But I tested myself on that conviction multiple times.
[00:39:18] Sean: Yeah. You did a really good job in the conclusion of the book. I’m pretty sure it was four things that essentially dispelled the complete luck that a lot of people think is the result of venture capital. They think they’re completely lucky, you did a great job disproving that. Well, one of the things I’ve enjoyed about the sugar man phenomenon as well as in some of those different scenarios where the song had finished first overall, in other groups that hadn’t seen its success, it finished 40 out of 48.
I found that it’s so fascinating. I feel like it ties together so many different things we’ve talked about this far. Like at the start of the conversation you were just mentioning the patience, but persistence, we’re talking about skill versus luck and all these different things, where certain times, you’ve got to be more process-oriented, than outcome-oriented because as we saw there if you’re only outcome-oriented, you’re going to finish 40 sometimes at 48. And then other times you finished number one, overall. I’m glad you were able to remember that as well as you did because I thought it encapsulated so much.
[00:40:20] Sebastian: That connects to the power-law idea because it tells you why you need a lot of shots on goal. You can’t control the outcome, you can only control the process. If you just had one shot, that might not be enough. And so the lucky thing for venture capitalists is they get multiple shots on goal.
Evolution
[00:40:38] Sean: Speaking of multiple shots on goal, I’m just thinking, knowing you and how methodical and how long it takes you to write a book, I know you came across the power-law concept and found this so interesting along with venture capitalists but I’m wondering for you, when do you finally reach that boiling point of 212 degrees where you say, you know what, I’m actually going to spend the next four to five years of my life and fully commit to this book? Is that evolution or is there a defining, draw the line in the sand type moment where you finally fully commit?
[00:41:08] Sebastian: It’s a messy evolution because you sort of have a conversation with a friend that gives you an idea. You look at it, you might throw it out, but that’s sort of like the seed investment. And if you decide it is quite interesting then you’ll invest a month or whatever in checking it out. And that’s sort of your series A maybe, and then if you get past that and you reached a milestone, which is that you still find it interesting and you think it might have something distinctive to say about it, and you’ve checked out the existing books in that field, and you reckon this space for you to add value you keep going.
At a certain point, there is sort of a crossing of the Rubicon because you write an advance in the publishing business. You write a proposal, sort of like a 40-page pitch deck is not a deck, it’s a piece of prose, but it’s the same function. You show it to your real funder at this point, who is the publisher and you try to get investment in the form of a book advance. And then once you’ve got that you’re kind of committed but you’re not committed necessarily to a specific outcome because you know, and the publisher knows that what you’re writing the proposal is just your best thinking at the time.
And if you’re going to spend further, by this point, you’re maybe one year in, so you’re going to spend another three years, let’s say before delivering even something close to a final draft. If you didn’t evolve in those three years, you would be a pretty boring person. If you’re creative, you’re always finding new avenues, adjusting, pivoting, and figuring out where the real truth is. So you do evolve. It is a process all the way through. And so I think to your question, it’s more of an evolution than is reaching one boiling point, and that’s it.
Mike Moritz
[00:43:11] Sean: Speaking of that evolution, I’m wondering, is there one of those aha, once you see it, you can’t unsee it? That’s part of the power-law writing process that now writing this book fundamentally changed you and I’m hoping there might be something other than just seeing the power law and asymmetric opportunities. Was there something else that maybe during one of those deep conversations with the legendary venture capitalist, you just couldn’t unsee once you heard it?
[00:43:40] Sebastian: I remember talking to Mike Moritz, who for a long time was the leader of Sequoia Capital. And he’s an interesting figure because he’s written two books before he became a venture capitalist. And at least once since then.
[00:44:00] Sean: Quick one, didn’t he write a book that he only sent out to Sequoia people, but it’s like this legendary unknown document? Am I wrong in this? Or I feel like someone was sharing that example with me. I’m just generally curious about this.
[00:44:15] Sebastian: Yeah, that’s true. He wrote a book about the founder of Sequoia, which he gave to me. But it’s a privately published book. You can’t just go on Amazon. What he said to me which I find flattering, but also interesting is that in some ways doing a startup is a bit like writing a book. You suffer rejection at the outset, people think you’re a bit crazy, you’re going into some slight niche thing and you’re going to spend years on it. You get a lot of weird looks at the beginning.
And hopefully, if you persist long enough and you create something of value, then you get recognition, but you have to wait for it and you have to earn it. And you don’t know ahead of time that you’ll have reached the promised land. You might not if you write a book that turns out to be no good. There’s that risk, there’s that commitment in your path, you will get rejection. You have to bounce back from that and you have to have the grittiness to keep going. When he said that to me, it didn’t make sense but it stuck with me.
[00:45:30] Sean: Do you reach that valley of despair in the process of writing books at this point in your career?
[00:45:36] Sebastian: I must admit it’s less of a roller coaster now than it was maybe three books ago because I know that I have a process. I know it works. I’ve done it before. And I know that there will be moments when you dig three or four wells and they’re all dry and you’re out of luck for a month. But in the end, you know something will work out. At this point, I have enough faith in myself that I believe I’ll make it work.
Balance
[00:46:13] Sean: Speaking of that process, would you view that as an overall philosophy essentially of how you approach work?
[00:46:19] Sebastian: It kind of bleeds outside of just sitting at the computer writing or just pumping out emails and LinkedIn messages and working my network to get the access I need. It extends to sort of how I try to regulate the rhythms of my life outside work. I think it’s important for me to exercise a lot because it’s a very sedentary way of life. And so if you don’t get on that Peloton bike or whatever it is that you like before breakfast in my case, pretty much every day you just are not going to work well. If you don’t maintain friendships and I’m lucky to be married to somebody who connects with me intellectually as well as in other ways, and if I don’t make time for that I just won’t function well as a writer. I’ve kind of learned to see that part of patience and perseverance and sticking to it over a long period is to have a balance in how you’re approaching your life.
Paul Tudor Jones
[00:47:29] Sean: I’d like to hear a great example of someone that you’ve researched over time that you thought had a unique way in terms of crafting their environment and then cultivating those conditions for them to thrive best in their career. Is there anyone that comes to mind for you in terms of unique approaches in terms of how they went about their work?
[00:45:04] Sebastian: Well, you said something earlier, Sean, about the basketball coach who would always think through the scenarios before the game. And that is like Paul Tudor Jones, the legendary hedge fund trader who told me that he would sit in the evenings at home in a dark room and close his eyes and think through what might happen tomorrow in the markets. If oil went up, what would he do about his positions in Japanese equities? If the bond market sold off in the US, how would that translate into his view on European commodity stocks?
He had these connections in his head and he was thinking about how this play could lead to that play, could lead to the other one. And so if you could figure out the third or fourth domino in that pile of dominoes that was going to keel over, and one would hit the next and would hit the next, he could be trading the third and the fourth domino ahead of everybody else, and that’s how he would make money. So that always stuck with me, close your eyes and think through what might happen tomorrow.
[00:49:12] Sean: The people who know me best are probably smiling and perking up right now because this is a part of my process. So even this morning, I sit down and I’m thinking about how my conversation with you, Sebastian is going to go and what I’m going to ask and how you’re going to say something, and then based on that there are all these different variables. Even in my investment processes that’s what I do as well. It’s like how many different doors can you open and how many different routes can you figure out to that? So, hearing you talk about Tudor Jones, it’s very interesting because like with anything in life, you hear someone who does the same process as you, it’s just really interesting to me.
Sequoia Capital
I’m glad you shared that story there. I would love to go a little bit further on Sequoia though because you want to talk about probably the best of all time potentially. I’m just fascinated by them. And I know you got to look, let’s just say underneath the hood and see some more interesting things. What else do they uniquely do that you feel has contributed to their overall success? Is there anything that just comes to mind instantaneously for you with regards to that?
[00:50:14] Sebastian: Yeah, I think there are two things I would highlight. There’s a whole bunch and I did spend a lot of time with all these Sequoia people, and I wrote a lot about them in my book. I think they opened up to me in a way, which they hadn’t done before. And they said to me, halfway through the process, we have decided that you are high ROI. I took that as a big compliment but expressed it in this wonderfully financial way that made me laugh. But I think my conclusion from all those discussions with them was twofold. One is that they invested in their process and their own culture, very deliberately indeed in a different way, I think, to not all, but most other venture partnerships.
A lot of VC partnerships are sort of collectives of smart investment partners who walk around, they eat where they kill. Even if they meet on Mondays for the partners’ meeting to kind of vote on deals or they confer with each other, or they might even work together on a deal it’s kind of ad hoc. And they improvise their way to where they need to be, and they’re happy that way. If you look at the formation, say of benchmark super successful partnership in 1995, it was almost sort of self-consciously that they would have five people who would be super similar to each other. And who would share the approach, they wouldn’t even need to discuss how they interacted together because it would just be so natural.
Like a basketball team or something they would go out on the court and they wouldn’t need the coach. They would just go do it. And they were quite deliberate and thoughtful about how each of them interacted as individuals with portfolio companies. I talked to all of the early partners and I have a lot of respect for their thoughtfulness, but they didn’t direct that thought really to their relationships with each other, because they were so natural that they didn’t feel like it required that. Sequoia on the other hand has devoted enormous amounts of attention to that internal process.
One of my Mike Moritz’s sort of favorite jokes is, people ask me what was my favorite investment? Was it when I invested in Yahoo? Was it when I invested in Google? Was it when I invested in Stripe? No, it was none of these. It’s when I invested in Sequoia, meaning when I put my energy and my thoughtfulness into the glue within the building between me and my partner, between those partners and each other, whether that means the way we onboard and train a recruit. Roelof Botha shared with me his experience when he came into Sequoia, how he was turned from being a brilliant young guy into a top-of-the-field venture capitalist, it’s a different thing.
You have to learn new habits, new emotional self-regulation, as I was saying before, he led that because Sequoia deliberately taught him. There was a process that made it happen. Sequoia brought in a behavioral scientist, who studies decision science and teach them how to get better at making collective decisions as a group, not to anchor on each other, not to fall for loss aversion, not to have confirmation bias where you turn down Series A, so now you want to say no in the series B that the company’s no good because that’s what you said the last time you want to make yourself feel good. So there were all these very deliberate ways in which the partnership sort of figured out its time or bonding that’s point number one.
And the second point about Sequoia is that they were willing to take risks with the franchise by going into new businesses in a gutsy way. The first move they did was to go from an early stage into a growth business. They went geographically into China. They went into India and Southeast Asia. Now they’ve gone into Europe. They moved into public markets, investing with a hedge fund business. They went into a sort of an endowment fund with a thing called the heritage business, which they have. So time and again, they’ve innovated the model in a risky way, and that’s what’s got them ahead of the game. And I think that’s what makes them the kind of pacesetter for venture capital.
[00:55:13] Sean: I’m fascinated by point number one, there around the process. And my inner nodes are just exploding here thinking about what are some of those other things you mentioned, like bringing even behavioral psychologists and scientists to help better understand decision making. Was there anything else that they did that when you came across, you were like, wow, that’s unique and interesting?
[00:55:32] Sebastian: Sure. A good example is that when you start to research venture capital if you’re thoughtful and a little bit analytical about it, your bullshit detector goes up pretty fast. You hear all these stories about, I would meet an entrepreneur and I’d say, well, how come you took capital from this investor? Or I’d meet the investor and say, how did you get into that? And it would always be some story like I happen to enjoy bicycling and the investor enjoyed bicycling. And so we talked about which of us had the better time on some stretch of road in the Portola Valley. And so then we got on and then I invested. This sort of serendipity stuff, it’s cute, it’s fun, I can see why people enjoy telling these stories, but it’s not satisfying intellectually.
I was keen to kind of get behind these stories. And, that bicycling story, I just gave you an example of, is a real story that Patrick Collison, the co-founder of Stripe had told me about when he’d gone to see Michael Moritz at Sequoia. He had gone on his bicycle and Mike had a conversation with him, he’d walked him out of the building and outside the building, there was Collison’s bike, a Savella road bike, and Mike said, wow, do you go everywhere on that? What’s your best time on the stretch of what they call the Old La Honda, which is a very grueling stretch from the Portola Valley up to the Skyline Boulevard. And, so that was the story that I’d been told about investment in Stripe.
But then you dig a little deeper and you see the process. To the patience question, it took me sort of three years from hearing that first anecdote to hearing what the real story was behind the anecdote. The real story is that when Patrick Collison came to Silicon Valley the first person he called was Paul Graham, the Y Combinator founder because he had known him when he had set up his earlier company before Stripe. And Paul granted an angel investment and the reason that Sequoia did the series A was that Paul Graham had a relationship with Sequoia that Sequoia had cultivated carefully. Sequoia had recognized that Y Combinator was going to be a pipeline of great series A opportunities.
And so it provided capital to Y Combinator to do its own follow on investing, and it built that relationship. And out of that came investments in Airbnb, in Dropbox, and out of it also came Stripe because when Collison was ready to go beyond that seed check from Paul Graham, and he said to Paul, I think I’m ready for the series A, the first VC partnership that Graham telephoned was, of course, Sequoia and then Sequoia got to Stripe first. I’m sure it was nice to bond over the bike thing, but that wasn’t the real story. And so it was that process of deliberately building the Sequoia network by partnering with Y Combinator, by setting up what they call the Scouts program.
Which is a clever idea, which I think everybody else has now copied where you go to the entrepreneurs in your portfolio, and you say Hey, you don’t have a lot of money yet to play with, maybe with a lot of money on paper, but it’s not liquid money you can go do seed checks with, so we’ll give you the seed check money. You go invest it, we’ll split the proceeds from that. But of course, what Sequoia wants is not the proceeds from the seed check but is having the recipient of the seed check on the Sequoia radar so that they know what’s coming down the pipeline in terms of series A opportunities. It’s that network construction, that deal-flow pipeline construction, which doesn’t just happen by itself, you think strategically about how to create it.
Hard work, Honesty & Openness
[01:00:01] Sean: Yeah. This has me thinking specifically about you, Sebastian, because you mentioned earlier reaching out to one of the LPs in Sequoia and got introduced into an email to Doug. It’s a great story and all, but like there’s so much more there. I feel like why a company like Sequoia lets you so deep into their internal processes and then actually goes to say that you provide them a great ROI. You’ve gotten behind the curtain of so many fascinating people and companies that very few people on this planet have ever been able to do.
So I’m wondering about the self-awareness you have. What is it that you’ve done distinctly that has allowed you to do that? That isn’t part of building up your credibility and name, there has to be more than that because there’s plenty of great reporters or people writing a book, you’ve got unbelievable names, but these companies and these people don’t let them see behind the curtain. So I’m wondering if there’s anything that you’ve kind of just built up and realized, you know what, there’s probably more here to this.
[01:00:07] Sebastian: Yeah, beyond the patience point that I mentioned earlier, I think it is hard work, honesty, and openness. So on the hard work side, this is something that any good interviewer would say, I know you’ve spent the weekend reading my book, The Power Law, and thank you, but without that preparation, you wouldn’t be able to ask me good questions, and without thinking through, in your mind, how one question might lead to another question and doing that mental preparation that you talked about, this wouldn’t be such a good conversation, and I very much believe that.
When I was a journalist at the Washington Post for a bit, I remember speaking to Steve Coll, a very accomplished writer who later became the Dean of the Columbia School of Journalism. And Steve gave me a tip that stuck with me, which is, you’re going to go interview these people and you’re going to ask them to reconstruct events, which might be 10 years ago, or perhaps even more than that, and their memories are going to be a little bit rusty. So what you do is you find that every single data point about them that exists, like all of it, every YouTube interview they’ve given, every tweet they’ve sent, every time they’d been quoted anywhere, and you put all that together, you synthesize it in your mind.
You create a big document that has all that in there, and you figure out chronologically how they went through certain episodes, which you see as exciting and worth recreating in your book. And you walk into the interview with a timeline that says, all right, I know that on Tuesday morning you were in this place because you sent a tweet saying that’s where you were. And I know that on Tuesday afternoon, you had gone to the other place because that’s when you met the other guy and you had that meeting. So let’s just talk about that. How did you get from first place to second place? Did you drive, did you get a ride with somebody, and then you’re jogging their memory?
Oh yeah, I drove with my friend and that was interesting because on the way we were talking about this and now he made this point to me and that’s why when I had that meeting, I approached it this way, not the other way. And so it’s by providing the scaffolding for people’s memories that you get the rest. I kind of think of myself, like I’m just walking in with those juice powders that you add water and stuff. I’ve got the powder and I’m asking for the water and I want to do a joint effort of stirring. But obviously, it takes a lot of time to prepare for, to create those chronologies. I’m fortunate that these days I have a research associate working with me who can help because it’s very labor-intensive indeed.
But I believe in this sort of deep, intensive preparation. The second thing I said was openness and honesty. I have a different approach, I think than some people. Journalists and their editors often feel that newspapers, that it’s a bad thing to be too open with the subjects that are writing about that, you should ask questions, but not necessarily to say what’s behind them. You shouldn’t necessarily agree to share the text of what you’ve written afterward and invite comments. I thought about this carefully, and I just think that’s wrong. And the reason I think it’s wrong is that if you say to somebody you’re writing about, look, here’s the deal.
I’m going to share with you what I write. I’m not promising to change it. I have the right to say what I believe or what I think, what I’ve analyzed, and what I’ve concluded, but you have the right to comment on it. And I want to hear your comments because if I’ve made a factual error, I want to hear that if I’ve left something out, I want to hear that. And if my interpretation is wrong, I want to hear that even if I end up disagreeing with you and not changing it. And so I go through this process of first of all, that builds some confidence ahead of time that people stay, okay, I’m not going to be blindsided, I’m not going to be ambushed and I am going to be involved in a process where I don’t get to control the outcome, but I do get to be sure I’m having input, meaningful info.
And then secondly, I do what I promise, I write, I create a draft that I’m feeling good about, I share that piece of the chapter that relates to this person, and I show the context around them. I send them 10 pages of something, and I say, Hey, all comments, anything you want to tell me, I’m listening. And sometimes I just get back, that’s great. Sometimes I get back, on page seven you got the date wrong. And sometimes I get a three-hour phone call where we debate the issues and like how I could have framed the whole thing differently, and then I have to think about it. Sometimes I change, sometimes I don’t. I don’t have to change it. But I think that sort of second-round often gets me deeper.
It can be intellectually stressful because you’ve already spent hours and hours and hours generating the first draft that you’re happy with. But when you go back and you rip it up and you redo it, you get to a deeper truth. And so I believe this process creates something closer to reconstructing and recreating how my subjects think about how they come at the world, how they’re different from other people, how they get to where they’ve gotten to use your terminology. Other writers and editors and newspaper people would say, I shouldn’t be playing such an open hand that it might corrupt me in some way. I disagree.
[01:07:25] Sean: Speaking of how certain people think wow, that last three minutes understanding how you think, the humility that requires, the self-awareness, the understanding, the vulnerability there to have your ideas, your writing picked apart there, I just think it’s awesome. And especially, I need to thank you personally. One of the things I don’t do a good job of that I can do a much better job of is like you just said, providing the scaffolding to jog someone’s memory, where I hear someone bring up a specific thing, or I read about it in a transcript. And I think instantaneously they’ll be able to rewind into that moment. And I forget I’ve got to craft the conditions to allow them to get back to that place. So I don’t know if anyone else got that point, but I just thought that was so important for me.
[01:08:06] Sebastian: I should warn you there. That works for me because if the person still doesn’t remember anything, I just leave it out. I’m not sure how you’re going to edit this conversation but sometimes you try that scaffolding technique and it doesn’t work. It doesn’t jog people’s memory, it’s a dry hole that you’ve just drilled. And, you have to just throw it out and try it the next time.
Who Would Sebastian Love to Shadow?
[01:08:33] Sean: Absolutely. So a few final ones here, I’m just really intrigued by I’m sure this would be an incredibly hard question to answer. I am wondering though, all the people you’ve researched, you’ve studied, if you were able to just go for a year and just shadow this person, who would you think you could just learn the most interesting things and you’d walk away just an incredibly different person. Is there someone you would love to be able to shadow if you had to?
[01:09:00] Sebastian: Well, that’s a great question. I’m intrigued like everybody by the whole world of Web3, the metaverse, and crypto and I don’t write a lot about it, really a tool in my book. But I am fascinated by it, and I’d love to shadow a great investor who follows Web3 closely and understands this because I firmly believe that something is going to come out of this. I think we’re kind of on the internet right before Netscape was created. We haven’t quite got the killer app yet that will make it go mainstream, but there’s so much talent going into this space that somebody is going to create it. So we need to identify who Marc Andreessen is going to be on Web3. And in some ways, funnily enough, it might be Marc Andreessen because it’s his firm Andreessen Horowitz that has put so many resources into making bets on the metaverse. So I’d love to shadow him or Chris Dixon or somebody over that to kind of get inside the cockpit and see how that’s working.
[01:10:17] Sean: Speaking of transition and change, what do you think the evolution of venture capital is going to be like moving forward?
[01:10:23] Sebastian: It’s a great question, because, on the one hand, you’ve got this shift to scale where growth capital has exploded in size. Going public has become something that people delay and so a lot of kind of dollar growth in total VC numbers, which we know has just gone off the charts in the last couple of years, a lot of that growth is late-stage growth. I see that as something that may stick around and may not stick around, it might depend a bit on how regulation affects companies’ choices of whether to go public or whether to stay private. But I don’t see it as kind of like the fascinating world-changing piece of adventure.
What I think is well changing is more sort of scaling the early part of the funnel. In other words having a world in which the ability to raise a seed check, a series A check, a series B check that early part of the entrepreneurial journey is no longer just confined to Silicon Valley, which we’ve already passed that stage where it’s broken out of the Valley, but it’s globalized fundamentally. And so we’ve already seen it move into China. We’ve seen it move into India and Southeast Asia, and now it’s coming to Europe and it’s beginning in Latin America to take off, but I think this thing could be taken a whole lot further. And so I’m super excited by a small outfit called Pioneer which was started by an alumnus of Y Combinator.
[01:12:10] Sean: Daniel Gross, I know Daniel pretty well. We’ve had him on a few times, so interesting looking and finding undiscovered talent and then providing the resources. That’s Pioneer.
[01:12:23] Sebastian: I think Pioneer and things Daniel is doing are the big future. Entrepreneur First, which is run by somebody I quote in the book called Matt Clifford, London based, but it’s now gone global, which is another kind of variant on YC, a way of incubating AI startups. I think putting more and more globalized energy into giving people a path where you don’t have to choose between joining company A or company B. You could just join your own company that you start. I think developing that pipeline of new startups is the most exciting thing that I’m looking forward to.
Foundational Books
[01:13:06] Sean: Yeah, me too. Speaking of giving people that energy and that power to do their craft, one of the things that have done for me is books. I found your books fascinating, we’re going to talk more about those in a second. You’re sitting in front of a massive bookcase, I would love to know, have there been a few books for you that let’s just call them foundational books that you thought were instrumental for you and you might even go back to time and again?
[01:13:31] Sebastian: I’m a fan of Roger Lowenstein who’s a financial writer who did the long-term capital management book called When Genius Failed. He wrote a great biography of Warren Buffet. And I’ve gone back to those books, particularly the Buffet book. Just a way of describing value investing and how Buffet thought about it. He was a bit of a role model for me when I was writing my book about hedge funds. Other examples, Peter Thiel’s Zero to One book helped me to think about ventures and startups, as I was saying earlier. I think The Hard Thing About Hard Things by Ben Horowitz is a great book about the stress, trauma, and heartache of starting a company. And he did this and he went through the .com crash as a startup founder, and it was not fun, but he came through the other end and I felt that was an inspirational book. I’ve named those three.
Long-form Conversation with Anyone dead or Alive
[01:14:45] Sean: I love it. We’re going to link everyone up with your books here in a minute, but I would love to know if you could do this long-form conversation, sit down with anyone dead or alive, just not a family member or friend who would you thoroughly enjoy having a deep dive conversation with?
[01:15:00] Sebastian: I would be intrigued to do this with Masayoshi Son of SoftBank. And the reason is I pride myself on getting to see just about all the people I write about. I think I’m better at that than most researchers. But I have to confess it, Son is one person I never managed to see because the point where I kind of penetrated his operation, I’d spoken to various people who had worked for him, I’d gone back and spoken to them a second time. I’d figured out kind of who he was, where he came from, I think I know what makes him tick, but this was the moment when WeWork was going down the tubes and a bunch of his other investments was getting down the tubes and it was just completely the wrong moment to try and approach him.
If the timing had been different and if I’d been even more patient than I was and waited another couple of years to publish this book I’m sure I would have seen him, but I didn’t get to see him. And he’s fascinating because he’s reinvented himself so many times. So he was a software entrepreneur in Japan. Then he was a tech investor in the late nineties. He got killed, killed by the NASDAQ bubble imploding, but he picked himself up with his famous Alibaba investment and did fantastically well, then the wave crested when he had the Vision Fund and that went wrong with WeWork.
He came back again with investing in the public equity market at the depths after COVID hit. So he just has this “pick-himself-up-again risk appetite. I think it probably comes from his distinctive Korean-Japanese roots, Korean people are mistrusted in Japan. So he always had a bitter, I think, outsider’s feeling about how he came at the world, but I would love to further test and sort of further deepen my understanding of his psychology.
[01:17:15] Sean: Yeah. That would be fascinating to read your insights on that. We’re going to have everything linked up with you, your books, your previous books, and the newest one, The Power Law, which we’ll have some parting words here in a minute, but I just wanted to let you know, I mean, your earlier books, The Man Who Knew about Greenspan, that was the first book of yours I got introduced to you on, and I just loved it. And then obviously More Money than God about the hedge funds, I thought it was interesting. And then I had so much joy getting to dive deep into The Power Law, which is your newest book, all about venture capital.
You do such an incredible job getting these unique insights that others don’t get, but then you’re able to weave this interesting storytelling that kind of keeps you on the edge of your seat while also pulling apart and teasing out some of these big foundational mindsets and strategies that the best of the best use. So it’s so applicable, but it’s also one of those really enjoyable reads and that’s not always the case with people. So I just want to let you know I do enjoy your work, especially the last book, The Power Law. I just wanted to say thank you for putting out great work. Do you have any final words about the book, The Power Law? Of course, it’s going to be linked up. I know we covered a lot of the unique, interesting things, but there’s so much more in this book. Anything left to say about it?
[01:18:33] Sebastian: I guess the last thing I would say is simply my feelings about the long history of capitalism if you’ll permit me to end on a kind of grandiose note. I do think that different arrangements come along every so often that fundamentally change the way that capitalism works. In the late 19th century, it was the invention of the joint-stock limited liability company that made possible the creation of all the big corporations that we now know of in America. That legal innovation was super important. If you go forward maybe a century or so you see the rise of junk bonds and the leveraged buyout that enables that whole wave of unbundling and re-engineering, and the kind of lean corporation, the GE type model of the 1990s fundamentally changed the way that American capitalism worked.
It was pretty brutal but it was super competitive. And I think now at a time where this venture capital investment, that I write about in my book, kind of is the investment model that everybody needs to understand to get where capitalism is at. Sequoia today is like Goldman Sachs 20 years ago. It is the financial company that tells you how the world is operating, where it’s going, and how it’s going to move. And the reason is partly that, it’s not just that we’ve got certain specific technologies. It’s bigger than that. The reason is that fundamentally the economy has moved towards where the value is intangible.
It’s not physical assets that we care about, it’s intellectual property, its ideas, its patents, its new software, its drug development. It’s all of these business processes. And these ideas are things that are difficult to value if you’re an accountant putting together financial statements. To value them, you’ve got to be a hands-on investor who gets close to the company, who knows if a given software project is worth a lot or nothing. And that’s what venture capitalists ultimately bring. They figured out a way of coming at the world that gets them into the intangible economy and enables it to make it buzz. And that’s what my book is trying to explain to people.
[01:21:04] Sean: Sebastian, this was a fascinating, thoroughly enjoyable conversation. I can’t thank you enough for joining us on What Got You There.
[01:21:11] Sebastian: Terrific, great to be with you, Sean.
[01:21:13] Sean: You guys made it to the end of another episode of What Got You There. I hope you guys enjoyed it. I do appreciate you taking the time to listen all the way through. If you found value in this, the best way you can support the show is by giving us a review, rating it, sharing it with your friends, and also sharing on social. I can’t tell you how much I appreciate it. Looking forward to you guys, listening to another episode.
