The Most Important Silicon Valley Company You've Never Heard Of（原声文稿）
Whatever device you're watching this on right now owes its existence to these four pages.
Pick almost any major Silicon Valley tech company today.
The companies that dominate our daily lives. Trace their founders, their investors, which we've done.
And again and again, the trail leads back to the same place.
This document and the tiny handful of people behind it.
So influential it's known as the Magna Carta of venture capital a blueprint for turning risky ideas into world -changing technologies Revolutionizing the way we communicate work and live and generating trillions of dollars in the process But while this may have opened Pandora's box. It wasn't software that was eating the world. It was venture capital Big tech, your gig is over! This was never originally about money.
It started with a secret pact and a bid for freedom.
I guess I could have, you know, pricked their fingers and put a little blood on it.
So what's actually in these pages and what's the story behind them?
It's 1956 and young Austrian -American engineer Eugene Kleiner has just landed his dream job working for superstar scientist William Shockley.
Shockley is the father of modern electronics.
He co -invented the transistor, the fundamental building block of computing, and is about to win the Nobel Prize for it. Dr. William Shockley is one of three Americans sharing the physics award for research which produced the transistor.
So he easily hoovers up all the best young scientific talent for his exciting new project.
inventing a way to take silicon transistors out of the lab and manufacture them at scale.
According to new recruit Robert Noyce, it was like picking up the phone and talking to God.
You've also got the likes of Gordon Moore, John Ernie, Jay Last, Sheldon Roberts, all in their 20s and early 30s, each with a PhD or even two.
They drop everything and move across the country with him to this sleepy California town of Mountain View, just down the road from Stanford and its ambitious dean of engineering, Fred Turman. But back then an area mostly known for canned apricots.
It was called the Valley of Hearts Delight.
The Valley of Hearts Delight.
Shockley's moved there mostly to be close to his mom, which is just about the only nice thing you could say about him because by 1957 things have gone shockingly bad.
Because Shockley is a tyrant of a boss.
Abusive, petty, a micromanager.
He is so paranoid that his employees are corporate spies that he wiretaps their phones.
One day after his secretary cuts her finger on a door by accident, he is so convinced it was an act of sabotage, he orders the whole staff to take polygraph lie detector tests.
He later reveals himself to be a a eugenicist and a white supremacist. Bad Boss is an understatement.
For 33 -year -old Kleiner, who fled his native Austria because of the Nazis when he was a teenager, working for Shockley is becoming more and more intolerable.
Even their groundbreaking research to upscale silicon transistors grinds to a halt when Shockley randomly reassigns them to the four -layer diode, which was harder to make and had fewer uses.
Kleiner and his colleagues are brimming with ideas, but creatively stifled. They're stuck.
See, the ethos at the time in the 1950s is that of the organization man. You're supposed to be loyal to your company to submit.
You have owners at the top, employees below, and little incentive to rock the boat.
I need a steady job, Mr. Wiley, with a chance to gold -place it. Trying something new is risky.
If you're an employee with a radical new idea, the cost for failure was high. The company jumped up and started firing people.
It could cost you your livelihood.
And even if, against all odds, you succeed, the owners would profit from all your innovation. So why bother?
Are you all right, Bunny?
Cliner and the gang are desperate to leave, but they can't resign without another job to go to because they have bills to pay, and they don't want to break up this team.
The best way out they can think of was if they could find and convince a big company somewhere to hire them all en masse.
That way they could keep the band together and continue their original research.
Only problem is no one knew any big companies.
Grasping at Stra's Kleiner with help from his wife Rose writes explaining their dilemma to a well connected family friend who works at an investment firm in New York. Maybe they'd know someone. Now, this family friend, it turns out, was retiring.
So the letter winds up on the desk of a very junior investment banker named Arthur Rock.
An extraordinarily creative, driven, young man. Arthur Rock's a bit of a legend.
Rock is 30 years old, keen to make a name for himself, and he sees an opportunity here to do something radical.
These were, by the resumes, very superior people, and I thought, gee, maybe there's something here he immediately writes to Kleiner saying don't do anything until we meet face -to -face and he jumps on a plane to San Francisco just two weeks after writing the letter Kleiner and some of his colleagues secretly meet rock and his associate at a local restaurant behind Shockley's back and rock lays out his plan instead of becoming employees again what if you start a company yourselves.
Now Kleiner and his friends were blown away.
Nobody thought of starting their own company in those days.
Because let's be clear, these guys have no real money.
They're max salaries a thousand dollars a month, not shabby for the time, but to start their own lab they would need something closer to 1 .5 million dollars. 18 million dollars in today's money. Where was that gonna come from?
A bank loan is out of the question because it's just too high risk.
These guys have no actual product, they have no assets, and they have not even an established market that they would be selling to.
But Rock has a cunning solution, a new way to start and fund businesses.
He says, let's start by imagining that this company already exists.
If you eight big rebellious engineers can each put in $500 for 100 shares, you'll each get 10 % of this imaginary company.
Rock says he'll buy 225 shares for the remaining 20 or so percent on behalf of his investment firm. It's a visionary idea.
Aren't the Rock is proposing the first modern venture capital deal?
Previously, innovation had been funded by large companies, wealthy families like the Rockefellers and above all the U .S.
government, basically those who could actually afford to absorb the risk.
Now a few proto -venture deals had started to emerge around this time, but those were far less risky.
For a start they backed companies with actual products, but giving out the vast majority of a new company to inexperienced and practically penniless founders armed only with of talent and ideas, that is revolutionary. And it gives real incentive to the innovators. It's too good an opportunity to miss.
So the next day, all eight meet with Arthur Rock.
Since they had to keep this arrangement secret until the deal is finalized on Rockside, they sign a symbolic contract of trust.
We actually wanted to see these bills for ourselves.
So producer Tom Hayden went to the basement of Silicon Valley Archives at Stanford University. What's in here?
Jaylas, one of the, one of the eights.
It's kind of a time machine that transports us to thinking about this moment, making the decision and it's kind of a drama to that and all of that. They're freezing that moment by signing this dollar bill.
I guess they could have, you know, pricked their fingers and put a little blood on it or something like that, but they decided to sign it instead.
It's a historic moment.
Just one minor problem.
For now, this is all make -believe because they still need to find someone who's gonna plonk down $1 .5 million on the table to help them start their lab.
So off -rock goes to find a financial backer. He had to hook a whale. So we made a list of companies. It doesn't go great.
All of them said no, no, but you just not commercial 35 people in a row reject him We were pretty much at wit's end and Somebody suggested that I see Sherman fairchild fairchild is a wealthy eccentric playboy Who's also an inventor and aviation pioneer in his own right?
He's the largest shareholder in IBM and founded dozens of his own companies fairchild is intrigued But he's no fool.
If the company fails, the founders may lose their symbolic $500, but he'll have lost nearly one and a half million. So what's in it for him?
Well, Rock offers him a huge potential upside.
If the new company is successful within the first three years, Fairchild has the option to buy the whole company at a cap price of $3 million. A potential bargain. It works.
Fairchild takes the bet.
And so, on September 18th, 1957, all eight of them quit.
Shockley furiously dubbed them the Traderous Eight, a name that sticks and becomes the stuff of legend.
Two weeks later, Fairchild Semiconductor is born, just a few miles away from Shockley's lab.
It's now over to the Traders to do their part to turn it into a success.
They don't waste time. Innovation at Fairchild Semiconductor runs wild.
Strategies discussed through collaborative debate and over whiskey.
Picnics and baseball games, there was a great sense of community.
New hires are empowered to make decisions, including marketing with Don Valentine.
Within six months, they're already manufacturing silicon semiconductors and selling them to IBM.
Swiss born physicist Jean Ernie, one of the original so -called traders, Inventors totally reinvent the structure of a semiconductor by organizing it into perfectly flat silicon wafers, known as the planar process, which makes them faster, more reliable, and crucially more suitable for mass production, eventually leading to miniaturization.
Inspired by, and directly leaning on, Herney's breakthrough, infiltrator Robert Noyce invents the first mass -producible integrated circuit, what we now call a microchip, by putting the entire surrogate onto a single semiconductor.
Robert Noyce said, why don't we just build the circuit on the silicon? And that was the great leap.
So they took Herney's planar process and Noyce just added a layer of metal on top to interconnect the transistors that Herney had made. There's the integrated circuit.
If they hadn't stayed together and formed Fairchild Semiconductor, probably there'd be no silicon in Silicon Valley." This is all within two years.
It is a whirlwind of innovation.
By 1959, Fairchild Semiconductor is worth an estimated $100 million.
Fairchild caches in on his deal with Rock and buys back the entire lab for $3 million. The Traders 8 get rich overnight.
For their token $500 input, they each get $300 ,000 in shares of the parent company, that's nearly $3 .5 million today, 600 times what they put in.
It seemed to be a huge victory for the engineers, for Fairchild, and for Rock's new venture capital model.
It broadcasts to the world that high risk bets on ambitious young entrepreneurs can pay off big time. And everything looks great, at least on the surface.
The semiconductor market explodes in the early 1960s, and the dominant customer was the U .S. government.
It's not just Fairchild. Washington is bankrolling science across the board.
Never before in any country in the world had the government spent so much money investing in building the foundations for a whole array of new technologies.
NASA alone buys 100 ,000 Fairchild chips in 1964.
And these chips are getting increasingly powerful, with the new planar process packing more transistors into each chip.
In 1965, Gordon Moore plots the number of components of integrated functions over time on a log graph and predicts exponential growth, doubling every year or two.
It becomes known as Moore's Law, and amazingly it holds for about 60 years, from just 4 transistors on their first chip to billions on a modern chip.
Literally the device you are watching me on right now would not have been possible without Fairchild Semiconductor.
But for all the successful stuff happening on the surface, there is trouble brewing at Fairchild Semiconductor because the employees are not happy but first something that's made me unhappy recently people have been impersonating me online that's not me it's unsettling scary and frustrating because you know the device you're watching this on the one that wouldn't exist without the Traders 8 every app and sign up on it leaves a trail of personal data data brokers collectors collect and sell that information to people who don't have your best interests at heart, Now, back to the 1960s, when Fairchild was a huge success, so why were the employees so unhappy?
Okay, there's no tyrannical boss this time, but other than that, they're back to where they started. They're ordinary employees. The revolutionary spirit is lost.
So, one by one, they start leaving.
By 1961, four of the eight have already left, including Eugene Kleiner and Jean Ernie, lured by what Fairchild won't give them, ownership of their own company.
Word spreads fast, and soon everyone wants out.
A massive brain drain rips through Fairchild.
Soon everyone is jumping to competitors or starting their own companies in the hopes of striking it big.
The defectors, or fair children, turn their riches into spin -off after spin -off, founding over 30 new companies in the 1960s alone, including Amelko, Interstell, AMD, and dozens more.
But the most significant of the lot comes in 1968, in a move that would go on to shape the entire digital revolution.
Gordon Moore and Robert Noyce, two of the few original traders still left standing at Fairchild, decide they can't take it anymore.
Frustrated and restless, they quit and decide to start their own company.
All they know is they want a philosophy of relentless innovation. And for that, they need money. Lots of it. They're asking for a huge two and a half million.
Now, if you need millions of dollars in high -risk capital in 1968, there's only one person you're gonna call.
So they turn to their old friend Arthur Rock, who soon realizes he has a big challenge on his hands.
For a start, these two are astonishingly vague about what they're even planning to make.
They came to me with no business plan other than what they verbally said they wanted to do.
They cobbled together a purposefully loose one -page business plan that promises, well, basically nothing.
The company will engage in research, development, and manufacture and sales of integrated electronic structures to fulfill the needs of electronic systems manufacturers.
I have no idea what I just read in terms of what he means.
What they really want is the total freedom to innovate.
Essentially they're saying, give us two and a half million dollars and just trust us.
Nois and Moore might be Silicon Valley legends by this point, but this is still a massive risk for investors with a high chance that they will lose everything.
So Rock puts together a deal structure that has become legendary.
One that strikes the perfect balance of risks and incentives while fixing all the brain drain that doomed Fairchild. And he does it in just four pages.
A concise memo to potential investors laying out his plan. And again, we went looking for it. We have this here, two boxes from Jay Last's papers.
We've got hundreds of boxes for you to look through. Two boxes of Bob Noyce's papers here.
It says convertible, the bench. I think this might still be a draft.
This is the one, that's the actual one, yeah. Hold on, let's see.
One, two, yeah, this is it.
This was clearly a document that was drafted in a way that was gonna do things differently.
You know, a fundamental rethinking, you know, who are going to be the beneficiaries of the growth of this company. So what's actually in it?
First incentives for the innovators.
He ensures Noys and Moore get to keep control.
If you're going to sort of be incentivized to grow value, give them equity, but don't take away the upside. Give them the upside.
So Rock says, imagine this company already exists, imagine it has 500 ,000 shares.
Noys and Moore get $245 ,000 each, which they buy for a dollar share, and Rock himself buys $10 ,000.
But crucially, there is no option for the investors to purchase these.
Instead, Rock offers the investors something else. A whole different kind of incentive.
The investment is structured as something called a convertible debenture.
It's a financial structure that funded the US railroads rapid expansion in the 19th century, and they work kind of like a loan, but with a key difference.
The investor gets to convert their loan into ownership, stock, if they want.
So Rock's saying, give us $2 .5 million, we'll pay it back over 10 years, And hey, we'll also pay 6 % interest on top, but we're a startup, so give us three years before we have to start paying off that interest.
Now if the company flops, the investors are somewhat protected.
I mean, there's no guarantee a failed company will be able to pay them back entirely.
But the real incentive is in the upside.
Everyone's hoping that the company will be so successful that investors will automatically convert their loans into ownership.
because Rock sets aside another 500 ,000 shares and offers the investors the opportunity to convert the two and a half million dollar loan into equity for five dollars a share.
Now nobody knows at this point if five dollars a share is a good or bad price.
If it turns out to be a bad price they just don't convert but they're all hoping that five dollars a share turns out to be an absolute bargain if the company is wildly successful.
Because at the end of the day that the investors don't want their convertible note, that's a signal of a really losing investment. All that stuff is in some sense kind of meaningless.
What they want to do is they want to convert that thing into common stock and get a slice of the pie.
Now, even if all the investors wanted shares instead of money, Rock capped it at $500 ,000 ensuring that he and the founders still had at the very least 50 % of the company.
That way he could avoid what happened at Fairchild and keep Moore and Noyce in the game.
If this is successful, everyone splits it 50 -50, it works really well as a way to align incentives between investors and founders, and that's the secret sauce.
So that's the founders and the funders, but there's one more group of people that Rock needs to factor in here to avoid this burgeoning company blowing up the way Fairchild Semiconductor did. The workers.
As a startup, they know they won't be able to match what the best talent could get elsewhere. His solution? Give them a piece of the pie too.
He figures that if you align everyone's personal wealth with the company's success, surely that's the best way to incentivize maximum motivation throughout the company.
So, he sets aside yet more shares specifically for broader employees, not just executives, to earn as stock options.
Not immediately mind you, he wants them to stick around for the longer term.
So he introduces a concept now known as four -year vesting, one -year cliff, where they only get 25 % of their shares at the end of the first year and the rest over the following three.
They'll get their pie, but they'll need to work for it.
So with that icing on the cake, Arthur Rock lays out his deal to investors hoping they would buy.
And the funding floods in. The two and a half million is raised in a little more than a day.
And so Intel is born, including backing from a few old friends.
All six fairchild gentlemen invested in Intel.
Essentially all the traitors they were somehow involved in Intel.
I don't think that's widely known that much. I don't think it is either.
Intel Court was incorporated in July 68 by Noyce Moore and Arthur Rock.
And so, with three million dollars in startup money in the bank, off they go. It was complete startup mode.
If you asked Robert and Gordon back in the day, they would tell you that, no, it seemed okay.
You know, we went through this before. They went through this with Fairchild.
Andy Grove, on the other hand, felt it was chaotic. Everyone did everything. There was no hierarchy. Ideas could come from anywhere.
And that's the key, because from this rather chaotic start, it would just take three years of ferocious innovation for Intel to slingshot us into a new technological era. It's honestly mind blown.
By 1971, Intel introduces not one, but three game changers for modern computing.
The Intel 1103 memory chip commercializes dynamic random access memory, or DRAM, revolutionizing the speed, size, and working memory of computers.
Previously done on bulky magnetic cores, now you could pack thousands of bits into a tiny area.
This core memory sample and this little piece of silicon in that package have the same amount of memory.
Then came the Intel 1702, introducing eProm.
Erasable, programmable, read -only memory.
Which for the first time allowed programmers to rewrite software onto a single microchip.
Being able to program and reprogram the memory Was very important all of which leads to Intel's 4004 the world's first commercial microprocessor a giant tech leap there we go Okay, so that is the brain of a computer This is the birth of a central processing unit the CPU It's the basis for all modern computing shrinking a computer's central processor onto a single chip These are the essential stepping stones that help shrink room -sized computers, taking them out of expensive labs, and eventually into people's homes.
That same year, 1971, Intel went public listing its shares for anyone to buy, which meant that the market would make its own mind how valuable this company was.
Remember, it started as a $3 million company with no plan, no product, and no proven market.
Now, the market decides the company is worth $60 million.
Investors shares go up 8 times, the founders net 40 times their investment.
It's a clear win for Noys and Moore, for the rest of the fair children who invested, and for Rock and his venture capital model.
Four concise pages boiling down an 11 -year explosion of ideas about how to fund risky innovation by aligning incentives for both investors and founders with big ideas.
A document described as the Magna Carta of venture capital that has provided a blueprint for every venture capital deal since.
From my perspective that's why I view the Magna Carta language as appropriate because it really was, you know, a revolutionary idea and really what, you know, the rock memo did was kind of just establish this framework that turned out to work really well.
And so that's why basically you continue to see the same structure today that you saw in 1968.
Intel is the first genuinely great post -digital equipment, venture capital investment.
And by then we start to be in the world of what people now think of But this is just the beginning.
Over the coming decades, the Fair Children use rock's blueprint to transform the entire Silicon Valley and our technological landscape.
Two Fair Children in particular, Eugene Kleiner, who wrote the original letter, and Don Valentine, his marketing ways at Fairchild, become the funding power behind almost every tech firm you've ever heard of.
Because, in 1972, they found their own venture capital firms, both here on Sand Hill Road.
Kleiner forms Kleiner Perkins with former Hewlett -Packard executive Tom Perkins. And Valentine sets up Sequoia as a one -man band.
And if you want to get an idea of just how close they are, that's Kleiner Perkins.
But their early attempts to use Rocks Blueprints don't quite go as planned.
One of Perkin's earliest investments was in Snowjob, a company converting motorbikes into snowmobiles. It did not take off.
To be fair, it wasn't helped by an oil crisis causing the government to crack down on gas scuzzling recreational vehicles, dooming snow job to bankruptcy.
The problem for Kleiner was that nothing was lighting up.
By the end of 1974, they had invested two and a half million dollars in nine companies, companies, all of which were either total busts or barely breaking even at the time. It was looking bleak.
The failure rate of VC backed companies can be as high as 75%, just think about this.
Like 3 out of 4 investments you make will fail.
If you were a bank loan officer and expected 3 out of your 4 loans to fail, you would not survive for long.
Kleiner and Perkins desperately needed a win.
And so they went back to what they knew best, not just investing in companies, building them.
In 1975, they backed Tandem Computers, a company that makes failure -proof computer systems crucial for banks and ATMs, and crucial for Kleiner Perkins, too. Because Tandem's profits are off the charts, more than covering all their losses.
We're not to be successful, you need to invest in something that if it succeeds, it succeeds really greatly.
This is the essential logic of venture capital, that the wins can be so exponentially large that they follow what's called a power law.
Incidentally, there is actually a great video from Veritasium about how power laws work. Check the link below.
But it means venture capitalists are incentivized to take massive risk because the rewards are Uncapped and one win will wipe out all of the failures.
They in fact not worried about losing their money They worried about not Investing in the next Google this freedom to fail kick starts a burst of innovation Together, Kleiner Perkins and Sequoia create 3 entirely new industries in just 3 years. Number 1. Biotech.
In 1976, Kleiner Perkins backs Genentech, a company creating the first genetically engineered drug for human use. Human Insulin. A huge market and a huge win.
For their $200 ,000 investment, they got a whopping 330x return. Number 2. video games.
Over at Sequoia, Don Valentine does the same, except for a chaotic new video game company.
I went through the factory and the smell of marijuana nearly knocked me to my knees.
Within a year, Valentine turns it into a world -changing company, when video game maker Atari is sold to Warner Bros.
quadrupling Valentine's $600 ,000 investment.
In less than 10 years, a whole new industry has arrived.
He was able to take people who had inspirational ideas by being extremely hands -on, kind of shaping something that would have been too chaotic to really work into a functioning company with real value. Number three, personal computers.
At around the same time, two scruffy hippies approach Valentine with the prototype of a personal computer they're working on, a little more than a circuit board.
Their names are Steve Jobs and Steve Wozniak.
They make such a terrible impression that Valentine initially passes. Everyone does.
But Valentine spots some potential.
So he introduces them to another friend in this tiny ecosystem, ex -fairchild ex -Intel employee Mike Marcula.
At that point already happily retired at age 32.
Don just called me up one day and said, there's two guys over in this garage in Los Altos who could really use the kind of help you provide. Did they know what they had at that point? No, I don't think they did.
They were just having fun. Woz just wanted his own computer. Simple as that.
Marcula, un -retires, builds Apple up from a ramshackle outfit and professionalizes the whole operation.
Steve Wozniak later essentially said, no Marcula, no Apple.
A year later, Valentine gets directly involved himself.
Together with Arthur Rock, he helps save them from a potentially existential cash flow crisis.
And together, they launch Apple into the stratospheric company we take for granted today. And it only accelerates from there.
Sequoia and Kleiner Perkins provide critical early -stage funding for almost every Silicon Valley startup you've heard of today.
Building internet giants, Netscape, Yahoo, Google.
Transforming the way we shop with Amazon and PayPal, what we do online with YouTube and Instagram, every area of our lives from WhatsApp to Airbnb, Uber, DoorDash, Nvidia.
By 2014, 70 % of Silicon Valley public companies can trace their roots directly back to the Fair Children and Rocks 4 pages, creating a combined value today of $25 trillion and a revolution that has reshaped our world.
But hang on a minute, because it's easy to paint a picture of success after success.
We live in the aftermath of thousands of successful high -risk bets, but as the venture capital industry continued to grow, all of us have increasingly become a part of those risky bets, like it or not.
That actually started as far back as 1979, when suddenly our money was introduced to the table.
At least if you're an American with a pension.
Because that's when a relatively obscure change to American pension rules, ERISA, suddenly allows American pension money to be invested in risky venture capital.
When we think about all those successes that the venture capital industry in the US has had over the last 50 years, it's in a large part driven by this regulation.
By 1986, half of new venture capital investment comes from pension funds.
Now, to be fair, this doesn't mean every retiree is now full on gambling at the VC casino.
Pension funds are diversified, and depending on the type of pension, there are protections in place to prevent them from being totally wiped out.
But the bigger picture is that venture capital's risks and its potential rewards are no longer confined to a small circle of wealthy investors and specialist firms.
The result is an explosion in American venture capital funding, which despite crashes like the dot -com meltdown, a points drop never before seen on the U .S. market, continues to boom over the following decades.
More people, more money, and looking for even bigger returns.
It evolved into a game, you know, the financialization of startups where the startups became the assets and the goal was to reverse engineer a power law return out of those assets.
So instead of looking at the technology and evaluating its benefits to society, if it succeeded, they started being agnostic to what they were investing in and really just looking to re -engineer power law returns in the portfolio. The means became the end. Exactly, exactly.
All this money, coupled with software's ability to scale globally and almost instantly, starts to warp economics as we know it.
Because with enough venture capital money, you can focus on dominating a new market first, paying more now to win bigger later.
You need cash. The cash buys the time. And time is everything.
In 1996, Kleiner Perkins partner, John Doar, invests $8 million in Amazon for roughly 15 % of the company.
That money allows Jeff Bezos to undercut his rivals by selling below cost.
While putting any money Amazon does make straight back into aggressively expanding from just an online bookstore. Internet, shm internet. Into the internet's shop for everything.
Well, we are a famously unprofitable company and that is a conscious strategy and an investment decision.
Amazon grows so huge that by 1999, Kleiner Perkins's original $8 million stake would be worth $4 .5 billion.
And yet, Amazon's first profitable year isn't until 2003, 7 years after its original investment.
But for a VC investor, a modestly profitable, you know, self -sustaining company that's growing at an incremental pace is absolutely useless to them.
Because the goal isn't sustainability, it's domination.
It becomes Silicon Valley's defining playbook, followed by the likes of WhatsApp and Airbnb and Uber, VC -funded Blitzscaling, prioritizing rapid growth over everything else, including profitability.
And nowhere is that clearer than businesses built around network effects.
The idea that every new user you capture makes your platform or service more valuable to the next, creating a self -reinforcing advantage for whoever gets big first. Take Uber, for example.
The bigger that network grew, the less time you had to wait for a car, because it was just such a dense network. There would always be one around the corner from you.
So, companies with network effects can afford to spray money at just grabbing market share.
Because once they're really big, it's very hard for a competitor to take away market share from them.
And if capturing market early makes it harder for rivals to compete, then spending billions to grow faster than everyone else can actually be a rational investment, even if it means losing money for years.
Uber itself took 14 years to record a full year operating profit.
Now, do you and I care if a company we buy things from is profitable? Not really.
We like free information, free messaging, cheaper taxis, cheaper shopping, but that doesn't mean there's not a trade -off.
Because once we're all using a given platform with our friends or data or photos, even our work and business history, the cost of switching to a competitor becomes higher and higher.
And of course, eventually these companies do need to start repaying investors. You probably noticed this happen yourself. Prices creep up, ads multiply.
Sometimes this service itself just gets worse. Google search results suck these days.
But often you still don't stop using it.
And yet we still keep using Google because we are all locked into Google. The journalist Corey Doctorow even came up with a name for this.
And that is in shitification. In shitification.
Now, it's not inevitable, and venture capital didn't invent monopolies, but it can definitely help create them.
The funding model the Traderist 8 set in motion here in Silicon Valley didn't destroy the corporate giants they rebelled against, it reinvented them.
because the same system that creates extraordinary innovation can also create extraordinary concentration.
It wasn't software that was eating the world.
It was venture capital. It was the business models that really powered the software.
The big six tech giants are collectively worth around $23 trillion enough to rank as the second richest country in the world.
Five of them fairchild descendants and four of them directly backed by either Kleiner Perkins or Sequoia.
Companies that rival nation states in their power over communication, markets and even geopolitics, but with none of the regulation or responsibility that comes with the nation -state.
And moving far too fast for governments to catch up.
I also think by the time we get around to regulating it or legislating on it in a meaningful way the technology is going to be so far past us.
Now that doesn't mean venture capital alone created these giants nor is becoming enormous, inherently a bad thing.
Scale can make products cheaper, better, and accessible to billions of people. But incentives matter.
If investors demand hyper growth, founders are rewarded for pursuing hyper growth.
Even when that means prioritizing it over workers, users, or sometimes even the law itself.
Today, finding meta and YouTube negligent.
Addicting kids in a harmful way to their product. Big Tech, your gig is over!
If you are playing this game, you have no choice.
Because if you start to put other priorities ahead of Blitzscaling and hypergrowth, you will be deposed by your board. Two things can be simultaneously true.
Number one, venture capital has enabled an unprecedented streak of innovation.
Number two, so successful has it been that it's shaped which types of innovation get funded at all. So let's take the first.
Researchers examining three decades of American innovation estimated that every dollar of venture capital was roughly three times as effective at stimulating patenting than a dollar of traditional corporate R &D.
And what does the modern world look like today if we miss even one of these steps? If Intel's chips come 10 years later? If Apple didn't survive its bumpy early years?
My research shows that the most successful companies of today that were created in the last 50 years, okay, and the American companies, 75 % of them would not have existed.
Had there been no venture capital. But number two is part of the story too.
What's about the innovations we do get? What about the ones we don't?
What kind of innovation are we missing out on because we're putting all our eggs in at DCBasket.
There could be a lot of great ideas out there that would do really wonderful things for people, would do wonderful things for societies that we will never even know about or hear about or will never even be fully conceived because people can't figure out ways to scale it quickly, right? Not every problem scales rapidly and globally.
Housing doesn't, healthcare often doesn't, infrastructure doesn't.
It became a story about the companies that you never heard of or the problems that never got solved.
The problems that entrepreneurs were trying to solve in these sectors were not venture scalable opportunities and therefore they just didn't come to market at all.
Of course venture capital was never the only way to finance innovation.
Governments, foundations, universities, established companies, and entrepreneurs themselves have always funded breakthroughs, often with very different definitions of success.
Perhaps we just need different kinds of funding strategies for different kinds of problems.
The values, the way we design that technology, the incentives we create around its development are really going to matter.
And so I hope that we can start to have a conversation about what it would look like to align our capital systems with the technology we actually want to see in the world. Because none of this was inevitable.
Everything we see in front of us is a set of is because of a set of choices that people made that were informed by these invisible incentives.
Arthur Rock and the Traderist 8 helped trigger one of the greatest explosions of innovation in human history.
They did it by helping to solve one of the greatest problems of innovation.
How to persuade people to bet their money, their careers, their futures on ideas that might change the world.
Nearly 60 years later, the extraordinary success of that model has left us with a different question.
Not just how to fund the next great innovation, but how the way we fund it shapes the world it creates.