Who would want to be tasked with investing their own and other people’s money in companies run by weirdos and jerks? But that turns out to be one of the most important skill sets shared by successful venture capitalists.
“Reasonable people,” begins Sebastian Mallaby in his excellent history of venture capital investing, “well-adjusted people…without hubris or naïveté, routinely fail in life’s important missions by not even attempting them… Khosla himself was an unreasonable man, creatively maladjusted.”
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Vinod Khosla is the venture capitalist who backed the startup company, Impossible Foods, that makes the Impossible Burger. (It’s a plant-based burger that has become wildly successful because, unlike earlier veggie burgers, it tastes good.) Although each venture-capital success story is different, Mallaby – the author of The Man Who Knew, a biography of Alan Greenspan that I reviewed here – finds a common thread: All of them involve unreasonable, maladjusted people who are a pain in the neck. Mallaby describes Khosla as “cocky and obnoxious…one part tyrant, two parts visionary.”
But Khosla is not the inventor of the Impossible Burger. That’s Patrick Brown, who is even more unreasonable. A celebrated geneticist, Brown wanted to put the meat industry out of business. Most inventors would be satisfied with their product achieving a decent market share and making them rich. Brown wanted to destroy an industry he regarded as harmful and save the world by. Livestock farming takes up one-third of the world’s agricultural capacity; Brown wanted it to disappear.
His dream was that “nobody would eat ground cow flesh again.”
Impossible!
Mallaby’s new book, The Power Law, elegantly shows how these impossible dreams get funded, and then either win big or (much more frequently) lose everything. That is where the power law comes in.
What is the power law?
The book’s title, The Power Law, is meaningful to people who work with data but will be a mystery to everyone else. It’s an important concept from statistics, so I’ll start by describing it. Have you ever noticed that the sizes of cities, businesses, and executive paychecks follow a pattern like this?
Cities are the clearest example. You can picture New York, the largest U.S. metropolitan area, at the top of the curve in Exhibit 1. Los Angeles, about two-thirds as large, is farther down. Chicago, about two-thirds as large as Los Angeles, is farther down still – and so on down to the multitude of small cities making up the “long tail” to the right. The word power is thus used in its mathematical sense, that of a “power series” in which each observation equals the previous one multiplied by a constant, called the constant of proportionality. In the cities example, the constant is about two-thirds.
Read the full article here by Laurence B. Siegel, Advisor Perspectives.
