Lessons learned from old-time Silicon Valley — Michael Lewis’s The New New Thing
I just spent 2 days reading Michael Lewis’s The New New Thing. It was brilliant, and left me with the impression that young people in the VC community (of which I am unabashedly one) are really missing out by not having been — er — old enough during the dot-com days. The themes that defined the era, or more accurately the theme that defined the era (the internet), informs how I think I want to approach venture 20 years later, today.
But I wasn’t in Silicon Valley when Jim Clark and Microsoft made billions off the internet, so all I can do is reach backwards into the past, searching almost aimlessly for bits of thought frameworks and innovation that I can ever so cloudily glean. So for young Analysts and Associates like me who never had the chance to see the technology space grow from almost nothing, here are 3 key lessons to take away from how it all started. If you’re a VC with experience who thinks these are stupid and wrong: there’s a good chance you’re right. But I’m doing my best, right?
1. The advent of the commercial internet was the greatest single opportunity to make money in recent history.
At Cornerstone, I’m lucky to be able to speak with entrepreneurs across all different types of verticals, from Drones to Virtual Reality. These are both fascinating technologies in their own right, but they pale in comparison to what the internet brought to the table. The internet was so big that it created a fundamental change in the most traditional thing ever, the stock market: as Jim Clark showed, you could take a company public that was rapidly losing money and had no semblance of a business model whatsoever. That wasn’t how Wall Street used to work.
The folks over at Union Square Ventures (and other VCs too) are fond of saying that the application layer is what made people the most money off the internet. Clark’s two major public successes — Netscape and Healtheon — fit that mold exactly. These were internet companies only in the sense that they were built off the internet, and they sure as hell took advantage of it, Netscape by letting you browse it, and Healtheon by using it for communication and collaboration.
VCs always talk about “a big market.” VR may indeed turn out to be one of those “big markets” (we’re betting on that with our newest portfolio company, Strigy) — but the internet dwarfs anything we’re seeing today. The only two technologies that conjure the “internet feeling” in me right now are AI and Blockchain. Benedict Evans’s Twitter feed certainly disagrees with me, but I see AI (at least in the near future) as something that makes existing products better. Blockchain may be the only software-type technology out there right now that promises the potential to disrupt and create radical new systems in the same way the internet did.
2. Venture Capital has really taken a turn for the better.
The New New Thing is, at least to some degree, written through the lens of Jim Clark, and so it doesn’t view Venture Capitalists too favorably. The book paints a radically different picture of Sand Hill Road than I’ve come to know — a place of fear, conformity, and professionalism. Venture Capitalists were busy screwing people over, following around entrepreneurs like Clark to steal their ideas, and inserting businessmen in their companies to run them instead of their founders. Lewis makes them sound like investment bankers who moved out West and blindly followed entrepreneurs around, lacking any sophisticated or original thought of their own.
That’s not the reality today. Blame it on the massive inflow of new capital and proliferation of institutional and corporate venture firms, but VC has successfully branded itself as leading in thought, founder friendliness, and transparency. Firms like USV lead with their thesis on their front page, for God’s sake. More than ever, VCs are deciding what kinds of companies they want to see exist, and funding them when they find them.
A lot of this shift also has to do with social media and the web. Twitter and Medium specifically (among other platforms) have made it easier than ever for VCs to be transparent about what they’re looking for, how they invest, and perhaps most importantly, how their fund structure informs their investment strategy. Brad Feld’s Venture Deals could be one of the climaxes of this shift. You get the sense that KPCB and John Doerr weren’t sharing this kind of stuff back then.
3. We take the importance of the engineer for granted these days, but that wasn’t always the case.
Much of the book talks about Clark’s crusade to assuage the plight of the Valley engineer; the people he saw as the driving force behind the innovation, but who were never lucky enough to cash in when that innovation made some people a pile of money. Clark led a revolution of engineers starting companies and then following them through to a payday (in his own unique, detached way). But that was his doing: he saw the world as an inequitable field where the people who did the work never got the recognition they deserved.
That’s also not the reality today. Engineering (specifically Computer Science, I should add) has never been more exciting and rewarding. VCs want to see technical co-founders, and are even telling Analysts to spend more time reading other people’s code. Computer and Data Science jobs are consistently at the top of the yearly salary totem pole in tech, and CS is starting to become more mainstream as a discipline of choice. I was never lucky enough to be able to take a CS class in high school, but lower schools are picking it up now, thanks in part to initiatives like Hour of Code. And CS students are definitely the coolest ones at NYU, if you ask me.
Conclusion: it’s time to start learning more about web technology’s past.
The New New Thing helped me think a lot about the lenses through which I analyze modern technology, and what it really means for a market to be big. I think it’s a worthwhile idea for younger people like me to spend more time reading about the past, so we have an easier time trying to predict the future. And I fully intend to.
