Author Archives: Hervé Lebret

Silicon Valley Bank and Venture Capital

I have been very surprised by the bankruptcy of Silicon Valley Bank (SVB). Silicon Valley finance was (and I think still is) about venture capital and not banking, about equity and not loans/debts. So how is it possible that a bank fail by serving startups?

When I was in venture capital, and this is 20 years ago, startups would marginally borrow money. Banks indeed did not trust these fragile entities and they were statistically right. Of course startups could borrow money if they had sound collaterals like equipment and this is when Silicon Valley Bank and its peers were used by startups: for leasing for example (office space, equipment that could be reused).

Apparently things have changed as I recently learned. Some venture capitalists managed to convince SVB to go further. Money was cheap and if “powerful” VCs were financing a startup, then SVB thought the startup was solid.

As the article by the New Yorker below says, it appears to have been a combination of incompetent management, lax regulation, and some powerful people in Silicon Valley crying fire in a crowded theatre.

You may read additional material from the New Yorker with
– The Old Policy Issues Behind the New Banking Turmoil (March 13)
– Why Barney Frank Went to Work for Signature Bank (March 15)
Another interesting article is In Their Own Words: What Silicon Valley Bank Meant To The Valley

There is also this interview about Peter Thiel’s role in SVB collapse

Some quotes include :
“Silicon Valley has an image problem but remains hugely popular.”
“The issue is not that VCS are powerful but more not as smart as they think they are”.

Finally, there is no doubt that the money had become very easy, in too big quantity as indicated by the wikipedia page about SVB. The end of megarounds and the recent new startup crisis have played their part.

This probably needs to be looked at over the long term. When I wrote my book, I had a look at the correlations between the Nasdaq Index, VC fund raising and the economic crisis. Here is what it gave:

and here is what it looks like in 2022 with, among other things, the 2008 crisis

I post this article because I was invited to debate about Silicon Valley, Venture Capital and how can technology startups my impact the banking system on France Culture in Entendez-vous l’éco ? (in French). I now have to read the new book of the other guest, Olivier Alexandre, La tech. Quand la Silicon Valley refait le monde (Seuil, 2023) (Tech. When Silicon Valley changes the world) which seems very interesting. Probably a futrure post.

Gordon Moore (1929-2023) – The Accidental Entrepreneur

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Gordon Moore passed away last Friday, March 24, 2023. He was the last of the Traitorous Eight and there is not only one living founding father of Silicon Valley, Arthur Rock.

I could build a short video of the two of them out of the great documentary movie Something Ventured.

The text is interesting and funny: Throughout the 1960s, Fairchild was bleeding talent. The lure of stock options and independence inspired many of the brilliant young engineers to peel off and start their own companies.
But Gordon Moore and Bob Noyce, its two most important founders, remained loyal to their company until May of 1968, when Fairchild’s East Coast management made a fatal mistake.
[Moore] Noyce was the logical internal candidate to be the next C.E.O. But they decided they were gonna look on the outside.
That changed the whole ball game. Noyce said, “I’m gonna leave. Are you interested?”
So I said, “Okay. Let’s do it.”
[Rock] They needed financing, and they called me to see whether I’d be interested.
They came to me with no business plan, other than what they verbally said they wanted to do.
Arthur said he needed something to talk to potential investors with.
Just to give people something.
[Moore] We wrote a business plan, and it was one page- Double-spaced, and that was it.
It just says we were going to make things out of silicon, and some interesting electronic devices.
Oh, I said in general terms we were going to make memories.
[Rock] It has lots of typos in it. I think Bob typed it himself.
It’s not a very profound document, but it’s really kind of cute.
I said, “How much money do you need?”
And they said, “Two and a half million dollars.”
And I said, “Okay.”
“What percentage of the company do you think you’d be happy giving up for two and a half million dollars?”
And they thought and said, “Well, how about half?”
And I said, “That’s fine.” And within a day and a half, I had raised two and a half million dollars.
[Narrator] Intel opened its doors in July of’68,
[Moore] We went public the same day that Playboy Enterprises went public. At the same price.
And a few years later one of the analysts says,”The market has spoken. It’s memories over mammaries, 10-to-1.”

Moore’s law
(From Wikipedia page on Gordon Moore – see above)

In 1965, Moore was working as the director of research and development (R&D) at Fairchild Semiconductor. He was asked by Electronics Magazine to predict what was going to happen in the semiconductor components industry over the next ten years. In an article published on April 19, 1965, Moore observed that the number of components (transistors, resistors, diodes, or capacitors) in a dense integrated circuit had doubled approximately every year and speculated that it would continue to do so for at least the next ten years. In 1975, he revised the forecast rate to approximately every two years. Carver Mead popularized the phrase “Moore’s law”. The prediction has become a target for miniaturization in the semiconductor industry and has had widespread impact in many areas of technological change.

The importance of Gordon Moore and of his law for technological innovation

This “law” is not at all scientific but it has remained self-fulfilling, an objective to be achieved, giving engineers and Silicon Valley strong confidence in the future. We can thus partly understand the regular cycles of growth and speculative bubbles that accompanied it for 60 years, in the semiconductor industry (from the 1960s), in computers and software (from the 1970s), in networks and the Internet (from the 80s), in electronic commerce and mobile telephony (90s) then social networks (2000s). The end of the law was announced several times this decade and one wonders if it will not have the opposite effect as technological innovation seems to have slowed down in recent years. I refer you to a recent article on the disillusions of Silicon Valley and a scientific article that illustrates this possible slowdown: Papers and patents are becoming less disruptive over time.

There are so many things about Gordon Moore that I doubted a little before adding the PDFs that follow. But here is what I found in my archives:
– the 1965 article at the origin of Moore’s law,
– an article on the impact of Fairchild (1998)
– an interview with Gordon Moore (2000)

moore Moore-Fairshield Moore

What makes Silicon Valley Venture Capital unique?

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Friends from IMF sent me a link to a very interesting article entitled How Unique is VC’s American History?. You may have access to it here or there. It is an analysis of a book, Tom Nicholas’ VC: An American History that I have not read (yet). But the article is quite fascinating about the lack of answers about Venture Capital uniqueness of and reasons for its success.

Let me summarize by quoting & emphasizing:

1- A theme throughout the book is that the development of the VC industry and the structure and governance of VC investments can be understood through the lens of the allure of long-tailed, highly skewed returns, whereby sparse successes need to make up for a multitude of failures. Nicholas argues that skewed, long-tailed payoffs are a distinguishing feature of VC and its American antecedents and suggests that part of America’s comparative success at VC may be due to Americans’ relative affinity for such payoffs. […] Like modern VC investments, nineteenth-century whaling voyages were long-term projects that faced huge risks. Ships could be lost at sea or fail to find whales, and even completed voyages could have disappointing payloads. The result was a skewed, long-tailed distribution of returns similar to that of modern VC. […] We agree with Nicholas’s conclusion that American historical precedents such as the financing of whaling and cotton-spinning technology, and others detailed in the book, are highly related to modern VC. There is also little doubt that American VC has been uniquely successful in the world. However, it is less clear to us that the historical precedent is unique to the United States, or even uniquely successful, making it difficult to draw a causal link between VC’s American history and the success of modern US venture capital. In particular, the Dutch in the 16th and 17th centuries established trading ventures to East Asia on a massive scale for the time. Like whaling, these earlier expeditions share many similarities with modern VC, including skewed, long-tailed returns and complex governance mechanisms. Yet a modern VC industry with similar success to the U.S. did not arise in the Netherlands.

2- We also agree that positively skewed, long-tailed returns are indeed a hallmark of VC. But long-tailed returns are by no means unique to VC. As we discuss in Section 4 below, long-tailed returns arise naturally as a consequence of long-term holdings of risky assets more generally, including for instance the returns of public equities if they are held for many years. Thus, it is difficult to ascribe too much of the governance and structure of VC to the long-tailed nature of its returns.

3- Nicholas describes the unique position Silicon Valley enjoys today as the result of an agglomeration over time of a number of factors, including returns to scale from academic innovation (largely from Stanford University), military investment, the presence of influential early firms that led to entrepreneurial spinoffs, the weather, immigrants, and of course the development of the VC sector. What is much less clear is whether the agglomeration is simply due to serendipity. For instance, William Shockley founded Shockley Semiconductor in Silicon Valley because he happened to have a desire to move back to the San Francisco Bay area from the east coast to care for his ill mother. Departing employees from Shockley Semiconductor in turn founded Fairchild Semiconductor, Intel, and the VC firm Kleiner Perkins, among many others. Had Shockley Semiconductor instead been formed on the east coast, in many ways a more natural place at the time, the evolution of Silicon Valley could easily have been very different.

Nicholas also outlines the genesis of some of Silicon Valley’s oldest and most successful VC partnerships. He stresses the different investment styles of the founding VCs. For example, Arthur Rock of Davis & Rock (later Venrock) emphasized investing in people, Tom Perkins of Kleiner Perkins focused on the technology, and Don Valentine of Sequoia Capital emphasized product markets. Each of these VCs was so successful that they are now legends in the VC community. Yet, given the disparity of styles, it is difficult to draw any firm conclusions about the makings of a good VC. Moreover, consistent with the long-tail distribution of returns, the reputation of each of these VCs was cemented largely on the basis of a few homerun investments, such as Kleiner Perkins’s early investment in Genentech. It is difficult to rule out the possibility that these few early successes involved a large portion of luck, which became self-perpetuating because of increased access to the best new ventures (Nanda, Samila, and Sorenson 2020). If so, like the eminence of Silicon Valley itself, the early success of these top-tier VCs may have been serendipity.

Probably all of this is well-known but I found it particularly convincing in its synthetic shortness.

The Importance of Migrants according to Philippe Mustar

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A somewhat dated article (November 2022) reminded me of the importance of the subject. The article published by Le monde, “All Immigrants Are Entrepreneurs”, is for subscribers only and I can only quote the beginning:

A recent study by the National Foundation for American Policy (NFAP, 2022) on the origin of the creators of “unicorns”, these young companies not listed on the stock exchange and valued at more than a billion dollars (960 million euros) , shows not the importance but the predominant role of immigrants in the creation of the latter. In the United States, more than half of them (319 out of 582, or 55%) were founded or co-founded by one or more immigrants. If we take into account not only immigrants but also their children, this percentage rises to 64%. And when we broaden the spectrum by adding non-founding immigrants who occupy a key management position in the company (CEO or vice-president of technology), it reaches 80%. Immigration does play a massive role in the success of entrepreneurship in the United States.

This is all the more so since the analysis of these 319 companies highlights that 58% of them had one or more immigrant founders and no native founders, that 28% had a majority of immigrant founders or an equal number of immigrant and native founders , and that only 14% had a majority of native founders. As the study puts it: “Given that each co-founder contributes to the success of a start-up, it seems likely that none of these billion-dollar companies with at least one immigrant founder would exist or would not have been created in the United States if the foreign-born founder had not been allowed to come to the United States.”

The topic of migrants is not new here. Check the tag Immigrant and in particular:
– March 2016 : Immigrants and Unicorns.
– June 2013 : AnnaLee Saxenian, Migration, Silicon Valley, and Entrepreneurship.

I will not make long comments except to thank Philippe Mustar for his article and indeed to insist on the importance of migrants in the world of startups.

The myth of the entrepreneur – Undoing the imaginary of Silicon Valley (3/3)

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This is a very slight follow-up to the 2 posts about Galluzzo’s The Myth of the entrepreneur. The link is very weak: is Silicon Valley mostly about story telling or is it more about a complex technology cluster? As I combine both on this blog, I just add a look at what I wrote over years. It may look like an “ego trip” sorry, but it will be my online archive too! Yes there is a lot of storytelling, but there is also some research using statistics and tons of data…

Visiting Scholarship

How the state can be a venture capitalist? January 2019. Visiting scholarship at International Monetary Fund, Washington DC, USA. Draft of report available on demand.

Books and publications relevant to Innovation and Entrepreneurship

H. Lebret, Are Biotechnology Startups Different? April 2018. https://arxiv.org/abs/1805.12108

H. Lebret, Equity in Startups, September 2017. http://arxiv.org/abs/1711.00661

H. Lebret, Startups and Stanford University, August 2017. http://arxiv.org/abs/1711.00644

H. Lebret, Startups at EPFL, June 2017 papers.ssrn.com/abstract_id=3317131

H. Lebret, What Europe still has to learn from the US in academic innovation in Academic Spin-Offs and Technology Transfer in Europe Edited by Sven H. De Cleyn (Chapter 12), Edward Elgar Publishing Ltd. 2016 ISBN: 9781784717377

H. Lebret, Start-up, A Culture of Innovation, Amazon.com – March 2016
H. Lebret, Start-Up, une culture de l’innovation (French Edition), Amazon.com – Mars 2016

H. Lebret, Age and Experience of High-tech Entrepreneurs, Babson College Entrepreneurship Research Conference 2014
H. Lebret, Age and Experience of High-tech Entrepreneurs, Journal of Business and Economics, vol.5, nb.12, pp.2327-2336. DOI: 10.15341/jbe(2155-7950)/12.05.2014/013

H. Lebret Serial Entrepreneurs: Are They Better? – A View from Stanford University Alumni. August 2012. Babson College Entrepreneurship Research Conference (BCERC) Frontiers of Entrepreneurship Research: Vol. 32. http://dx.doi.org/10.2139/ssrn.2133127

H. Lebret Stanford University and High-Tech Entrepreneurship: An Empirical Study, April 2010, Babson College Entrepreneurship Research Conference (BCERC) Frontiers of Entrepreneurship Research: Vol. 30: Iss. 5, Article 10. http://dx.doi.org/10.2139/ssrn.1983858

H. Lebret Start-up, What we may still learn from Silicon Valley, November 2007
http://www.amazon.com/Start-up-still-learn-Silicon-Valley/dp/1434820068
CreateSpace – ISBN – 1-4348-2006-8
H. Lebret Start-up, ce que nous pouvons encore apprendre de la Silicon Valley, December 2007
http://www.amazon.com/Start-up-pouvons-encore-apprendre-Silicon/dp/1434817334
CreateSpace – ISBN – 1-4348-1733-
www.startup-book.com A related blog where I update news about start-ups, Silicon Valley and Europe.

H. Lebret, J.-A. Månson, P. Aebischer. The EPFL approach to Innovation Universities and Business: Partnering for the Knowledge Society – Luc E. WEBER and James J. DUDERSTADT (eds)
Publisher: ECONOMICA, ISBN 2-7178-5190-9 – First published 2006

A. Catana and H. Lebret, Technology Transfer at the EPFL Europhysics News (2004) Vol. 35 No.6

G. Zocco and H. Lebret. Quality start-ups will always find financing. Les start-ups de qualité trouveront toujours du financement. AGEFI, supplément au numéro 198, 15 octobre 2001

The publication of the two versions (French and English) of “Start-Up” induced invitations to publications (in chronological order) that can be found on the blog

– Success story – quarterly contributions to Créateurs newsletter
Adobe – John Wanorck et Charles Geschke – mars 2009
Genentech – Bob Swanson et Herbert Boyer – juin 2009
Femmes entrepreneurs – Carol Bartz et Sandy Kurtzig – septembre 2009
Un européen dans la Silicon Valley, Aart de Geus – décembre 2010
Un Suisse dans la Silicon Valley – Edouard Bugnion – mars 2010
Give back to the community – Swissquote – juin 2010
Une manière suisse d’entreprendre ?– octobre 2010

– Federation of Entreprises Romandes (initially in French)
Pourquoi les grands succès dans le domaine des nouvelles technologies sont-ils dans l’immense majorité issus des États-Unis ? December 2011
About the challenges of innovation. March 2012
Is Intellectual Property out of Breath? August 2012
Failure is a learning experience. December 2012
Does the Swiss culture tolerate failure? July 2013
The Immigrant, Factor of Creation. January 2014
A Look Back at the Swiss February 9 Votation. February 2014
Innovation and Society: are the Returns and Benefits Sufficient? June 2014
“You have money, but you have little capital.” February 2015
Why doesn’t Europe create any Google or Apple? August 2015
Myths and Realities of Serial Entrepreneurs. May 2016
The digital revolution: stakes and challenges (for Switzerland). November 2016
Virtual Innovations? May 2018

– Start-up chronicles on EPFL Web Site- http://actu.epfl.ch/search/start-up-epfl/
Medtech, Good for Switzerland -January 2013
Two EPFL Start-ups Take Off in Tandem – October 2012
What’s a start-up worth, or reflections on Facebook’s IPO fiasco – August 2012
Start-ups hiding six feet under – June 2012
Kandou and investment – April 2012
SWISSto12 – Of Start-ups and Men – March 2012
Aleva – is venture capital a universal solution? – February 2012

Internal reports and presentations (chronological order)
Most content available on Slideshare – www.slideshare.net/lebret/presentations

 A few facts about academic spin-offs – Nov 05
 A brief history of Google – Jan06 and updated 2013
 A trip in the Silicon Valley – May 06
 Academic spin-offs: some anecdotal evidence from a Stanford University Lab – Jun 06
 The EPFL Innovation Forum – Aug 06, Oct 07, Nov 08
 EPFL start-ups –analysis ongoing since Sept 06
 The Innovation Support around EPFL – ongoing since Sept 06
 SW/IT: a workshop on entrepreneurship – Oct 06
 Equity split in starts-ups – Oct06
 Why is the US Innovation System better? – SEISGE EPFL workshop – Oct 06
 A brief history of venture capital – Nov 06 and updated 2012
 Course MINT – Evaluation of an invention potential (2004-2009)
 Course VENTURE LAB – Intellectual Property (2005-2009)
 Founders at Work, Betting it All, In the Company of Giants – Notes from the Books – Jun-Dec 08
 Stanford start-ups – in progress (October 08- September 09), a study on 2’500 small companies.
 Examples and synthesis of academic licenses to start ups – May 2010
 Equity in high tech start-ups with venture capital – 2010 and updated 2012, 2014, 2017
 The venture capital process – December 2012
 Ten ideas to innovate in uncertain times – November 2015
 Is Switzerland a Startup Nation? – October 2017

The myth of the entrepreneur – Undoing the imaginary of Silicon Valley (2/3)

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I have finished reading Anthony Galluzzo’s book which I already mentioned in part 1 a few days ago. I hesitate between irritation and a more positive appreciation because I do not know if the author simply wants to undo the imaginaty of the region or to criticize its functioning more broadly. Indeed in the last two pages of his excellent book he writes: “After reading this book, some may wonder about the possibility of “undoing” the entrepreneurial imaginary; not only to deconstruct it, but to lead it to defeat”. Then he adds: “Many commentators have already noted this: to undo an economic and social system it is not enough to demystify the beliefs and refute the syllogisms conveyed by its ideology. It is also necessary to simultaneously think of another economy and another imaginary, to make other desirable representations and incarnations of human existence prosper.”

Silicon Valley as an ecosystem and its dark sides

I do not know what to think. An imaginary does not make a system, even if it is undoubtedly an important ingredient. Behind story telling and the myth of the heroic entrepreneur, there is an ecosystem that Galluzzo talks about more in the interview he gave to Echo (To understand the economy, you have to tell it through ecosystems, not trhough individuals – Pour comprendre l’économie, il faut la raconter par les écosystèmes, non par les individus) than in his book. Silicon Valley is an ecosystem and not (just) a myth factory to hide a darker situation [1].

Of course, there are dark sides in Silicon Valley. He shows it well in the beginning of his book, which I relate in my previous post, for example through the war for talents or the invisibilization of the State. His description is darker and darker in the end, even if the new elements are just as true:
– a glaring imbalance in the population of entrepreneurs with few women or African Americans,
– an under-representation of trade unions which would have deserved a more in-depth analysis,
– employees at the bottom of the ladder who are less well treated (assuming that these jobs have not been relocated),
– an unbalanced taxation [page 206] which would also have deserved a more in-depth analysis.

Galluzzo mentions tokenism as the reason for story telling. In the sociological literature, the practice of symbolically integrating minority groups to escape the charge of discrimination is called “tokenism” [Page 204]. Galluzzo also admits that there is not always story telling. Larry Page and Sergey Brin, the creators of Google are at the origin of one of the main powers of Silicon Valley and yet are relatively unknown to the general public. They have always been quite discreet, with rare and well-defined speeches. They did not invest in storytelling and personal branding [Page 218]. Nor does Galluzzo mention the thousands of unknown and often failed entrepreneurs who are a vital component of the region.

He adds that Silicon Valley would have flourished with almighty Thatcher neoliberalism. But it seems to me that he forgets that Silicon Valley really flourished in the two preceding decades, that of the 60s (Fairchild, Intel) which allowed the development of semiconductors and that of the 70s (Microsoft, Apple) for computers . He seems to forget, even if he mentions it, that without the structuring of venture capital in these two decades, but also without the arrival of highly qualified migrants in the decades that followed, there would probably be no such Silicon Valley such as it exists (and not as it is mythologized). I don’t think the subject is so “swept under the rug”. As early as the 1980s, a relatively mainstream author showed the darker sides of the region in his book Silicon Valley Fever. You can also read The Capital Sins of Silicon Valley.

What is an entrepreneur?

The pages [pages 196-98] on the definition or traits of an entrepreneur are also very interesting.

How to define the “entrepreneur”? A first approach consists in considering him simply as a business creator: someone who starts and organizes an economic activity. We mix the small craftsman and the big boss; the baker and the wealthy start-up founder. To focus on the latter, should we add to our definition an order of magnitude as to the economic success of the company and if so, which one? Should we limit the category to those who have founded a small business in hyper-growth? Another solution is to introduce the notion of risk. The entrepreneur would be the one who mobilizes resources in a situation of uncertainty; he would be the one who succeeds in his bets on the future. [Page 196]

Faced with these problems, it may seem essential to use the criterion of innovation. The entrepreneur would be the one who organizes a new combination of means of production: the one who develops a new product, develops a new method of production, creates a new market, conquers a new source of supply or disturbs the organization of a whole sector. […] However, defining the entrepreneur as an innovator requires de facto to separate innovation from the process, to extract it from the continuum, to attribute it, often very artificially, to a single actor. [page 197]

When research in entrepreneurship developed in the 1980s, it quickly focused on the questions of who was the particular personality of the entrepreneur. […] Among the traits that have been the subject of several studies, we note the propensity to risk, the tolerance for ambiguity, the need for accomplishment and the locus of internal control [the locus of internal control indicates the tendency that individuals have to consider that the events that affect them are the result of their actions] This research did not yield any conclusive results. [Page 198]

Galluzzo could have mentioned the definition of a startup given by Steve Blank which has been almost universally adopted, it gives a fairly convincing perimeter to the tech entrepreneur, the one in question here: “Start-ups are temporary entities looking for a scalable and repeatable business model.”

Finally on several occasions, Galluzzo seems to show his preference for the builder more than for the creator, Markkula rather than Jobs in the early days of Apple, Cook rather than Jobs in its last days: Bloomberg recently ranked all the CEOs in Apple history based on how the company’s valuation has evolved under their leadership; Steve Jobs (1997-2011, +12.4%) is far behind Mike Markkula (1981-1983, +64%) and John Sculley (1993-1993, +106%). Tim Cook outperforms them all with a +561% increase. I did not have access to the article and I could have been wrong but I arrive at different results for the growth rates from my multiples: Markkula, 4x in 2 years or 100%, Sculley around 1x or 0 %, Jobs (second period) 100x in 14 years or 40% and Cook, 10x in 12 years or 25%. Finally Jobs (1st period – in reality Scott) 1600x in 4 years or 500%. But this last subject is all the less important as I am not sure of all these figures. Founder, builder, storytelling and reality, these are subjects that remain fascinating. Thanks to Anthony Gazzullo for his excellent book and the thoughts it prompted me.

[1] Here are elements that describe an ecosystem and that I took from a post dated October 2015:

“5 needed ingredients of tech. clusters”
1. Universities and research centers of a very high caliber;
2. An industry of venture capital (i.e. financial institutions and private investors);
3. Experienced professionals in high tech;
4. Service providers such as lawyers, head hunters, public relations and marketing specialists, auditors, etc.
5. Last but not least, an intangible yet critical component: a pioneering spirit which encourages an entrepreneurial culture.
in “Understanding Silicon Valley, the Anatomy of an Entrepreneurial Region”, by M. Kenney, more precisely in chapter: “A Flexible Recycling” by S. Evans and H. Bahrami

Paul Graham in How to be Silicon Valley? “Few startups happen in Miami, for example, because although it’s full of rich people, it has few nerds. It’s not the kind of place nerds like. Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people.” He also added about failed ecosystems: “I read occasionally about attempts to set up “technology parks” in other places, as if the active ingredient of Silicon Valley were the office space. An article about Sophia Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and Nortel. Don’t the French realize these aren’t startups?”

Finally, entrepreneurial ecosystems need 3 ingredients – I quote:
– capital: by definition, no new business can be launched without money and relevant infrastructures (which consist of capital tied up in tangible assets);
– know-how: you need engineers, developers, designers, salespeople: all those whose skills are necessary for launching and growing innovative businesses;
– rebellion: an entrepreneur always challenges the status quo. If they wanted to play by the book, they would innovate within big, established companies, where they would be better paid and would have access to more resources.

The myth of the entrepreneur – Undoing the imaginary of Silicon Valley

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A friend mentioned this new book about Silicon Valley to me a few days ago and I quote: “The author’s argument is wrong (but it’s pernicious). […] Indeed, entrepreneurship generates excellence and independent-minded people, while [another view – opposition to liberal capitalism] creates a population of people dependent upon the state.”

I’m not sure I agree with my friend: on the one hand, the relationship between collective and individual is a key topic around entrepreneurship. Does a company create value without “outstanding” individuals? The subject is as old as the world. On the other hand, the distribution of this value is a second subject which belongs among other things to the field of taxation and Piketty has clearly shown that, for several decades, the distribution gap has greatly increased in favor of the richest to the detriment of the poorest.

Marianna Mazzucato has shown this imbalance in The Entrepreneurial State, which she finds all the more unfair as she shows the primordial role of the State in upstream funding (education, research, public services in general) which provides a favorable context for the creation of wealth.

In the beginning of his book, Le mythe de l’entrepreneur – Défaire l’imaginaire de la Silicon Valley (The Myth of the Entrepreneur – Unraveling the Imaginary of Silicon Valley), Anthony Galluzzo explains similar things but it seems different to me. I am only at the beginning and I will see later how closely it joins the criticism introduced above. The author is a specialist in merchant imaginary and the subtitle is convincing, namely that it is necessary to deconstruct the imaginary of this region, based on story-telling around the stars of the region, such as Steve Jobs and Elon Musk (although Elon Musk has largely lost his aura). It shows us that Elisabeth Holmes tried the same approach but succeeded only very partially.

Joseph Schumpeter is quoted extensively in the book at the beginning, in particular it seems to me, for a critique of the role of the entrepreneur and of creative destruction. Galluzzo prefers to use destructive creation to show the chronology of actions. But I didn’t see in the beginning of the book, at least, that Schumpeter adds that capitalism cannot exist without advertising. So without story-telling and imaginary.

This imaginary of Silicon Valley is therefore, I believe, only what allows capitalism to self-develop, to survive, with all the current paradoxes of destructive waste. But behind this imaginary, what is the reality? Galluzzo refuses to oppose entrepreneurs and businessmen. I understand the argument. Creators, stars at least, can make a lot of money. But I don’t know if the main reason is their ability to do business or if they are simply at the origin of a creation that makes it possible to do business. I am neither an economist, nor a historian, nor a sociologist and I find it very difficult to make sense of things, all other things being equal.

Anatomy of the Myth – the Heroic Entrepreneur

So here are a few things that I found interesting in the beginning of the book:

1- The solitary entrepreneur

Steve Jobs was not alone and worse is perhaps not critical to the initial success. The story is indeed quite well known while Jobs is seen as the only genius of Apple.
– Steve Wozniak is the real genius (Galluzzo will not like the term) behind the first computers from Apple.
– Steve Jobs is said to have “stolen” [Page 35] many ideas from Xerox to build his machines. The story is known but the term “stealing” is too strong even if many Xerox employees were shocked. Xerox received Apple shares in exchange for this rather unique deal in history.
– “Mike Markkula can be considered the true founder of Apple, the one who transformed a small, insignificant hobbyist operation into a structured and solidly financed start-up. » [Pages 19-20]
– “Arthur Rock, meanwhile, is one of the most important figures in Silicon Valley, he contributed to the emergence of the largest companies in the region – Fairchild Semiconductor, Intel, then Apple. However, no biography has ever been devoted to him and his wikipedia page is starving”. [Page 20]

I will nuance Galluzzo’s remarks again. Certainly Wozniak, Markkula and Rock have not penetrated the imagination of the general public, but Silicon Valley connoisseurs are not unaware of them and the film Something Ventured (which Galluzzo does not seem to mention in his very rich bibliography) does not forget them at all. And what about this cover of Time Magazine.

2- The war for talent

“The functioning of the labor market in Silicon Valley, however, shows us a completely different dynamic. The industrial concentration in this region leads to significant personnel movements: an engineer can easily change company, without moving or changing his lifestyle. […] This high degree of labor mobility has been observed since the 1970s, when on average IT professionals only stayed in their jobs for two years [Cf AnnaLee Saxenian’s Regional Advantage]. When circulating like this, employees, even bound by non-disclosure agreements, take with them their experiences and knowledge. The propagation of this tacit knowledge is at the heart of the ecosystem, it allows permanent collective tacit learning. » [Page 45]

Galluzzo gets to the heart of the matter here, which makes Silicon Valley unique. Not so much the concentration of talent, which exists in all developed regions. But the circulation of talent. Almost everything is said!

However, Galluzzo adds a significant nuance that I was less familiar with: “Therefore, problems arise for entrepreneurs relating to what has been called in business jargon the “war for talents”. To carry out his projects, he must succeed in appropriating the most precious commodity there is, the work force of highly qualified engineers.” [Page 46]

Galluzzo then mentions the stock options, the aggressive recruitment but also this: “Another court case illustrates well the issues of employee retention. In the 2000s, several Silicon Valley giants, including Intel, Google and Apple, formed a “wage cartel”, mutually agreeing not to attempt to poach employees. This tacit agreement was intended to eliminate all competition for skilled workers and to limit wage increases.” [Page 47 & see Google, Apple, other tech firms to pay $415M in wage case]

3- The invisibilization of the State

The subject is also known and I mentioned it above. We too often forget the role of the collective in the possibility of favorable conditions and context. But Galluzzo shows that too often there is even a certain hatred of the collective, illustrated by the growing visibility of libertarians. It is also known, Silicon Valley is afraid of unions. Here’s another example I didn’t know:

“I want the people who teach my children to be good enough to be employed in the company I work for, and earn $100,000 a year. Why should they work in a school for $35-40,000 a year if they can get a job here at $100,000? We should hire them and pay them $100,000, but of course the problem is the unions. Unions are the worst thing that has happened to education. Because it is not a meritocracy, but a bureaucracy. »

You have to read the entire excerpt and maybe even the entire interview with Steve Jobs. Excerpts from an Oral History Interview with Steve Jobs. Interviewer: Daniel Morrow, April 20, 1995. Computerworld Smithsonian Awards. We are there in the core American culture and the importance given to competition between individuals rather than to the equality of the members of the collective.

So are there geniuses or not? Is there only Darwinian emergence of talents a posteriori among those who will have survived? I don’t know or I don’t know anymore. Probably something in between. Or maybe it is an act of faith, as long as sociology does not have elements that will allow me to have a more convincing opinion…

To be continued…

Optimism and Disillusionment in Silicon Valley. Part 3 : Goomics, the end of Googleyness?

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First, it’s important to remember that Aaron Swartz died 10 years ago. He was, maybe, the first casualty of the end of the Internet as we dreamed it, a free or at least easy access to the world information.

What is Googleyness? Laszlo Bock’s Definition of Googleyness is #1 Enjoying Fun, #2 Intellectual Humility, #3 Conscientiousness, #4 Comfort with ambiguity, #5 Evidence that you’ve taken some courageous or interesting paths in your life. In page 134 of Goomics, Manu Cornet mentions “Data-Driven and Transparent, Selfless and Humble, Proactive, with a Sense of Humour & Silghtly Irreverent, Respectful and Fair”.

So what happened between the Volume I of Goomics, (that I had 3 posts about here, there and there) and this second volume, with subtitle Disillusionment? Let us quote the author through a few of his drawings. First of all, Google is an innovative company, as Manu Cornet reminds us through the following and funny quiz, the answers to which you will find at the end of the article.

However, the author has lived his last years at Google with some difficulty. Here are some examples:

His feelings that Google is becoming a normal company with its bad habits of bureaucracy, lack of transparency and even worse bad treatment of harrassment are rather scary.

Let’s end on a refreshing note though, written by a true nerd!

Post-scriptum (before the anwsers to the quiz):

A post-scriptum to close the loop of these 3 articles about disillusionment in innovation. A recent scientific article seems to support some of Michael Gibson’s arguments in Paper Belt on Fire. France Culture in Les publications scientifiques deviennent de moins en moins “innovantes” (see the end of the page) quotes a publication by researchers from the University of Minnesota, Papers and patents are becoming less disruptive over time. An interesting read for those intrigued by the subject.

Answers to the quiz

Postscript (as of August 22, 2023): Page and Brin don’t give many interviews, the latest one I found is this one:

Optimism and Disillusionment in Silicon Valley. Part 2 : Steve Jobs in Playboy

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It is the third time I can relate Playboy magazine to technology startups. Strange.

In 1971, Intel went public the same day as Playboy and its co-founder, Gordon Moore, funnily recounts in Something Ventured: And a few years later one of the analysts: “The market has spoken. It’s chips over chicks, 10-to-1.” He did not exactly say that but something similar. I will let you search if you wish…

In 2004, the playboy interview of the Google founders, The Google Guys, America’s newest billionaires, was very controversial. Not because of the publisher, but of the timing. You can read
Google says Playboy article could be costly.

Finally I recently discovered that in 1984 was published a lengthy 13-page interview of Silicon Valley’s newest star: Steven Jobs, a candid conversation about making computers, making mistakes and making millions with the young entrepreneur who sparked a business revolution. Here are some extracts.

About computers

We’re living in the wake of the petrochemical evolution of 100 years ago. The petrochemical revolution gave us free energy – free mechanical energy, in this case. It changed the textures of society in most ways. This revolution, the information revolution, is a revolution of free energy as well, but another kind: free intellectual energy. It’s very crude today, yet our Mackintosh computer takes less power than a 100-watt light bulb to run and it can save you hours a day. What will it be able to do ten or 20 years form now, or 50 years from now? This revolution will dwarf the petrochemical revolution. We’re on the forefront.

Computers will be essential in most homes. The most compelling reason to buy a computer for the home will be to link it into a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people – a remarkable as the telephone.

It’s often the same with any new revolutionary thing. People get stuck as they get older. Our minds are sort of electrochemical computers. Your thoughts construct patterns like scaffolding in your mind. You are really etching chemical patterns. In most cases, people get stuck un those patterns, just like grooves in a record, and they never out of them. It’s a rare person who etches grooves that are other than a specific way of looking at things, a specific way of questioning things. It’s rare that you see an artist in his 30s or 40s to really contribute something amazing. Of course, there are some people who are innately curious, forever little kids in their awe of life, but they’re rare.

About innovation

What happens in most companies is that you don’t keep great people under working environments where individual accomplishment is discouraged rather than encouraged. The great people leave and you end up with mediocrity. I know, because that’s how Apple was built. Apple is an Ellis island company. Apple is built on refugees from other companies. These are the extremely bright individual contributors who were troublemakers at other companies.

Polaroid did that for some years, but eventually Dr Land, one of these brilliant troublemakers, was asked to leave his own company – which is one f the dumbest things I’ve ever heard of.

About growing

Anyway, one of our biggest challenges and the one I think John Sculley and I should be judged on in five to ten years is making Apple an incredibly great ten- or 20-billion-dollar company. Will it still have the spirit it does today? We’re charting new territory. There are no models we can look to for our high growth, for some of the new management concepts we have. So we’ve to find our own way.

The way it’s going to work is that in our business, in order to continue to be one of the major contributors, we’re going to have to a ten-billion-dollar company. That growth is required for us to keep up with the competition. Our concern is how to become that, rather than the dollar goal, which is meaningless to us.

There may be some imitators left in the $100,000,000-to-$200-000-000 range, but being a -$200-000-000 company is going to mean you are struggling for your life, and that’s not a really a position from which to innovate. Not only do I think IBM will do away with its imitators by providing software they can’t provide, I think eventually it will come up with a new standard that won’t even be compatible with what it’s making now – because it is too limiting.

[Jobs was visionary but could be always right. Look at Dell, Compaq, Lenovo, HP and Intel/Microsoft…]

I used to think about selling 1,000,000 computers a year, but it was just a thought. When it actually happens, it’s a totally different thing. So it was. “Holy shit, it’s actually coming true!” But what’s hard to explain is that this does not feel like overnight. Next year will be my tenth year. I had never done anything longer than a year in my life. Six months for me, was a long time when we started Apple. So that has been my life since I’ve been sort of a free-willed adult. Each year has been so robust with problems and successes and learning experiences and human experiences that a year is a lifetime at Apple. So this has been ten lifetimes.

There’s an old Hindi saying that comes into my mind occasionally: “For the first 30 years of your life, you make your habits. For the last 30 years of your life, your habits make you.” As I’m going to be 30 in February, the thought has crossed my mind. And I’m not sure. I’ll always stay connected with Apple. I hope that throughout my life, I’ll sort of have the thread of my life and the thread of Apple weave in and out of each other, like a tapestry. There may be a few years when I am not there, but I’ll always come back.

About artificial intelligence

The original video games captured the principles of gravity. And what computer programming can do is to capture the underlying principles, the underlying essence, and then facilitate thousands of experiences based on that perception of the underlying principles. Now if we could capture Aristotle’s world view – the underlying principles of his world view? Then you could ask Aristotle a question. Ok you might say it would not be exactly what Aristotle was. It could all be wrong. But maybe not.

Part of the challenge, I think, is to get these tools to millions and tens of millions of people and to start to refine these tools so that someday we can crudely, and then in a more refined sense, capture an Aristotle or an Einstein or a Land while he’s alive.

That’s for someone else. It’s for the next generation. I think an interesting challenge in this area of intellectual inquiry is to grow obsolete gracefully, in the sense that things are changing so fast that certainly by the end of the Eighties, we really want to turn over the reins to the next generation, so that they can go on, stand on our shoulders and go much further. It’s a very interesting challenge, isn’t it? How to grow obsolete with grace.

Post-Scriptum: It is difficult to add anything to this beautiful conclusion and yet I wish to create a (quite artificial) link between these first two parts. I just discovered it while finishing this article and the coincidence is quite beautiful. I didn’t know about this Steve Jobs interview. Much better known, even famous, is the speech he gave in 2005 at Stanford University, for the graduation of students (the “commencement speech” – my first article in this blog)

Coincidentally, Michael Gibson ends his book, Paper Belt of Fire, by analyzing another commencement speech given in 2005 and considered by some to be one of the most beautiful with that of Jobs. This is “This is water” by David Foster Wallace, the entirety of which you will find in This Is Water: Some Thoughts, Delivered on a Significant Occasion, about Living a Compassionate Life.

Here is its conclusion:

The capital-T Truth is about life BEFORE death.

It is about the real value of a real education, which has almost nothing to do with knowledge, and everything to do with simple awareness; awareness of what is so real and essential, so hidden in plain sight all around us, all the time, that we have to keep reminding ourselves over and over:

“This is water.”

“This is water.”

It is unimaginably hard to do this, to stay conscious and alive in the adult world day in and day out. Which means yet another grand cliché turns out to be true: your education really IS the job of a lifetime. And it commences: now.

Optimism and Disillusionment in Silicon Valley. Part 1 : Paper Belt on Fire

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So I asked Gates: “What do you think of the idea that we’re not seeing as much innovation and scientific progress as we should? That the rate of progress has stalled?”
“Oh you guys are full of shit. Total shit…”

This is how Bill Gates reacts on page XI of Paper Belt on Fire, How Renegade Investors Sparked a Revolt against the University to author Michael Gibson’s ideas that he describes in detail in his recent book.

The book is both exciting and frustrating, convincing sometimes and unnerving at others. But let me mention what was questioning [to me].

The central thesis of the book has four parts. The first is that science, know-how, and wisdom are the source of almost all that is good: higher living standards; longer, healthier lives; thriving communities; dazzling cities; blue skies; profound philosophies; the flourishing of the arts; and all the rest of it.
The second is that the rate of progress in science, know-how, and wisdom, has flattened for far too long. We have not been making scientific, technological, or philosophical progress at anything close to the rate we’ve needed to since about 1971. (Computers and smart phones notwithstanding.)
The third claim is that the complete and utter failure of our education, from K-12 up through Harvard, is a case in point of this stagnation. We are not very good at educating people, and we have not improved student learning all that much in more than a generation, despite spending three to four times as much per student at any grade. Our lack of progress in knowing how to improve student outcomes has greatly contributed to the decline in creativity in just about every field.
The last, chief point is that the fate of our civilization depends upon replacing or reforming our unreliable and corrupted institutions, which include both the local public school and the entire Ivy League. My colleagues and I are trying to trailblaze one path in the field of education. We might be misguided in our methods, but our diagnosis is correct. [Pages XIX-XX]

What are the traits of great founders? [Pages 89-96]

Edge control, crawl-walk-run, hyperfluency, emotional depth & resilience, a sustaining motivation, the alpha-gamma tensive brilliance, egoless ambition, and Friday-night-Dyson-sphere.

Edge control: a willingness day after day, to defy the boundary between the known and the unknown, order and disorder, vision and hubris.

Crawl-walk-run: a founding team needs to have the smarts to build what they are going to build. […] The best way to screen for these traits is to see them at play in the wild. It takes some time to see their evolution.

Hyperfluency: the best founders have the charm of a huckster and the rigor of a physicist. […] They speak with fluent competence.

Emotional depth & resilience: the founders of a company have to have the social and emotional intelligence to make hires, work with customers, raise money from investors, and gel with co-founders. The complexity of this total effort is incredibly demanding and emotionally exhausting.

Tensive brilliance: what we’ve noticed is that creative people tend to have a unity born of variety. That unity may have a strong tension to it, as it tries to reconcile opposites. Insider yet outsider, familiar yet foreign, strange, but not a stranger, young in age but older in mind, a member of an institution but a social outcast – all kind of polarities lend themselves to dynamism. This is in part, I believe, why immigrants and first-generation citizens show a strong productivity for entrepreneurship. They are the same, but different.

Egoless ambition: on the one side there is an intense commitment to do great things. But on the other side is an element of detachment, a footloose, untroubled attitude that treats triumph and disaster just the same.

Friday-night-Dyson-sphere: the physicist Freeman Dyson once imagined a sphere of light-absorbing material surrounding our entire solar system on its periphery. One of the most electrifying moments for us is when a team convinces us, through a series of plausible steps backed by evidence, that they are capable of growing a lemonade stand into a company that builds Dyson Spheres. What’s more, it’s clear this is the thing they’d rather be tinkering on during a Friday night when all the cool kids are out partying.

The 1517 fund [1]

“We’re named after the year Martin Luther nailed his ninety-five theses to a church door in a tiny German town. That began a revolution, the Protestant Reformation. But it all started because he was protesting against the sale of a piece of paper called an indulgence. In 1517, the church was saying this expensive piece of paper could save your soul. In 2015, universities are selling another expensive piece of paper, the diploma, saying it’s the only way to save your soul. Well, it was bullshit then. And it’s bullshit now.” [Page 144]

For one thing, most venture capital funds fail. Blind folded monkeys throwing darts to pick stocks would perform better than the investor who picked the average venture capital fund. The median VC returns about 1.6 percent less than if someone just put their money in an index-tracking mutual fund. [Page 147]

To accelerate progress, we need young people working at the frontiers of knowledge sooner than they have in the past. They also need greater freedom. What that means is institutions that trust them to take risks and demonstrate some edge control with their research. We must hold it as a fairly predictable law of creativity that the unknown must always pass through the stranger before we can understand it.
Universities have served this research function in the past and will continue to do so. But they are plagued by four realities. The first is the slow speed of a formal, credential-based education. It takes four years to earn a bachelor’s degree and then another seven or eight to earn a PhD. Second, universities have become hives of groupthink. Third, grant-giving is driven by prestige, credibility, and a cover-your-ass mentality. Fourth, the incentives of academic institutions reward shrewd political calculation, incrementalism, short-term horizons, and a status hierarchy in which demonstrating loyalty earns more reward than advancing knowledge. [Page 261-2]

About education

The good news is that two cheap, relatively easy to use methods stand out as the most effective at boosting student performance: practice testing and distributed practice. Distributed practice is when students establish and stick to a consistent schedule of practice over time. (Its antithesis is cramming.) Practice is not mere repetition, but a deliberate effort to improve performance in the Goldilocks zone where success is neither too easily gained, nor the challenge too hard. Self-resting as a technique should not be confused with high stakes standardized testing but instead as a way of frequently probing the edge of knowledge in a field. […] Consistent self-testing and distributed practice are the most effective learning techniques, but they are also the most painful, as both of these strategies require discipline, energy, and individual effort.
Then there are the more intangible questions that require our attention. How can we encourage students to pursue the truth, independent of other people’s approval? How do we teach civil disobedience, training our young to fight for what’s right? Or how to practice delayed gratification for worthy long-term goals? Are these even possible to teach? No one has bothered to ask. [Pages 301-302]

If you are not unnerved and still intrigued, then you may read his final chapter around James Stockdale and David Foster Wallace.

Now what I found unnerving is the huge difference between exceptions, anecdotes in a system and a social statistical problem. I will only quote a great and rather unknown novel: Les Thibault by Roger Martin du Gard: « Je vous avoue que je ne sais plus très bien ce que je lui ai conseillé. J’ai dû – naturellement – l’engager à ne pas abandonner l’école. Pour des êtres de sa trempe, notre enseignement est, somme toute, inoffensif : ils savent choisir, d’instinct ; ils ont – comment dirais-je – une désinvolture de bonne race, qui ne se laisse pas mettre en lisière. L’Ecole n’est fatale qu’aux timides et aux scrupuleux. Au reste, il m’a paru qu’il venait me consulter pour la forme et que sa résolution était prise. C’est justement l’indice d’une vocation, qu’elle soit impérieuse. C’est bon signe qu’un adolescent soit en révolte, par nature, contre tout. Ceux de mes élèves, qui sont arrivés à quelque chose étaient tous de ces indociles. » [Page 754 of volume 1, collection folio and this gives in English “I confess to you that I no longer really know what I advised him. I had to – naturally – urge him not to drop out of the School. For beings of his caliber, our teaching is, after all, harmless: they know how to choose, instinctively; they have – how shall I put it – a good-natured casualness, which does not allow itself to be put on the edge. The School is fatal only to the timid and the scrupulous. Besides, it seemed to me that he came to consult me for the form and that his resolution was taken. It is precisely the sign of a vocation, that it be imperious. It is a good sign that a teenager is in revolt, by nature, against everything. Those of my students who achieved something were all of these rebellious ones.”]

[1] I did not mention until now and will in this footnote that Gibson, in a way, belongs to the PayPal mafia of anarcho-libertarians that include Peter Thiel and Elon Musk. Gibson co-managed the Thiel Fellowship and now the 1517 fund. There are notable Fellows as shown on Wikipedia. Now quoting Peter Thiel did the recipients did better than what he dreamed of: “We wanted flying cars, we got 140 characters instead” or did they really answer his famous question “What’s something you believe to be true that the rest of the world thinks is false?” [Page 60]