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Shortlisted for the Financial Times Business Book of the Year Award

“Meticulously researched account . . . The book offers a satisfying look at how the sausage is made at some of the most powerful investment firms on the planet.”―New York Times

“Thoroughly magnificent. . . . Seriously great, and wildly important.” ―Forbes

“Sebastian Mallaby is the master of unspooling human drama from financial systems. Here, the venture capitalists are the protagonists. Whether it’s financiers scrambling to court a pajama-wearing young Mark Zuckerberg or venture capitalist Bill Gurley’s efforts to oust Uber founder Travis Kalanick from the company, the stories are almost Shakespearean in their depictions of ambition, jealousy and ego.” ―NPR, “Books We Love 2022”

“A must-read for anyone seeking to understand modern-day Silicon Valley and even our economy writ large . . . Most people who write about Silicon Valley do so from the viewpoint of entrepreneurs who built companies with the backing of venture capitalists. Mallaby writes from the perspective of the venture capitalists themselves. He tells his story through an accumulation of smaller stories, each one phenomenally detailed and engaging.” ―Bethany McLean, The Washington Post

"A gripping fly-on-the-wall story of the rise of this unique and important industry based on extensive interviews with some of the most successful venture capitalists . . . Mr. Mallaby writes a fast-paced narrative. He also has a journalist’s eye for revealing details” ―Daniel Rasmussen, Wall Street Journal

“Sweeping and authoritative . . . tells an undercovered tale. . . . A worthy successor to More Money Than God.” ―Financial Times

“Well-researched book, leavened by lively portraits of leading figures.”―The Economist

“Sebastian Mallaby is the master of unspooling human drama from financial systems. Here, the venture capitalists are the protagonists. Whether it’s financiers scrambling to court a pajama-wearing young Mark Zuckerberg or venture capitalist Bill Gurley’s efforts to oust Uber founder Travis Kalanick from the company, the stories are almost Shakespearean in their depictions of ambition, jealousy and ego.”―Darian Woods, The Indicator

“Sebastian Mallaby's The Power Law: Venture Capital and the Making of the New Future is a rip-roaring read full of eccentric geniuses . . . A smart and consequential public intellectual, Mallaby has formulated a smart recipe to restore America (and the world) to vibrant equitable prosperity. He makes the case vividly in a new book which should be on every congressional desk . . . It may be the most informative and engaging economic narrative history since Liaquat Ahamed's Lords of Finance: The Bankers Who Broke the World which won the 2010 Pulitzer Prize in history.” ―NewsMax

“How does the venture capital industry work its wonders? Is there a replicable formula for successful VC investing, or is it just a matter of being in the right place at the right time? And how secure is Silicon Valley’s dominance of the industry? Sebastian Mallaby’s absorbing new book, The Power Law: Venture Capital and the Art of Disruption seeks to answer these questions. . . . He brings his trademark mixture of exhaustive research and clear analysis to his most interesting subject so far.” ―Adrian Wooldridge, Bloomberg

“As we face urgent man-made existential challenges from climate change to economic inequality, Sebastian Mallaby shows that the capitalists of Silicon Valley are shaping the future in ways few understand. In The Power Law he takes us inside their rarified world, showing the possibilities and shortcomings of their big egos and big bets. Mallaby's deep access enables us to get a rare and unsettling look inside a subculture of unparalleled influence.” ―Jane Mayer, Chief Washington Correspondent, The New Yorker

“Absorbing.” ―Reuters

“The Power Law should be on every tech founder’s―and self-reflective VC’s―reading list . . . Go and buy The Power Law. It is a fantastic account of how American venture capital has developed and some of the most important rules that govern it. Let’s use Mallaby’s brilliantly executed observations of VC as an opening for a long-overdue, ongoing debate and continue our scrutiny of the kingmakers’ world.” ―Sifted

“Mallaby writes with humor and historical sweep . . . His account is immensely enriched by interviews with most if not all of the rainmakers in venture capital.” ―Prospect Magazine

“Venture capital has influenced the American economy for over half-a-century now, and finally we have a book of exceptional reporting, analysis and storytelling to bring that history to life. What makes Sebastian Mallaby’s The Power Law a classic is how deeply it takes us into VC's defining successes and failures―which are much harder to get anyone to talk frankly about. I’m not sure this is the book of VCs' dreams, but it’s what the rest of us have been waiting for.” ―Charles Duhigg

“Returning to the rough and tumble of business, January also brings The Power Law (Allen Lane), in which author Sebastian Mallaby sets off into the world of venture capital and the strange bunch of financiers behind some of the most successful companies. It’s a tale of triumphs but also major failures, hubris and jaw-dropping eccentricity.” ―Financial Times, Spring Preview

“Heavyweight and richly detailed, [The Power Law] is both a careening ride through the chaos of startup culture and a sober assessment of how the relationship between founders and their financiers has evolved.” ―Strategy and Business

“A lucid, thoughtful, and entertaining account of high-wire capitalism at work.” ―Publishers Weekly

“Indispensable.” ―Kirkus

“In this fascinating study of venture capitalists, Sebastian Mallaby explains why they invest with the sole purpose of winning the jackpot while the rest of us are advised to invest cautiously. A compelling story of flesh-and-blood financiers, sprinkled with insights from which all economists could learn.” ―Mervyn King, former Governor of the Bank of England

“If you can read only one book on venture capital, this is the one. The Power Law narrates the evolution of venture capital from its origins in Silicon Valley to its emergence in China by following the ambitious and often idiosyncratic investors who finance risky new ventures while recognizing that success is rare, but transformative. The book is a fascinating read, and illustrates well one of its core themes, that venture capital is a network that straddles and offers the virtues of both markets and corporations.” ―AnnaLee Saxenian, dean of the School of Information at University of California, Berkeley

“A fascinating journey through the tightly networked world of the venture capitalists who make Silicon Valley tick, from the scrappy dealmakers of the 1960s to the high-flying global investors of today. Filled with eye-opening case studies and vivid personalities, frank in its analysis of the industry’s greatest strengths and most dangerous blind spots, The Power Law is essential reading for understanding our tech-driven economy and where it might go next.” ―Margaret O’Mara, author of The Code

“The Power Law is a remarkable book. It takes us inside venture capital from its origins with a handful of restless risk-takers to today’s powerhouses that reshape our world. Both a formidable researcher―he has gotten key players to talk with amazing candor―and a gifted storyteller, Mallaby captures the drama and clashes of an extraordinary gallery of people who―with insight and instincts, appetite for risk and tolerance for failure, unforgiving ego and relentless ambition―make big bets in the face of huge uncertainty. Yet all of them must ultimately answer to the ‘power law’―the reach for outsized returns. Mallaby does not shy away from detailing what has gone wrong, but he sees the ‘triumph of the network’ of Silicon Valley as also a triumph for the United States―though one now challenged by the mirror image that is rising up in China. The Power Law is an important book, for sure. It is destined to be of wide impact and lasting influence.” ―Daniel Yergin, Pulitzer Prize-winning author of The Prize and The New Map

“Everyone talks about venture capital. We glorify it, we vilify it, and everywhere outside Silicon Valley envies it. At last we have a storyteller with the intelligence to understand venture capital, the diligence to dig out some astonishing tales, and the eloquence to make the journey of discovery such a pleasure. This is a superb book.” ―Tim Harford, author of The Data Detective

Chapter Page
Introduction Unreasonable People 3
Chapter 1 Arthur Rock and Liberation Capital 17
Chapter 2 Finance Without Finance 40
Chapter 3 Sequoia, Kleiner Perkins, and Activist Capital 58
Chapter 4 The Whispering of Apple 81
Chapter 5 Cisco, 3Com, and the Valley Ascendant 93
Chapter 6 Planners and Improvisers 120
Chapter 7 Benchmark, SoftBank, and "Everyone Needs $100 Million" 149
Chapter 8 Money for Google, Kind of for Nothing 173
Chapter 9 Peter Thiel, Y Combinator, and the Valley's Youth Revolt 194
Chapter 10 To China, and Stir 222
Chapter 11 Accel, Facebook, and the Decline of Kleiner Perkins 249
Chapter 12 A Russian, a Tiger, and the Rise of Growth Equity 273
Chapter 13 Sequoia's Strength in Numbers 301
Chapter 14 Unicorn Poker 339
Conclusion Luck, Skill, and the Competition Among Nations 375
Acknowledgments 405
Appendix: Charts 409
Notes 415
Timeline 465
Index 469

Introduction

Unreasonable People

Not far from the headquarters of Silicon Valley's venture-capital industry, which is clustered along Palo Alto's Sand Hill Road, Patrick Brown strode out into his yard on the Stanford University campus. Atop a little hill behind his house, Brown got down on his hands and knees, a shaggy fifty-four-year-old professor in a T-shirt, peering at the vegetation through rounded glasses. Proceeding delicately, like a detective collecting samples that might yield a vital clue, Brown began digging out the roots of some wild clover plants. It might impress the ordinary gardener to know that those roots would soon yield $3 million.

Brown was one of the world's leading geneticists. In 1995, his lab had published pioneering work on DNA microarrays, which help distinguish between normal and cancerous tissue. He had been elected to the National Academy of Sciences and the National Academy of Medicine. He was the recipient of a Howard Hughes award, which guaranteed no-strings-attached research funding. But his objective on that hilltop had nothing to do with genetics. The year was 2010, and Brown was using a sabbatical to plot the downfall of the meat-industrial complex.

A friend had set him on this path by means of a stray comment. Possessed of a keen environmental conscience, Brown had been worrying that animal husbandry occupied one-third of the world's land, causing significant greenhouse gas emissions, water degradation, and a loss of biodiversity. The planet was clearly going to need a better kind of food for the growing population of the twenty-first century. Then Brown's friend mentioned that if you could make a vegetarian burger that tasted better than a beef burger, the free market would magically take care of the problem. Adventurous restaurants would serve it, and then McDonald's would serve it, and pretty soon you could eliminate meat from the food system.

The more Brown pondered this, the more he grew agitated. If you could make a yummier vegetarian burger? Of course you could make a yummier vegetarian burger! Why was nobody treating this as a solvable problem? "People just figured we have this insanely destructive system and it's just never going to go away," Brown fumed. "They thought, 'Bummer, but there you are.'"

In most places and at most points in human history, Brown's epiphany would have been inconsequential. But, as Brown himself reflected later, he had "the very good fortune of living in the epicenter of venture capital." Because Stanford sat at the heart of Silicon Valley, its golf course laid out along the edge of Sand Hill Road, Brown was digging up his yard with a clear purpose. Those clover roots contained heme, an iron-carrying molecule found in hemoglobin, which gives blood its red color. If Brown could show how this plant molecule could mimic the properties of bloody meat, there was a good chance that a venture capitalist would fund a plantburger company.

Brown dissected the clover roots with a razor blade and blended them up to extract and culture the juices. Pretty soon, he had what he needed to fashion a vegetarian burger that smelled and sizzled and dripped and squished like 100 percent Grade A beef. "I got to a point where, though I didn't have much data, I'd enough to go and talk to some venture-capital companies-of which there are a ridiculous number in Silicon Valley-and hit them for some money."

A scientist friend mentioned that Vinod Khosla, a venture capitalist who ran the eponymous Khosla Ventures, was interested in environmentally friendly, "cleantech" projects. What he didn't mention was that Khosla was also a preacher of the Valley's most bracing creed: the belief that most social problems can be ameliorated by technological solutions, if only inventors can be goaded to be sufficiently ambitious. "All progress depends upon the unreasonable man," the "creatively maladjusted," Khosla declared, borrowing eclectically from George Bernard Shaw and Martin Luther King Jr. "Most people think improbable ideas are unimportant," he loved to add, "but the only thing that's important is something that's improbable." If you were going to pitch Khosla an invention, it had better not fall into the incremental category he called "one sheet of toilet paper, not two." Khosla wanted radical dreams, the bolder and more improbable the better.

Brown rode a bicycle to Khosla's office, a sleek designer building of glass and wood. He had prepared a slide deck that he admitted "in retrospect was ridiculous." The first slide laid out his goal: rendering the entire meat industry redundant. Those rounded glasses-the John Lennon, Steve Jobs, visionary look-seemed altogether appropriate.

Khosla has large eyes and chiseled features and thick, cropped gray hair. He fixed his visitor with an impish stare.

"That's impossible!" he said, delightedly.

Silently, Khosla was thinking to himself, "If there is a one-in-a-hundred chance that this works, this is a shot worth taking."

Brown explained how he proposed to out-beef the beef industry. He would break the challenge down into its component parts: how to replicate the smell, the consistency, the taste, and the appearance of a real beef burger. Once you analyzed each question separately, an apparently impossible ambition became a set of soluble problems. For example, the clover-root juices would drip like blood onto hot coals; they would turn from red to brown as they sizzled on a barbecue. Dr. Frankenstein had met Ray Kroc. Nobody would eat ground cow flesh again.

Khosla ran through a test that he applied to supplicants. The onus was not on Brown to prove that his idea would definitely work. Rather, the question was whether Khosla could come up with a reason why it obviously could not work. The more Khosla listened to his visitor, the less he could rule out that he was onto something.

Next, Khosla sized up Brown as a person. He was fond of proclaiming a Yoda approach to investing: empower people who feel the force and let them work their magic. Brown was evidently brilliant, as his credentials as a geneticist demonstrated. He was gate-crashing a new field, which meant he was unburdened by preconceptions about what conventional wisdom deemed possible. Moreover, Brown was clearly as determined as he was bright: he was ready to leave his academic perch-the prestige of a Stanford professorship, the blank check from the Howard Hughes foundation. All in all, Brown fitted Khosla's archetype of the ideal entrepreneur. He had the dazzling intellect, the willingness to put his own neck on the line, the glorious hubris and na？vet？.

There was one last test that Khosla cared about. If Brown managed to produce a yummy plantburger, would he generate profits that would be commensurately succulent? Khosla routinely put capital behind moon shots with a nine-in-ten chance of failure. But the low probability of a moon landing had to be balanced by the prospect of a large payout: if the company thrived, Khosla wanted to reap more than ten times his investment-preferably, much more than that. There was no point gambling for success unless the success was worth having.

Brown had gotten to his final slide, where he stuck all the mundane market data that failed to interest a scientist. He noted matter-of-factly that "it's a trillion-and-a-half-dollar global market being served by prehistoric technology."

Khosla latched on. If plant patties could mimic the experience that customers expected from beef-the taste, the consistency, the browning, and the bleeding as you flipped the burger on the grill-the potential was cosmic.

Brown looked Khosla in the eyes. "I promise to make you even more insanely rich than you already are, if you give me this money," he told him.

At that, Khosla bet $3 million on Impossible Foods, as Brown fittingly named his company. Recounting this story in 2018, Khosla happily noted Impossible's progress since 2010: the company would soon have more than $100 mil

Shortlisted for the Financial Times Business Book of the Year

Named a Best Book of 2022 by The Economist

“A gripping fly-on-the-wall story of the rise of this unique and important industry based on extensive interviews with some of the most successful venture capitalists.” - Daniel Rasmussen, Wall Street Journal

“A must-read for anyone seeking to understand modern-day Silicon Valley and even our economy writ large.” -Bethany McLean, The Washington Post

"A rare and unsettling look inside a subculture of unparalleled influence.” ―Jane Mayer

"A classic...A book of exceptional reporting, analysis and storytelling.” ―Charles Duhigg

From the New York Times bestselling author of More Money Than God comes the astonishingly frank and intimate story of Silicon Valley’s dominant venture-capital firms―and how their strategies and fates have shaped the path of innovation and the global economy

Innovations rarely come from “experts.” Elon Musk was not an “electric car person” before he started Tesla. When it comes to improbable innovations, a legendary tech VC told Sebastian Mallaby, the future cannot be predicted, it can only be discovered. It is the nature of the venture-capital game that most attempts at discovery fail, but a very few succeed at such a scale that they more than make up for everything else. That extreme ratio of success and failure is the power law that drives the VC business, all of Silicon Valley, the wider tech sector, and, by extension, the world.

In The Power Law, Sebastian Mallaby has parlayed unprecedented access to the most celebrated venture capitalists of all time―the key figures at Sequoia, Kleiner Perkins, Accel, Benchmark, and Andreessen Horowitz, as well as Chinese partnerships such as Qiming and Capital Today―into a riveting blend of storytelling and analysis that unfurls the history of tech incubation, in the Valley and ultimately worldwide. We learn the unvarnished truth, often for the first time, about some of the most iconic triumphs and infamous disasters in Valley history, from the comedy of errors at the birth of Apple to the avalanche of venture money that fostered hubris at WeWork and Uber.

VCs’ relentless search for grand slams brews an obsession with the ideal of the lone entrepreneur-genius, and companies seen as potential “unicorns” are given intoxicating amounts of power, with sometimes disastrous results. On a more systemic level, the need to make outsized bets on unproven talent reinforces bias, with women and minorities still represented at woefully low levels. This does not just have social justice implications: as Mallaby relates, China’s homegrown VC sector, having learned at the Valley’s feet, is exploding and now has more women VC luminaries than America has ever had. Still, Silicon Valley VC remains the top incubator of business innovation anywhere―it is not where ideas come from so much as where they go to become the products and companies that create the future. By taking us so deeply into the VCs’ game, The Power Law helps us think about our own future through their eyes.