Silicon Valley – Religion, Operating System, or Something Else?

Earlier this week I wrote a post titled The Religion of Silicon Valley. It was intended to be provocative and exploratory.

The comments were great and helped me think through this concept more (note: the comment counter is broken on the main page due to a plug-in conflict – we are trying to figure it out. The counter is correct on the post page…)

Then I wrote a post titled The Board Operating System. A few folks tied together the concepts of Religion and Operating System as an operative metaphor for Silicon Valley.

That stimulated a bunch of other phrases in my mind to use as metaphors. As I ponder them, I’m curious which ones fit or don’t fit, and why. Some phrases include:

  • Religion
  • Operating System
  • Frame of Mind
  • Culture
  • Cult
  • Something Else?

If you are game to play and help think through this, comment away!

The Paradox of VC Value-Add

Scott Maxwell of OpenView Partners had an awesome post up this morning titled The Truth About VC Value-Add. Go read it – I’ll still be here when you get back.

You may recognize Scott’s name – I wrote about him in my post When VCs Don’t Bullshit You.

The next person on the list of supporters is Scott Maxwell at OpenView Venture Partners. Scott and I were both on the Microsoft VC Advisory Board that Dan’l Lewin organized and ran. While we had never invested together, I felt like Scott was a kindred spirit. We both spoke truth to Microsoft execs, even though they mostly ignored us. I remember a meeting with the Microsoft Mobile 6.0 team as they were pitching us their vision for Microsoft Mobile 6.5. Both Scott and I, on iPhone 1’s or 2’s at the time, told them they were completely and totally fucked. They ignored us. A year or two later they had less than 3% market share on mobile. We had a blast together and as we went out to raise our Foundry 2007 fund, Scott made several introductions which resulted in two wonderful, long term LP relationships.

That’s how a friendship develops, at least in my world. You do stuff together, learn from each other, and then do things for each other. Simple.

Scott’s post is a great history lesson about the evolution of “value-added VC” behavior, especially around organization building by VC firms to “add more value” to their portfolio companies.

Before I dig in, I need to express two biases. First, whenever someone says “I’m a (adjective) (noun)” I immediately think they are full of shit. When someone says “I’m a great tennis player”, I immediately wonder why they needed to tell me they are great and it makes me suspicious. “I’m a deep thinker” makes me wonder the last time the person opened a book. “I’m a value-added VC” makes me think “Isn’t that price of admission?”

Second, I went through the scale up of the organizational VC firm in the late 1990s at Mobius Venture Capital. When we started Mobius, we were four founders and two EAs. At one point we were a 70 person organization, with 10 partners, 20 associates, two business development people, three recruiters, a marketing person, two incubators (anyone remember Hotbank?), a staff to run the Hotbanks, a big back office for accounting, EIRs, and some others folks.

It was a disaster. Now, you can argue that we were terrible at it. Or that we completely fucked it up. Or that our basic premises about what we were doing was wrong. Or that how we managed it was ineffective. Or that it would have worked great if only the Internet bubble hadn’t collapsed. Or probably 83 other arguments.

Regardless, it created a very deeply held belief that I share with my partners at Foundry Group that we wanted to run a VC firm that had none of this. We didn’t want associates. We didn’t want to grow. We didn’t want to build an organization. Instead, we wanted to be extremely close to the entrepreneurs and do all the work ourselves. It just occurred to me that we are bare metal VCs. That kind of fits with the word Foundry in our name.

So, my fundamental biases are (a) I don’t like the phrase “value-added investor” and (b) I have no interest in building a VC firm that looks like one that is configured the way many of the current larger VC firms are organizing themselves.

However, while it’s a bias, I have no opinion on whether it’s a better or worse approach. It’s a different approach. And that’s totally cool – there are lots of different ways to do things successfully. And there are lots of different ways to fuck things up.

In my opinion, Scott is one of the guys that is doing this effectively. I’m an investor in Scott’s funds and a very happy one. Scott’s also been thinking about this and working on it for over 15 years, now at two different firms, so he has a lot of run time with what works and what doesn’t. Many folks that are trying to incorporate “value-add infrastructure” into their firms would be wise to read his post carefully.

Now, if you are paying attention to my biases, you’d logically ask “So why did you co-found Techstars and why are you and your Foundry Group partners so involved?” Remember that it’s a different approach. We deeply believe that the way companies are created and funded, especially at the seed stage, is radically changing on a permanent basis. Techstars, at the very beginning, was based on this premise. It’s scaling magnificently around this premise and the iteration loop on learning is incredibly tight. And, while we are very close to it, Techstars is not “our firm” so we can help with our opinions, lessons we’ve learned, and belief system without having to run it.

Remember, there are lots of different ways to do something. However, there’s a huge difference between “doing something” and “doing something successfully.” The distinction is always worth paying attention to.

The Board Operating System

In the comments to my post yesterday titled The Religion of Silicon Valley, Rosey commented that the choice of metaphor could be “operating system” instead of religion.

“Brad, I expected your choice of metaphor would be ‘operating system’ more than ‘religion’, as the term ‘religion’ carries a lot of baggage and generally involves some supernatural truth claims. An ‘operating system’ both defines its environment and thrives within it — and the idea of an OS seems less cluttered with other analogies, like heaven, hell, and Eden.

Can you, for example, take the SV’s operating system and drag and drop it into Boulder or Kansas City? You can — but the VC’s the operating system needs to plug into may not be fast or scalable enough — the peripherals the OS expects to interact with.

The SV OS ought to work in a Bolder or Kansas City if we can ‘install it.'”

I love the phrase “operating system” to describe things. I saw a presentation from Anil Dash a year or two ago that completely recast government and how it works into the construct of an OS (it was epic – I wish I had the slides).

Yesterday I got an email from a CEO of a late stage company I’m involved in who is modifying his “board operating system.” He has a new late stage investor and it’s time to change the board OS to incorporate this new director and how he likes to work into the mix in a way that is additive to everyone, especially the company and the CEO.

It’d be easy for the CEO to fight this and say, “Nope, this is how we do things” but he’s wiser than that and instead is spending time thinking through how to modify the OS so that it works for everyone, including all the existing investors who are very happy with the existing board OS.

Here’s a quick table of the “current” and “future” board OS. The communication is clear and the rhythm is well-defined.

Board Operating System

In 2014, Paul Berberian, CEO of Sphero, wrote an email to his board (which I’m on) titled Orbotix Board of Directors Expectations. We use this as our board OS at Orbotix and it’s been incredibly helpful. If you are struggling with your board dynamics, it’s worth reading and contemplating creating something similar.

I’m a strong believer that a great CEO sets the expectations for how the board of a private company works. Too many CEOs of startups don’t put the energy into this and as a result boards take on default behavior that is a function of the experience, style, and temperament of individual board members. This is, at best, suboptimal, and is often a clusterfuck.

The Religion of Silicon Valley

There has been a lull in the chanting that “Silicon Valley is the center of the tech universe.” I’m in Boulder for the next three weeks and I woke up pondering something Ben Casnocha said to me the last time we were together.

Silicon Valley is a religion, just like Crossfit is a religion.

This has stuck with me for a long time and I’ve read many posts about Silicon Valley through this lens. For a quick frame of reference test, try these three:

I’ve been trying to decide the best phrase to describe the phenomenon around Silicon Valley. All of the easy phrases – culture, dynamics, ecosystem – either feel wrong or are too limiting. Religion seems to be the one that works.

Since religion is a loaded word for so many people (including me), I went searching for a comfortable and expansive definition of religion to use that transcends human history and belief systems. I liked the Wikipedia definition of religion.

A religion is an organized collection of beliefs, cultural systems, and world views that relate humanity to an order of existence. Many religions have narratives, symbols, and sacred histories that aim to explain the meaning of life and/or to explain the origin of life or the Universe. From their beliefs about the cosmos and human nature, people may derive morality, ethics, religious laws or a preferred lifestyle.

Let’s change this to “The Religion of Silicon Valley.”

The Religion of Silicon Valley is an organized collection of beliefs, cultural systems, and world views that relate humanity to the order of existence. It has narratives, symbols, and sacred histories that aim to explain the meaning of Silicon Valley and/or to explain the origin of Silicon Valley. From their beliefs about the human nature, people may derive morality, ethics, religious laws or a preferred lifestyle.

That seems like it works. As an observer, but not participant, in Crossfit, this definition also seems to work for Crossfit. It also seems to work for Fight Club, which I watched recently at an offsite with Seth, Jason, and Ryan and we all agreed that it definitely does not pass the test of time.

Religions are incredibly powerful, but they have great weaknesses and limitations. Religious leaders are dogmatic. They are slow to change their fundamental beliefs and in some cases refuse to. Over time, some religious leaders alienate their subjects or try to control society through top down control. And, when religions clash, conflict and human extermination can be quite dramatic. Religious leaders are often overthrown after a period of time.

Metaphorically, this is a risk of the Religion of Silicon Valley. I’ve been saying for over 20 years that there are many different ways to create amazing companies. Recently, in my book Startup Communities, I asserted that you can create a startup community in any city in the world.

The Silicon Valley way is one of them, but not the only one. Today, it’s a powerful epicenter, just like Detroit was a powerful epicenter in the 1940s, 1950s, and 1960s even earning a place in America’s Arsenal of Democracy during World War II with its sister cities Chicago, New York, Philadelphia, and Pittsburgh. But the notion that the Silicon Valley way is the only way is a dangerous one.

I’m intrigued by people who say “the only place you should start a tech company is Silicon Valley.” I keep thinking that I’ll never hear that again, but I just heard it two weeks ago from an entrepreneur I met. He’s very accomplished and starting a new company not in Silicon Valley. He called me looking for an understanding about how to combat the argument he was getting from VCs he was talking to who said “the only place you should start your company is in Silicon Valley.” I was in New York on Friday for Techstars Demo Day and I saw evidence over and over again that the statement was false.

Religion often devolves into “my way is the only way.” I strongly believe in freedom of everything, including religion. I also believe you can learn an enormous amount from religions, even if you don’t subscribe to them. I’m sure this shapes my view that there are some amazing things about the Religion of Silicon Valley but some to be very careful of, or avoid entirely.

I like this metaphor a lot. I’m curious what reaction it invokes in you.

History Doesn’t Repeat Itself, But It Does Rhyme

My favorite Mark Twain post, which I share with my close friend Phil Weiser (the Dean of CU Boulder) is “History doesn’t repeat itself, but it does rhyme.”

There is a lot of rhyming going on. If you want a quick taste, go read today’s Fred Wilson’s blog post Coming Up With A Better Name For NYC’s Tech Community.

If you know me, you know that it think that it is tragic to label things Silicon Blah. New York isn’t Silicon Alley. It’s New York. And Fred has been ranting about this since at least 2008 when he made a public plea to bury the name Silicon Alley.

Surprise. In 2015 there’s apparently a new effort in New York to rekindle with force the name Silicon Alley.

Here are some rhymes I hear on an almost almost basis.

  • “There is no bubble.”
  • “Raise as much money as you can.”
  • “Things are structurally different this time.”
  • “The only place to build a tech company is in Silicon Valley.”

Whatever.

I was at HBS the other day talking to a bunch of second year students about anything they wanted to talk about (we just did 90 minutes of Q&A). I just let them take the conversation where they wanted. The questions were great, but some of what they were hearing about venture capital was scary as shit. A handful of them had jobs in venture capital firms and we talked about how to be effective as a freshly minted associated. They had heard insane suggestions like “The market is hot – do as many deals as you can before it all crashes.”

Um. Yeah. What? Are you fucking kidding me? It’s not about doing the deals. If you do a bunch of shitty momentum deals as fast as you can, you are simply emulating what most VC firms (including the one I was part of) did in 1999 when we committed an entire $600 million fund in nine months. At one point that fund was up over 2x on paper (TVPI for those of you that like names for the different VC metrics.) 15 years later the financial performance (DPI) of that fund is a disaster. We didn’t get lucky and have one company that bailed us out. Too bad for us.

I told them it’s not about getting into the deals. It’s about building real value and then over time monetizing your investments. Having a strategy, being deliberate, and executing that strategy over a long period of time.

But suddenly so much of the focus is about getting into the deals. Venture Investing Just Had Its Biggest Q1 in 15 Years, Says PwC Report. $13.4 billion in Q1 in 1020 deals. Some other statements, all obvious stuff based on what everyone is seeing on a daily basis. But the headlines, and the focus, is all about input. Now, I haven’t read the PWC Report so they might have a deep analysis on the exit math, and then input / output dynamics that justify $13.4 billion in Q1 as a reasonable number. Or a segmentation analysis that shows that $7 billion of it is actually a substitution effect for what would have otherwise been public money going into IPOs, so really it’s only $6.4 billion going into venture capital.

History doesn’t repeat itself, but it does rhyme.

Now, don’t misinterpret what I’m suggesting. The easy sound bite “Feld thinks there is a bubble.” But that’s not even close to what I am saying. I have absolutely no idea whether there is a bubble. I have no idea where we are in the current part of the cycle. I have no idea what the dynamics of the cycle are.

But it’s easy to see the rhymes. And they are super helpful in understanding, and reinforcing, the best way to execute an effective strategy. But only if you are looking for them, thinking critically, and acting accordingly.

Don’t be the scorpion in the famous scorpion / frog parable. And always remember that history doesn’t repeat itself, but it does rhyme.