Deep Dive: The Power Law with Sebastian Mallaby

**Rahul** (0:00)
Welcome back to Understanding VC. I'm your host, Rahul. Today, I'll be doing a deep dive on the book, The Power Law, with author, Sebastian Mallaby. He's a Paul Walker Senior Fellow for International Economics at the Council of Foreign Relations, and an experienced journalist and public speaker who contributes to a variety of publications, including Foreign Affairs, The Atlantic, The Washington Post, and The Financial Times, where he spent two years as a contributing editor. I think Power Law is one of the best books on venture capital, and if you haven't read it already, I highly recommend that you order it right away. Now, let's talk to him.
Hi Sebastian, thank you so much for joining me today.

**Sebastian Mallaby** (0:43)
It's a pleasure, good to be with you.

**Rahul** (0:45)
First of all, thank you so much for writing the book. I did not just read this, I tried to study this book.
And one other thing with this book is that a lot of non-fiction books are not very easy to read and very gripping, but this is great storytelling. So there were times where I could just not keep the book down. So yeah, it was super great.

**Sebastian Mallaby** (1:04)
Great, that's nice to hear.

**Rahul** (1:06)
Let's start with this Silicon Valley culture, right? So that has really stood out for me. Whenever I meet somebody who's based on, especially in tech and based in California, they're super nice and want to help you, no matter what your background.
So you've talked about this Silicon Valley open and sharing culture. What do you think is the origin and the role that VC's had in it?

**Sebastian Mallaby** (1:30)
Well, I think that there is this culture in Silicon Valley of what they call paying it forward, that you take a meeting and you try to help someone because at some point it will come around and that person will do you a favor in the future. And even if that person, literally that person doesn't do it, you will have received favors in the past. And you should pay back the community. And that leads into this idea that when you're in Silicon Valley, you're kind of not working for a company, you're sort of working for Silicon Valley, right? It's a collection of lots of startups and now some big companies as well.
And this forms a network. And if you make your career there as an engineer, as an entrepreneur, as a expert on going to market with a new company, whatever it might be, you will hop from one company to another, but essentially you're working for Silicon Valley all the way through. And so I think this does create a special sharing culture, a collaborative culture where you can compete on some days and then cooperate on other days. And it's called co-opetition.
So I guess that leads to the question, where does it come from? Who or what, which profession is incentivized to create this social capital? And my theory is that really it comes from lots of people, but the main standout figures are the venture capitalists because it's their job really to get up in the morning and have breakfast with one person and then have 14 cups of coffee, hopefully decaffeinated, before they go to bed, because they're all the time trying to meet the next entrepreneur they might back, or maybe they backed an entrepreneur last week, but now they need to meet five engineers who might be good fit for the company they backed last week, or perhaps they're looking for a customer that they could introduce to the new company they just backed. It's all about networking, putting people together, creating coalitions, circulating talent in the network. That is what venture capitalists do. And so I think this observation that you've had, Rahul, of going there and finding that people are nice and open and they're willing to give you advice, I think it's a culture led by venture capital.

**Rahul** (3:49)
But you've also mentioned in the book about Robert Noyes, the CEO of Fairchild, and he comes from the Midwest, and then he's brought this whole humble, like the culture where there are not much hierarchy and stuff.
So the exact thing that he brought to Fairchild at that point is what you call the cool culture now in the startups. So did a bunch of entrepreneurs also had a role to play?

**Sebastian Mallaby** (4:17)
Of course. I mean, it's always the case in explaining history that having just one explanation is a bit too neat, a bit too narrow. So of course, I also think that, you know, Hewlett-Packard was founded by people who believed in this sort of collaboration.