The Power Law: An Imagined Conversation Between an Engineer and a Venture Capitalist

To understand venture capital’s power, imagine this scene: An engineer in a large company’s research department has a great idea. The boss may refuse support, fearing either that it will produce nothing or the opposite: an innovative product that takes customers from the company’s existing products. Professor Clayton Christensen calls this concern the innovator’s dilemma. Without venture capital, the frustrated engineer must abandon the idea, and the economy may never benefit from its potential. In a world with many venture capitalists, however, the engineer might meet one in a café, at a gathering, or in a stadium. Their conversation could go like this: --- Engineer: I work at a big company. I have a cool idea, but my boss does not like it. VC: Quit and start your own company. Engineer: But I lack money. VC: Do not worry. I will invest. Engineer: I have never started a company. VC: I have helped dozens of entrepreneurs do it. I will show you how. Engineer: I need six great engineers to build the product I envision, and do not know where to find them. VC: My firm has a database containing information on every engineer in the city. Engineer: Why would great engineers risk joining my small startup? Most startups fail. VC: True, but that is manageable. I will reassure them: there are other startups in my portfolio. If yours fails, I will find them jobs in those companies. What does this imagined conversation teach us? Entrepreneurship remains difficult and risky, but venture capitalists can make it less daunting. Google CEO Eric Schmidt told the author that when he joined, Google was young, and founders Larry Page and Sergey Brin seemed to think anyone over thirty had intellectual limitations. He agreed to the risk only because John Doerr assured him of a CEO position at another Doerr company if Google failed. In other words, Schmidt accepted failure risk not because of Silicon Valley culture but because of specific incentives supplied by a venture capitalist. #ThePowerLaw ---- Robin: ‘Taiwan’s VC industry must work harder at helping founders assemble teams and introducing senior executives.’