Venture Capital as a Vocation - Part 1
I consider myself privileged, and more importantly fortunate, to have been part of Class 26 of the Kauffman Fellows program, where I was exposed to a network of the brightest people in field of Venture Capital I could ever hope to meet. One of the key attributes that the program encourages is an attitude of 'Know Thyself" - self awareness and reflection being an important life-skill no matter what one's personal and professional goals. As part of my Thought Leadership Project, a requirement for completing the program, I decided to extend the 'thyself' in the previously mentioned apohorism to the extended Venture Capital industry, to try and understand what, if any, are the core beliefs shared by Venture Capitalists about the world around them and their role in it.
Having completed the task through a survey of about 50 VCs who were gracious enough to respond to my request, I am planning to summarize and present some of the key findings through a series of planned LinkedIn articles, and I'll also be putting out the summary results in public domain for further research, so interested readers are welcome to use these results and findings with attribution and are very welcome to get in touch with me to discuss more. My special thanks go to everyone who supported me through this Kauffman Journey!
Part 1
Background and context
Venture Capital as an asset class and innovation in general, have characteristics that mark them out from other asset classes or even other spheres of general economic activity. In particular, VC is marked with an almost unnatural desire to embrace the unknown and disregard the familiar, to voluntarily adopt risk over safety and to desire a future radically different from the familiar present. This orientation cannot be adequately explained purely by a rational consideration of purely economic benefits. In particular, the statistics are clear about the exceptionally low probability of success and high economic rewards both for innovators / entrepreneurs and Venture Capitalists; hence there must be a belief, an ideology that overcomes the bias induced by these rational considerations, that propels people to participate in the innovation economy and dedicate their most productive years and / or their tangible capital to this activity. Almost a hundred years ago, the German sociologist Max Weber, in his celebrated work, The Protestant Ethic and the Spirit of Capitalism, showed that religious beliefs linked to Protestant Theology were a necessary factor in moving European economies away from feudalism towards capitalism. Is there a similar linkage between fundamentally held beliefs and economic activity in the innovation economy?
Questions explored
To uncover an ideology, if it exists, among Venture Capitalists, views from practitioners were solicited along key dimensions that characterize most ideologies. For the purpose of this survey, the parameters of interest are:
Methodology
Attitudes Survey: An online survey of 17 questions was designed using Surveymonkey and administered to the author’s network of Venture Capitalist investors. 51 responses were received and were further analysed to arrive at the results of the survey. The list of survey questions and responses will be available in the Appendix section of the articles. The questions are categorized into the following key groups:
·??????Q1, Q2, Q3: Human Nature, Agency and History
·??????Q4, Q5, Q6, Q7: Individuals and Collectives
·??????Q8, Q9, Q10, Q11: Entrepreneurship and Venture Capital
·??????Q8, Q12, Q13: Purpose and Mission
·??????Q14, Q15, Q16, Q17: Venture Capital and Religion
Literature Survey: The results of the survey were analysed based on the author’s reading of various works of sociology, economics and religion, including but not limited to
Findings
Human Nature and Agency
The first set of questions (Q1,2,3) seeks to assess what Venture Capitalists believe about the nature of historical progression and the ability of human beings to influence it through their actions. Venture Capitalists are broadly believers in a ‘directional’ view of history (Q1), which means that they believe mankind and history has a purpose and an end goal. This is probably borne out more clearly as non-belief in the obverse, only 8% of respondents saw history as ‘random’, capable of unpredictable episodes of progression and regression. 53% believed have a teleological view of history, i.e mankind is progressing in a certain direction to an end goal of progress, though a surprisingly large number believe in a more ‘static’ view of history, that it is composed of cycles that may lead to new external forms but the fundamentals of human societies remain the same.
This is borne out by the fact that 67% of respondents believe that progress is non-random (Q2) and is inevitable because it builds on achievements made in the past. Finally, 58% of respondents believe that breakthrough progress is driven by individual initiative and creativity rather than through collective action (Q3)
The above findings lead us to conclude that a core ‘belief’ of VC practitioners is the idea of ‘progress’, that human beings are meant to move towards some kind of a future state of existence, different from what we have today and that we have ‘agency’ i.e. the ability through our actions to influence the direction and pace of that progress.
The ‘value-norm’ link of the above belief can be quite clearly seen in the answer to question 6, where-in 92% of respondents believe that technological progress is worth pursuing either because of the belief that everyone is better off (64%), or that it is justified even if not everyone is better off (28%). Only 8% believed that progress can be directed in a manner that avoids creating winners or losers.
This observation may lead to an interesting question – there is clear consensus among VCs that technological progress is uneven and creates winners or losers. The widespread prevalence of inequality in society, be it racial, gender-based or of any other kind, is evident to the respondents. They are also broadly in agreement that the inequality is linked, if not caused, by progress. However, the belief in the nature of history and the near-obligation of progress that mankind has serves to legitimate the social implications of that process. Thus, belief in the essential ‘rightness’ of progress can be viewed as a coping mechanism or as a Gramsci-ian legitimizing tool for Venture Capitalists, who, after all, are in the very business of financing progress and change, whatever be its consequences.
Individuals and Collectives
The next dimension on which VC values and beliefs can be assessed is the classical ‘dichotomy’ between individuals and collectives (Q4,5,6,7). If for a moment we summarize the two views through the aphorism that ‘collectivists fit moulds, while individualists break them’, one would imagine that VC practitioners, given their very nature of disrupting in innovation and disruption would see any collective considerations as fetters and would be out-right individualists, perhaps to the point of being anarchists. Indeed, histories of Silicon Valley often point out its anti-establishmentarianist roots in the counter-culture of the 1960s. In light of this, the relatively high level of support for prioritizing the collective over the individual come as a surprise. To be fair, this is one axis on which the respondent group is almost evenly split – 40% prioritize social cohesion and stability over individual rights, which directionally does support the strongly ‘individualist’ orientation evident from the previous set of questions but the proportion of supporters of the contradictory position is striking. Even more surprising is that even among the sub-set that prioritized cohesion and stability (Q4), 85% stated that societies will always comprise of groups that will have some level of conflict, indicating that for these respondents, social harmony is a Sisyphean goal, fated to be ultimately frustrated despite the best of intentions.
Similarly, a slight majority (56%) believe that policies and laws, instruments of collective action, will be decisive when it comes to addressing any major social problem (e.g. climate change or racism) as opposed to those who believe that individual initiative and capital will be decisive (Q7). Interestingly, this position is not correlated with Q4, so even those who privilege individual rights defer to the primacy of laws and collective action when it comes to addressing large scale challenges of humanity.
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So what can one conclude on a ‘value – norm’ framework based on these responses? From a values (or belief) perspective, there are clearly two ‘factions’ or ‘political parties’ in the VC industry, the ‘individualists’ vs the ‘collectivists’ in near equilibrium. In terms of norms, this polarization makes it difficult to make any definitive statements, but a few tentative inferences can be made. Venture Capitalists are individualists but don’t seem to be anarchists or revolutionaries. The desirability and inevitability of policies and laws to address collective problems is a clear pointer to an incipient conservatism in the mindset of VCs. While the data isn’t conclusive and neither were the questions structured specifically to measure this, VCs seem to come close to demonstrating the phenomenon that Stuart Hall referred to as ‘regressive modernization’, on the one hand, there is a drive to progress and development, as near teleological goals in themselves, but on the other hand, there is a submission to the collective, to the structure of powers as they are when it comes to solving the major challenges of the human condition. In some ways, this may reflect the general conservative turn that the ‘young’ have taken since the 1980s, when the counter to the counter culture became firmly entrenched in the social landscape. In some ways, perhaps the desire for social engineering, the desire to create the ‘New Modern Man’, the desire for Utopia, went away once communist ideals went out of fashion after the crimes of Stalinism and the Khmer Rouge. In any case, Venture Capital seems to defer quite clearly to the structures of power – in that perverse sense, Venture Capital seems to replicate the close relationship between simple ‘capital’ and nation-states much commented about by Marxists and commentators like Charles Tilly. Governments would once worry if the globalized, border-less nature of capital would doom nation-states into obsolescence. It will be interesting to see if Venture Capital and entrepreneurship instead end up being weaponized by governments, in the manner of the on-going Chip Wars, now that they can be confident that it can be defanged from any insurrectionary impulses.
(Part 2 to be shared next week)
APPENDIX - SURVEY RESULTS
Q1 Which of the following statements about human history resonates with you
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Q2 What according to you the nature of ‘progress’?
Q3 While composed of multiple contributory factors, what according to you is the essential driver of breakthrough progress?
Q4 Given a choice between the following two structures of society, which one would you expect to be more ‘successful’ (in terms of assuring a quality of life for members)?
Q5 In the context of societies, which statement would you agree with more?
Q6 In the context of technological and economic progress, which statement would you agree with?
Q7 Think of any large-scale challenge facing humanity in the future (climate change, poverty, racial inequality, gender inequality etc) – if you could choose only one, which one would you say will have the DECISIVE impact on producing successful solutions to such a problem?
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