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It might be healthier if founders had less power: Author Sebastian Mallaby

Why are venture capitalists indispensable in the global economy and how are they so successful? How do they manage governance at companies? And how is China's technology growth similar to the US? Author Sebastian Mallaby explores these and more in a new book and interview.

Mumbai / February 25, 2022 / 07:58 AM IST
Sebastian Mallaby

Sebastian Mallaby

A conversation with Sebastian Mallaby is fascinating because you don’t know what direction he’s taking. His latest book, The Power Law, is an exhaustive, optimistic account of venture capitalists, and exalts their role in the economy- the humble trailblazers who fund disruption and innovation in our lives. Yet, you don’t know where he is going because while the idea of praising already-pompous, popular and prosperous VCs can seem a bit redundant, Mallaby also fears that Tiger Global may be bad for capitalism, founders may be getting too powerful and is highly skeptical of cryptocurrency’s far sweeping ambitions.

In an interview with Moneycontrol’s M. Sriram over Zoom, 57-year-old Mallaby, an author of five books, and Paul A Volcker, senior fellow for international economics at the Council on Foreign Relations, spoke about venture capital’s history, what has changed, how is China different, and how he got insider access at Sequoia Capital, among other things. Edited excerpts - 

Why did you start writing this book? What was your state of mind when you decided to write such a book?

So I had done other kinds of financial history - hedge funds, development economics for the World Bank, and then central banking through the Greenspan biography. But two things about venture capital stood out. One is the international mystery- how do you even allocate capital, in the face of so much uncertainty when you have no quantitative guidelines? And all you've got is the entrepreneurs who walk into your office with a promise about what they're going to do tomorrow. There's just so much uncertainty, how do you begin? And is it in fact, just luck? Those questions about skill and luck were the starting point. And secondly, the impact. Just the fact that so little capital goes into VC funds relative to other kinds of finance. But the outcomes are so enormous in terms of market cap. In the US three quarters of market cap created in the last 25 years comes from venture backed companies. So the mystery of how you allocate, and then the social impact.