I have been writing a lot about wealth and income inequality and I am reading Thomas Piketty’s Capital in the 21st Century (review forthcoming as soon as I am finished). So it seems appropriate to ask how I feel about the wealth being created by tech startups for entrepreneurs, early employees and investors (which of course includes VCs like myself). I have hinted at this here on Continuations in the past in a post about Twitter but it is worth clarifying. I believe that a large component of this wealth is random – or if you so want: luck.
Maybe the perfect illustration of that random component is Brian Acton, the co-founder of Whatsapp. He famously tweeted about being turned down by both Twitter and then Facebook as an engineer in 2009. If either one of those jobs had come through it seems highly unlikely that Brian would have joined Jan Koum in the fall of 2009 to work on Whatsapp. Which in turn would have made it pretty unlikely that Brian would have made hundreds of millions of dollars when Facebook acquired WhatsApp.
My personal story is similarly full of randomness. I spent all of 2003 trying to buy a traditional software company with the goal of then Internet enabling it. Together with a friend and partner we got super close to buying the leading trucking software company in the US which was headquartered in Cleveland. The deal fell apart at the 12th hour over a sales tax liability (that later turned out to be trivial – I will at some point blog about the details). In any case, had that deal happened I would have been in Cleveland instead of teaming up with Joshua for the wild ride that was delicious and subsequently joining USV.
If you want to argue that this entrepreneurial or investor wealth creation is not random to a large degree, then you would have to believe that people like Brian (or myself) have some skill or ability that is thousands or even millions of times larger than that of others. I personally find that preposterous. Just to be clear, I am not denying an element of risk taking, smarts, etc. – clearly you have to work for a startup or become and investor to begin with if you want to have a shot at this (as in the joke of the person praying for years to win the lottery only to finally hear God speak “buy a lottery ticket”). Beyond that though much depends on being in the right place at the right time.
At the moment randomness is amplified significantly by the winner-take-all characteristic of many markets. The leading service or app in a category with network effects can be an order of magnitude or more larger than the next competitor and can do so on a global scale. Or put differently, the potential size of the lottery tickets has increased substantially. We have had a similar period in history during early industrialization.
PS Some further clarification on the randomness aspect. I am not arguing that the emergence of a company such as WhatsApp is unlikely (in fact the opposite). I am talking about the probability of a particular startup becoming that and of a particular person to be a founder of or investor in that startup.
