A Growing Cancer: Forbes’ Midas List
The fallout from the race for “credit” in Silicon Valley
Now that we are beginning a period of self reflection about Silicon Valley gone awry, I would like to add something important to the list. One of the biggest reasons we don’t have good governance in Silicon Valley startups is how the industry views the role of the investor and how we, as investors, stoke the flames purporting to be prescient fortune tellers vs respected advice givers.
As the Uber saga shows, investors at their best stand for decency, governance and logical management. One of the best examples of this is my friend Bill Gurley who just demonstrated what this looks like. The problem, however, is that we ascribe too much credit to the act of “picking” as represented by simply sitting on a Board vs the actual process of doing the job.
Why do we focus so much on “picking”? Because we have things like Forbes’ Midas List that glorify fortune telling.
What do you think a list like this and the voyeurism that it creates does in the minds and actions of investors and the LPs who invest in their funds? Well, the investors pretend they are fortune tellers. Some number of LPs fall for it and believe it. Investors then spend time with LPs spinning amazing tales of “picking” and “proprietary deal flow” and “seeing something special in the Founder when no one else did…” and all kinds of other worthless lies which may have been closer to true in 1987 when there was limited capital and limited capital allocators but couldn’t be further from the truth in 2017 and the hyper efficient market that is Silicon Valley.
Yet enough people seem to buy it and it all seems to work with more and more dollars flooding the venture ecosystem and more and more people becoming practitioners of venture capital with no real training…until it doesn’t. And when it doesn’t, you need an investor who actually knows how to affect change, stand up for what’s right and do what’s right — on behalf of the Board, employees, executives and other investors. But these aren’t naturally occurring skills — these are hard fought, earned and practiced.
Unfortunately, by the time most investors are asked to use these skills — and they will because even the best startups don’t grow into giants without some turbulence along the way — so few investors actually have the skills to do so. You see, while they should have been learning the craft they’ve been too busy spending time purporting their fortune telling skills and trying to be loved so they can be on high flying boards and get some amount of fake credit along the way. That gets you on the Midas List. Giving hard advice sometimes makes enemies of the Founders and CEOs you aim to have love you long enough for the next list to appear. You see the incentive mismatch here.
So now, I’m really excited to see how @Forbes deals with the “credit” for Uber next year. Will Bill Gurley still get it or will he get demoted on the list? Will it now be given to Matt Cohler since he’s the new board member? Is this method consistently applied to other investors and other companies? What about the person who sourced Uber? How much credit should go to Peter Fenton? After all, he was “in the room where it (CEO resignation) happened” and played an integral role on behalf of Benchmark.
The point is that I doubt anyone at Benchmark cares. They just want to help Uber live out their potential. But the Midas List must go on! And when it does, a bunch of misguided looky-loos will make decisions or assessments based on it…
The sad reality is that nothing Forbes can do will be credible. Because teams help companies win. Individuals may be able to pick stocks but I don’t believe they can pick winners at a Series A in any predictable way. If you don’t believe me then see how much Series A investor overlap exists amongst the top 5 or 10 public tech companies (meagre) and how that has trended (worse). Teams source investments. Teams make those investments work. Teams transition board seats when new blood or new skills are necessary. Teams. Teams. Teams.
The faster we can dismantle the narrative fallacy and false celebration of investors “picking” winners in VC and ascribing too much credit to an individual, the faster we can build a group of investors with backbones, not constantly seeking individual fame and credit but working together as a team to help Founders and CEOs build companies and win. Not trying to be their best friend but telling them what they need especially in times when they may not want to hear it.
It’s not about staying on a board so you can get credit on a list. It’s about doing what’s right. Forbes you can help by moving away from individuals and creating a league table — like we have for EVERY OTHER PART OF THE CAPITAL STACK. Take away the incentives to compound lone wolf antics which really just end up with marginal governance and bad outcomes. Your Midas List data is pretty gerrymandered anyways so why not try something new. Besides, after this article, enough influential people in Silicon Valley will be embarrassed by this list and think its a joke anyways.
Rank firms instead.
We are happy to give you our audited returns to help kickstart things. Others should to. It would help the cause: we would have more honest conversations, accountability and better run partnerships which I think will lead to more honest conversations, accountability and better run startups so that they win more often and get to realize their products and ideas at scale.
And that is what we all want anyways…isn’t it?