We now have fresh data to extend that analysis. It shows that after a slight dip in the second quarter, venture deal activity (adjusted for the systemic data lags) rebounded in the third quarter to a level that was about the same as the first quarter. In fact, through the first three quarters of the year, 2020 is on pace to be the most active year for venture deals since the Dotcom era peak in 2000.

To demonstrate, I’ll present quarterly data on venture deal activity from the PitchBook-NVCA Venture Monitor (Q1-2016 - Q3-2020). The data are tabulated as a snapshot of the PitchBook database on the final day of the quarter, aggregated along dimensions of stage, sector, and others. As a dynamic database, new deals are constantly being added, however, these quarterly report provide a historical snapshot that can then be analyzed against future releases. With future releases, previously released data aggregates (deal counts) get revised upward. As I noted last month, the largest upward revisions occur in the quarter immediately following a quarterly vintage’s initial release.

The implication here is that quarter-to-quarter comparisons are most problematic in real time because reported deal counts for the most recent quarter are at their all-time lowest precisely at the time that the preceding quarter goes through its largest upward revision. This has the effect of overstating (understating) declines (increases) in quarter-to-quarter activity. Since the revisions are systematic, we are able to adjust real-time data releases based on these historical patterns, in order to provide a credible and timely estimate of the volume of venture activity.

To understand how the sector has evolved during the COVID-19 pandemic with the benefit of an additional quarter of data (and revisions), I present data for total quarterly venture deal activity as an aggregation of the three broad stage categories in the report: Angel/Seed, Early VC, and Later VC. For each quarter, I present the number of deals at initial release along with the number reported after the first revision (the subsequent quarter’s release). This allows for a more apples-to-apples comparison versus publishing a snapshot of the database today (where earlier values will be revised upward more than recent ones). Since the first revision is not available for the most recent quarter, Q3-2020, I will adjust it upward using the average (in percent) first revision for the previous four quarters. Data availability allows me to produce a consistent time series back to Q1-2016.

As the data show, deal activity rebounded in the third quarter after a slight dip in the second quarter. After an 8% quarter-to-quarter drop in the second quarter, third quarter deal activity increased 3% and was also 3% higher compared with the year prior (Q3-2019). The number of venture deals in Q3-2020 was just 2% lower than it was in the Q1-2020 and was greater than in 16 of the 18 quarters shown in the chart.

On that point, lag-adjusted deal activity through the first three quarters of this year was greater than venture deal activity in any of the other years shown. Zooming out, that indicates that 2020 is on pace to have more venture deals than any year since the peak of the Dotcom boom in 2000.

Overall venture deal activity has been steady during the COVID-19 pandemic so far, as entrepreneurs and venture capitalists found ways to make deals in a virtual environment. The story is of course more nuanced than that, with the mix of deals shifting toward later stage, with potentially greater challenges in securing new investments versus follow-on rounds, and with evolving deal structure and terms, to name a few. But the headline is the same: the venture economy has been resilient in the face of COVID-19 in 2020.

Earlier this month, reggae legend Toots Hibbert of Toots and the Maytals fame, passed away due to complications from COVID-19. He was 77 years old. I was saddened by this news. I love the music Toots and the Maytals created over the years. I frequently turn to it on sunny weekend afternoons when I’m outdoors. Toots will be missed by many.

What caught my attention that day was an Instagram post Trey wrote in memory of Toots. The backstory is that Trey’s Vermont recording studio—called “The Barn”—is a popular destination for other musicians to record. In 2003, Toots came to The Barn to record a new album, True Love. Trey recalls that day, fondly (emphasis mine):

When Toots and the band arrived for the session, I was nervous and basically speechless. Toots was a ray of light, so kind and welcoming. The guys in the band hovered in the corner, smoking more ganja than I had ever seen consumed. We decided to play Sweet and Dandy. I was a bit mortified and confused as to why such an iconic song should be re-released, but we recorded it, and it was was a thrill. What happened next I will never forget for as long as I live. Toots was supposed to do a song with Willie Nelson, but Willie was not there of course. Toots began searching, playing different Willie songs deafeningly loud through the giant speakers in the barn, while a bunch of us stood next to him by the soundboard. He said that he had to believe every single word in order to sing a song, a lesson I’ll never forget.

That last sentence deeply resonated with me. (On a separate note, Trey’s almost child-like reverence for another musician brings the story to life. Here’s a man at the very top of his game who is nonetheless grounded in humility and respect for the greatness of another—the mark of a true craftsman).

Like many people in public-facing roles who are looked upon as experts, I’m frequently asked to opine on things. I typically have a thoughtful response to offer, but sometimes I don’t. I’m a terrible bullshitter, so I’ve learned to get better at saying “I don’t know.”

More deeply, as executives, founders, leaders, and any number of roles we inhabit, we’re often expected to switch personas or fudge the truth. I have always felt uncomfortable doing this, which is why I work hard to build a conviction around what I’m doing.

The same goes for writing or building a new product or pretty much anything else that I feel requires conviction. I can’t fake it.

This topic surfaced in an interview I gave with my friend Gonz Sanchez on his Seedtable Podcast. I talked about trying to honor my desire to have one persona across all contexts of my life. It’s hard for me to switch masks so I want to minimize situations that require it. That approach won’t work for everyone, but it does for me.

If, like me, you have to believe every single word, sooner or later you’re going to have to build conviction around what you do and say. I still have some work to do—don’t we all?—but the more you do it, the more the momentum builds for it being the norm.

The Startup Community Way is a book I co-authored with Techstars cofounder Brad Feld. It’s a collection of frameworks, principles, and action points that guide and inform practitioners and observers about the key characteristics, behavioral patterns, and basic function of startup communities and entrepreneurial ecosystems. Our thinking is supported by the science of complex adaptive systems, which explains the behavior of inherently unpredictable, emergent phenomena. We apply insights from systems thinking and community-building across many contexts to enable better engagement and more productive outcomes for entrepreneurs.  

02. What are the most important elements of a thriving startup community, and how can people foster those elements? 

Our central message is that any startup community can be improved when a credible group of leaders come together with the shared mission to help entrepreneurs succeed. They should do this by making a long-term (generational) commitment, taking a #GiveFirst approach (helping others without the expectation of receiving something in return), and above all, placing the entrepreneurs at the center of everything. Startup communities exist to enable collaboration, support, and knowledge-sharing for the benefit of entrepreneurs. These principles are simple to understand, but easy to overlook.   

03. What benefits does a strong entrepreneurial ecosystem bring to a city or region?

A strong ecosystem produces better entrepreneurial outcomes. Entrepreneurial successes are an engine for innovation, growth, and job creation. As many of these benefits spillover into the broader economy and society, entrepreneurship helps drive economic prosperity and vibrancy for entire communities. In places where dynamism has been lacking, entrepreneurship can help provide a renewed economic vitality, sense of optimism, and upward mobility. In places where entrepreneurship is not a part of the social fabric, entrepreneurial success can illuminate what’s possible through the path of entrepreneurship and inspire the next generation of great founders.  

04. How is this book different from Brad Feld’s 2012 book, Startup Communities? 

Brad’s first book, published in 2012, created the idea of a startup community and used Boulder, Colorado as an example of how to create a startup community anywhere in the world. It is built around a framework called The Boulder Thesis, which helps people understand how to build a startup community in their city and why it is important to do so. Eight years later, there has been a broad democratization of entrepreneurship throughout the world. The Startup Community Way is a sequel, using complex systems as the framework for explaining how to develop, grow, and evolve your startup community. The Startup Community Way is also global in scope, as are the stories told by guest contributors, and the data points used to support many of our arguments.

05. How do startup communities help make the world a better place?

The world needs entrepreneurs. Entrepreneurs need communities. The first gives the second a reason to exist, while the second accelerates the first. Fundamentally, startup communities exist to help entrepreneurs succeed. When that happens, everyone else in the broader community — consumers, businesses, workers, public officials, and many more — benefits too.

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]]>CommentaryIan HathawayWed, 29 Jul 2020 13:48:57 +0000https://startupsusa.org/the-startup-community-way-five-lessons-for-u-s-policymakers/568398f1a2bab87f93f6958b:5684eb3e1c121093f0473ec7:5f217e50f57a1f3b8b4a7232This article originally published on the Center for American Entrepreneurship Ideas Blog

My new book with CAE Advisory Board member Brad Feld published yesterday. The Startup Community Way: Evolving an Entrepreneurial Ecosystem is essential reading for entrepreneurs, community leaders, policymakers, and other key stakeholders looking to entrepreneurship as an engine of innovation and economic growth. As more cities, regions, and nations embrace entrepreneurship, it is widely recognized that the environment in which a startup operates plays a role in the likelihood of its success. For this reason, the topic of “entrepreneurial ecosystems” has begun to play a bigger role in many economic policy agendas.

The Startup Community Way details the key characteristics, critical behaviors, and basic function of startup communities and the related but distinct concept of entrepreneurial ecosystems. The book offers guidance to practitioners and observers about how to better understand and engage with communities of support and knowledge-sharing for the benefit of entrepreneurs anywhere. We convey a clear philosophy and process of bottom-up discovery for entrepreneurs, community builders, and civic leaders to apply as they navigate the inherent uncertainty of these systems.

The Startup Community Way establishes the systemic properties of startup communities and entrepreneurial ecosystems, explaining why their complex nature leads to predictable mistakes. A complex web of interdependent people, organizations, resources, conditions, unique to each time and place, combine in unanticipated ways to unlock value for entrepreneurs. Value creation unfolds through the continual interactions between system participants, resulting in a whole that is greater and substantially different from the sum of its parts.

Because of this, participants must take a fundamentally different approach from the top-down initiatives that are common in much of our civic and professional lives. Here are five suggestions for policymakers in Washington to consider to better support high potential entrepreneurship in communities throughout the country.

Think in systems. Classical economic and policy models teach us to understand a system by reducing it into its constituent parts. However, complex systems are understood through the interaction of the parts, not the parts themselves. A reductionist approach provides only minimal insight into the impact of a policy. Failing to think systemically can produce unanticipated, and unwanted, side effects. Although it’s important for policies to help ensure the “parts”—startups, organizations, programs, etc.—are better optimized, policies that promote collaboration, connectivity, and shared learning are critical too.

Recognize there is more than one type of capital. A common complaint in startup communities and entrepreneurial ecosystems is that there isn’t enough capital. This typically means financial investment, and specifically, venture or angel capital. While policies promoting investment may be welcomed—a point I make below and previously described a long history of—don’t forget about the other types of capital. In the book, we describe Seven Capitals: intellectual (technologies, ideas, information), human (talent, knowledge, skills), financial (revenue, equity, debt), institutional (anchor organizations, markets, stability), physical (density, infrastructure, quality of place), network (connectedness, relationships, bondedness), and cultural (attitudes, mindset, behaviors) capital. Many of these lie squarely in the realm of government policy.

Support people and networks over buildings and institutions. As the economy evolves from an industrial-era hierarchy to an information-age network, intangibles—knowledge, cultural norms, relationships, etc.—are increasingly valuable. In this context, high-trust relationships facilitate the informal exchange of ideas, talent, and capital. Key influencers with existing capabilities and credibility in the startup community play an essential function as stewards who get things done. These change agents should be empowered by policymakers. Too often, they get crowded out by new, publicly-funded initiatives that are run by individuals with connections to the government rather than the entrepreneurs. Even the most well-designed policy needs an implementation strategy. These private actors, as opposed to bureaucrats, are the key.

Push funding and authority to the states and localities. Each startup community is unique. Frameworks are helpful and principles apply broadly, but what ultimately works in each place and time will vary. Today’s entrepreneurs require not only flexible policy, but one that reflects these unique local conditions. For this reason, federal entrepreneurship policies can be more effective by pushing funds and decision-making authority to states and localities. One recent example of this is the New Business Preservation Act, which was introduced into the U.S. Senate and House in March. The legislation would send $2 billion to the states to match private equity investments in high-potential companies.

Prioritize agile experimentation and learning over rigid planning and execution. Although startups, as a whole, drive productivity, innovation, and job growth, the most likely outcome for any particular startup is failure. Like startups, startup communities are also highly uncertain and unpredictable. Outcomes cannot be controlled, only guided and influenced. For this reason, policymakers should ensure a broad agenda that promotes learning, adaptation, and resilience; not on rigid plans. The agenda must reflect not only the interdisciplinary nature of entrepreneurship but the inherent uncertainties and long-term commitment required for meaningful change to take shape. Given the inconsistency of political cycles, policymakers must solidify policies or funding streams over a longer time period.

These are just a few ideas from a much longer list that U.S. federal policymakers can consider to provide more lift to startup communities and the entrepreneurs who benefit from them in places around the country. If you’d like to learn more about startup communities, entrepreneurial ecosystems, and The Startup Community Way, please pick up a copy now.

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]]>CommentaryIan HathawayTue, 28 Jul 2020 07:01:00 +0000http://www.ianhathaway.org/blog/2020/7/28/the-startup-community-way-evolving-an-entrepreneurial-ecosystem568398f1a2bab87f93f6958b:5684eb3e1c121093f0473ec7:5f1ecf9cffc2762dc1135b65After three eventful years, I’m excited to say that my new book—The Startup Community Way: Evolving an Entrepreneurial Ecosystem, with Brad Feld—is officially available to the public today! It’s my first book, so this is a new feeling. It’s hard to put into words just how grateful I am for the experience. I learned so much in the process and developed a large number of meaningful relationships along the way that will last a lifetime. It wasn’t always fun; writing a book of this nature is really hard work. But it was worth it.

I believe that Brad and I have created something that will be useful to many people, not just in entrepreneurship and community-building, but far beyond. Our book is not the final say on the topic of startup communities; it’s the beginning of a conversation. There is more work to do and many other voices to hear from. Like with startup communities, the work is truly never finished. But, I believe we have provided a solid foundation from which many people can benefit and build upon for years to come. I’m proud of our work.

Here’s a link where you can order a copy on Amazon. As a token of appreciation, here’s a link where you can preview Chapter 8: The Myth of Quantity, compliments of Brad, me, and Wiley, our publisher. In the text below are two items: (i) an official book summary, and (ii) an excerpt from the book’s Foreword, written by Eric Ries—the author of The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Enjoy!

Book Summary

The Way Forward for Entrepreneurship Around the World

We are in the midst of a startup revolution. The growth and proliferation of innovation-driven startup activity is profound, unprecedented, and global in scope. Today, it is understood that communities of support and knowledge-sharing go along with other resources. The importance of collaboration and a long-term commitment has gained wider acceptance. These principles are adopted in many startup communities throughout the world.

And yet, much more work is needed. Startup activity is highly concentrated in large cities. Governments and other actors such as large corporations and universities are not collaborating with each other nor with entrepreneurs as well as they could. Too often, these actors try to control activity or impose their view from the top-down, rather than supporting an environment that is led from the bottom-up. We continue to see a disconnect between an entrepreneurial mindset and that of many actors who wish to engage with and support entrepreneurship. There are structural reasons for this, but we can overcome many of these obstacles with appropriate focus and sustained practice.

No one tells this story better than Brad Feld and Ian Hathaway. The Startup Community Way: Evolving an Entrepreneurial Ecosystem explores what makes startup communities thrive and how to improve collaboration in these rapidly evolving, complex environments.

The Startup Community Way is an explanatory guide for startup communities. Rooted in the theory of complex systems, this book establishes the systemic properties of entrepreneurial ecosystems and explains why their complex nature leads people to make predictable mistakes. As complex systems, value creation occurs in startup communities primarily through the interaction of the "parts" - the people, organizations, resources, and conditions involved - not the parts themselves. This continual process of bottom-up interactions unfolds naturally, producing value in novel and unexpected ways. Through these complex, emergent processes, the whole becomes greater and substantially different than what the parts alone could produce.

Because of this, participants must take a fundamentally different approach than is common in much of our civic and professional lives. Participants must take a whole-system view, rather than simply trying to optimize their individual part. They must prioritize experimentation and learning over planning and execution. Complex systems are uncertain and unpredictable. They cannot be controlled, only guided and influenced. Each startup community is unique. Replication is enticing but impossible. The race to become "The Next Silicon Valley" is futile - even Silicon Valley couldn't recreate itself.

This book:

• Offers practical advice for entrepreneurs, community builders, government officials, and other stakeholders who want to harness the power of entrepreneurship in their city

• Describes the core components of startup communities and entrepreneurial ecosystems, as well as an explanation of the differences between these two related, but distinct concepts

• Advances a new framework for effective startup community building based on the theory of complex systems and insights from systems thinking

• Includes contributions from leading entrepreneurial voices

• Is a must-have resource for entrepreneurs, venture capitalists, executives, business and community leaders, economic development authorities, policymakers, university officials, and anyone wishing to understand how startup communities work anywhere in the world

Foreword Excerpt

Here’s an excerpt from the Foreword, written by The Lean Startup author, Eric Ries:

This is a photograph of my dear friend Ray Foote. He’s a bit of a personal hero. Ray pulled me through a difficult time. I did the work, but Ray was my guide. He helped me see what I couldn’t on my own. I’m in a much better place today because of him. The lessons he taught me are timeless. I continue to benefit from them and so do the people I share them with.

Ray is a creative entrepreneur, musician, builder, designer, and inventor. He’s a husband, father, spiritual warrior, and all around badass dude. He’s also an executive coach for Jerry Colonna’s firm, Reboot, and that’s how I got to know him.

At first, I was reluctant to meet Ray. Another good friend lead me to the idea of coaching and to Reboot. I went through the screening interview and was matched with Ray: “He’s perfect for you,” the onboarding consultant said. But once Ray started making contact, I started making excuses: “It’s too expensive. I don’t have time. Maybe later.”

Seeing right through this, Ray did what any great coach would do. He nudged his way in and made me a simple proposition that was hard to refuse: “Talk to me for an hour, free of charge. No other commitment required. What do you have to lose?” The real question was what did I have to gain. The answer to that, I’d later find out, was: “a hell of a lot.”

When we finally spoke, I downloaded him with what was in front of me and where I was struggling. At the time, I was tangled in some angst around a major writing project I was working on. The details don’t matter, other than to say, other people’s agendas were orbiting around and at times intruding on the project, even though they weren’t involved with the actual work. It was pissing me off.

That’s when he said something so profound that it changed my life forever—and the lives of everyone I’ve shared this framework with. In his deep, deliberate voice, he said some version of the following:

You know, Ian, I checked you out before this call. I checked out your website and how you show up on the Internet. I saw all of the writing you do. It’s impressive. You may not know this, but you’re an artist. And your art is writing. Artists don’t like it when people fuck with their art. That’s why you’re pissed off.

I was blown away. The earth shook with those words. I knew then that I was going to start working with Ray and that something big was happening. Although I do and excel at a number of different things—I’m an executive, mentor, advisor, and investor—writing, above all, is my art. Ray was right about that. I just had never framed it this way.

Ray’s more expansive view of art really resonated with me. Seth Godin defines art in a similarly expansive manner:

I define art as having nothing at all to do with painting. Art is a human act, a generous contribution, something that might not work, and it is intended to change the recipient for the better, often causing a connection to happen.

Your art is your craft. It’s what you’re doing when you bring your best self into the world, whatever that may be. It’s intended to help others. The joy comes from a job well done and the impact it’s having on the people around you. The fruits are the labor itself. Art is also subjective and deeply personal.

A times, our art aligns with what we do for a living. At times it doesn’t. This varies from person to person. Even so, everyone has an art to offer, even if it’s undiscovered, even if it’s uncultivated, and even if it’s unprotected. And so that’s the challenge.

1. Discover your art. What gift(s) do you bring into the world?

2. Cultivate your art. Hone your craft.

3. Protect your art. Don’t let anyone fuck with your art.

And while you’re at it, go find your Ray Foote too—a person who, through the expression of their art, can help you see yours more clearly.

Kind of an odd-feeling thing to write out and have staring back at me. It’s something I’ve been looking up at my whole life and now it’s finally here. I’m not big on celebrating my own birthday, but this is an important one. I’m going to honor it. And despite the limiting circumstances we’re all facing right now, I’m going to enjoy it. Needless to say, my day is going to look very different from what we originally planned. We’re not on the beach in Mexico. And that’s ok. I’m right where I need to be.

I like to use these occasions to reflect back. Boy, was my life different a decade ago. I was single, childless, and living in a small apartment in San Francisco. I was an economist at the Federal Reserve Bank—still a few years away from working in tech and startups, which is where most people in my professional life know me from. We were coming out of the Great Recession and I had a front row seat to our nation’s response. That feels like another lifetime ago. I was starting to wake up from a fun, but at times wasteful decade of my 20s. I was on the cusp of some big changes, but they hadn’t arrived yet. I didn’t have a lot of money, but I did have a lot of freedom. I was happy.

Flash forward to today: I’m married with two kids. I have a dog. I’ve grown and sold my own business once and am in the process of building a new one for someone else for the third time. I still do research, but not as often as I should. I also build products, advise clients, and work with entrepreneurs—through advice, mentorship, and investment. I’m about to publish a book with a co-author who has become a dear friend and mentor. I’m deeply grateful for both. I have great colleagues that I get to work on important problems with. I spent half of my last decade in London, which will always be a home to me. I now recognize that writing is my art. It needs to be a bigger part of what I do.

On the other side of things, I’m balder, grayer, and rounder. My back hurts. I have very little time to do what I want, when I want. The demands on my time are growing. I don’t see my close friends and family enough. I’m tired all the time but somehow I get things done. I lost my meditation practice and some discipline along the way. I’ve made some money and lost a bunch too. I’m both more and less accomplished than I guess I thought I’d be, though that’s never been a focus of mine—I’m still just looking for interesting things to do, and more importantly, interesting people to do them with. I’ve always been driven by curiosity.

My life is really good. I’m grateful for the last decade of learning, living, laughing, and loving. I’m super optimistic about the next ten years. I don’t feel old. I feel young. Forty is the new 30. I’m a late bloomer anyway—I’m just getting started. I genuinely wouldn’t change a thing about my life, even the uncomfortable parts. I don’t know what’s next but I do know that change is already upon me—change is inevitable and constant. I’m ready for it, but I’m also content. I hope everyone out there reading this is feeling content too. May your next 10 be better than your last. I know my last 10 were, and although it’s hard to imagine right now, my next 10 will be too. ✌️♥️

(Some new additions from the last ten years ⤵️)

But life is nowhere near returning to normal anytime soon. I’d say at best, we’re a quarter of the way through this thing. This is unsettling, which is why people are rejecting reality. Without strong leadership in place as a check on human impulses (selfish, short-term), the situation worsens and the whole episode drags on. The suffering elongates. It’s a self-reinforcing feedback loop.

With COVID infection and death figures spiking in many parts of the United States, we’re starting to see the impact of The Struggle. We’re worse off today than at any point in time. Based on what I’m observing where I live, in Santa Barbara, California, it’s not a surprise. I expect a spike to occur here within the next three weeks.

In the upcoming book The Startup Community Way, my co-author Brad Feld and I utilize the framework of complex adaptive systems to explain the behavior of startup communities and entrepreneurial ecosystems. Our book has been miraculously well-timed. Life under COVID-19 is a lesson in how complex adaptive systems behave. People are acutely aware of feedback loops, nonlinearities, contagion, tipping points, phase transitions, time delays, and so on. Under normal circumstances, these concepts can take time to absorb, but the COVID crisis is speeding up that progression. Even so, complexity confounds the human mind. 

One of the topics we write about, called The Narrative Fallacy, helps explain what’s going on as much of society in the United States and elsewhere is rejecting the truth of COVID-19. Here’s an excerpt from the book:

In his 2011 book, Thinking, Fast and Slow, psychologist, behavioral economist, and Nobel Laureate, Daniel Kahneman catalogs the myriad ways the human mind rejects the complexity around us in favor of a simplified version of the world. We do this by applying mental shortcuts or rules of thumb, which are primarily shaped by our own experience. But these heuristics cause us to make mistakes—predictable mistakes that are nonetheless hard to avoid. Humans are not only irrational; we are, according to psychologist Dan Ariely, “predictably irrational.”

One of the predictable mistakes we are prone to make is assigning causality to situations where such relationships don’t exist. This tendency is driven by an aversion to uncertainty, or what 18th-century philosopher David Hume described as a deep emotional need for coherence and meaning. This pattern is so pervasive that Kahneman named it “what you see is all there is” (WYSIATI). It emanates from the reactive or sensory-driven part of our brains, which is instinctual and tends to dominate our decision-making, but isn’t suited for careful thought and analysis.

We want to make sense of our world, even if we don’t have all the facts. While this satisfies the deep emotional needs that Hume and Kahneman describe, we also do it because we want to be useful. We perceive utility in applying tools and methodologies to our work—we want to help. But to know what the right approach is (the “prediction”), we must first understand the underlying relationships (the “causality”).

However, in complex systems, causality and prediction are often impossible to know—especially in advance. Since we don’t have all of the facts, we invent them and fill in the blanks with stories, which are often incorrect. By projecting our own experiences onto the world and drawing broad conclusions from them, we make predictable mistakes.

Nassim Nicholas Taleb also addresses this in his 2007 book, The Black Swan: The Impact of the Highly Improbable. Black-swan events are high-impact, low-frequency occurrences that few, if any, people foresee because they are complex and generally unprecedented. When attempting to explain these events, humans create stories about cause-and-effect that mislead themselves and others. For Taleb, issues around these complex phenomena aren’t only unclear in advance; they also aren’t clearer after the fact. However, we regularly pretend they are well understood in retrospect, leading to interpretation mistakes. While black-swan events aren’t random—there are underlying factors and relationships driving them—they are simply too complex for the human mind to understand and anticipate.

Two brief points to make here. The first is projecting experiences from our lives to invent facts that fill in the blanks. At the top of the list is the refrain: “Well, I don’t know anyone who’s been sick or died of COVID, so I won’t either. Why should I care?” The reality about COVID is that there is so much we don’t know. Our ignorance is vast. The pandemic, and the virus itself, are evolving rapidly. We don’t know where we are now and we don’t know where this is going. We simplify the reality so that we can make sense of the situation. But the harsh truth is: we don’t know.

The second point is on inventing cause-effect narratives after the fact. Looking at the rise, fall, and rise of COVID infections in the United States, along with the narratives of politicians and pundits that “things are under control” is an instructive lesson here. I recall the Governors of Florida, Georgia, Texas, and elsewhere—states that were spared from the initial wave of COVID infections—boasting about things being under control, while carelessly relaxing controls without all of the facts in place. Many citizens in those states were hypnotized into thinking that COVID was a “big cities in blue states” matter at best, or at worst, a conspiracy invented by the media. That’s a narrative many are anchored to and struggle to break free from.

The sooner we, as an entire society, accept that COVID is real, that it’s dangerous, and that our understanding of the virus is still extremely limited, the faster we can move through it and restore a greater portion of normalcy to our lives. But, with The Narrative Fallacy at play, we are tricking ourselves in ways big and small—deepening and lengthening the suffering. Living the lie may feel better in the short-term, but over the long-run, it is substantially more painful than accepting the truth. Let’s get on with it.

On this latter point, Mazzucato argues in a recent New York Times Op-Ed:

Essentially, only something with a price is valuable. This approach overvalues goods and services with a price tag — which in turn make up a country’s gross domestic product, the driver of public policy. This has perverse effects. A coal mine that spews carbon into the atmosphere increases G.D.P., and so is valued. (The pollution it causes is not taken into account.) But the care given to children by their parents at home doesn’t carry a price, and so is not valued.

Since I have the topic of entrepreneurial ecosystems at top of mind, I immediately went there after reading this quote. It reminds me that what gets valued in entrepreneurial ecosystems tends to be the tangible factors that can easily be counted, like the amount of investment capital or the number of startups, instead of the intangible factors that more fundamentally drive system value, such as social capital or tacit knowledge.

In my upcoming book, The Startup Community Way, which will be on shelves July 28, my co-author Brad Feld and I dedicate an entire chapter to this phenomenon—we call it The Measurement Trap. Here’s a partial snippet from our description of the fundamental measurement problem:

Effective measurement of startup communities and entrepreneurial ecosystems is still in its infancy, but demand for metrics is growing, as the scope of participants widens and the amount of committed resources expands. However, the measurement of complex systems is inherently difficult. Consequently, the void gets filled with quick fixes and substandard approaches that emphasize many of the least important factors. This leads to confusion about what matters most and results in misguided strategies that ultimately fail. Using data to dictate which strategies get implemented, the proverbial tail is wagging the dog.

This problem occurs because people, especially in feeders, need to demonstrate the direct impact of programs or activities to justify their continued investment and support. Since the easiest things to measure are tangible, quantity based, or input oriented, this motivates the design of programs around those types of factors. Unfortunately, these are often the wrong factors to be applying pressure to because they have the least amount of impact on the long-term performance of a startup community.

This gets compounded by the fact that many of the metrics being emphasized take a long time to materialize and are simultaneously affected by many other factors. And yet, the impact of a course of action is expected to occur quickly and be directly attributed. These expectations are misguided.

In complex systems, the interactions matter more than the magnitude of people or resources, and the value of these interactions takes time to materialize. The intervention points with highest leverage are those dealing with the system structure, such as behaviors or relationships, and the underlying attitudes and values of the people involved. But the qualitative, localized, and personal nature of these factors makes measuring them challenging to capture, requiring a lot of bespoke on-the-ground work that imposes significant time and cost burden. Furthermore, data collection is best done at the individual level, continuously, and over a long period of time. The longitudinal data is much more important than cross-sectional data at one moment in time.

If you want to read more about The Measurement Trap, and a whole lot of other subjects about startup communities and entrepreneurial ecosystems, make your pre-order for The Startup Community Way today.

Today is a treasured day for me. It’s Father’s Day in the United States and I’ll be spending it absorbed in the most important role I have—as father to Teddy and Charlie. When you strip it all away, it’s the only job that really, truly matters. At least in my world.

Fatherhood is an incredible responsibility. But it is not selfless because the person doing the giving is getting much more in return. Every father knows that what is most important is not what you say, but what you do; what you do is who you are. Those young eyes, trained to carefully observe, push fathers like me to be better. I am better because of them.

But you don’t have to produce or parent a child to be a father. These are neither necessary nor sufficient conditions. Fatherhood energy is much bigger than that.

To me, fatherhood is simply looking after those who are more vulnerable than you. It’s about leading by example. It’s about creating the conditions so that others may have an easier path than you did. It’s about caring. Deeply.

I’m lucky enough to know a number of men who bestow world-class fatherhood energy upon so many, even if they themselves have not actually been fathers in the traditional sense. They are archetypal fathers, in spirit if not in the standard practice.

Being a father is not just protecting the vulnerable, it’s about being vulnerable yourself. It’s the ultimate vulnerability to have your heart live outside of your body, knowing that your entire life could be shattered in an instant by someone or something that is out of your control. It’s painful even to write these words.

I’m especially mindful of that vulnerability today as I think of the fathers of Tamir Rice, Trayvon Martin, Michael Brown, and the countless other black men whose sons never came home. I will never face the fear that so many black fathers face just by watching their sons walk out the door. It is beyond tragic; it is sickening.

I’m also mindful of so many black fathers who never came home themselves—either locked away for acts that would be a slap on the wrist for white fathers like me, or senselessly murdered in the streets by those sworn to serve and protect, like what happened to George Floyd and Eric Garner. Their children have been deprived of that fatherhood energy forever. The suffering is permanent.

This cycle repeats because our society tolerates such things. We have been tolerating it in America for a very long time—going back at least to 1619 in Jamestown, Virginia, and likely an entire century earlier. It has to stop.

Fatherhood energy is something the world needs more of right now, from everyone. We must look after those who are more vulnerable than us. We must lead by example. We must create the conditions so that future generations can have an easier path. We must care. Deeply.

A happy, yet solemn, Father’s Day to all. May each of us have the strength and fortitude to bring what that really means into the world.

I have two wonderful sons. I love everything about them. The problem is, they’re both terrible sleepers. That fact, combined with some conscious choices my wife and I make about how to parent, means that we have been experiencing sustained sleep deprivation for nearly four years. I’ve probably slept as well as I did on Friday no more than a dozen times since my oldest was born in 2016.

The impacts of my lack of sleep are piling up. I’m exhausted. It took just one night to wake me up to the reality of how badly I need to get better sleep (see what I did there?). Now I wonder: is much of my stress reducible to this one problem of not getting enough sleep? Maybe so.

According to Matthew Walker, Director of the Center for Human Sleep Science at UC-Berkeley, in his 2017 book Why We Sleep: Unlocking the Power of Sleep and Dreams, a consistent neglect of sleep has negative impacts on a range of critical human functions, including: creativity, problem solving, decision-making, learning, memory, health (heart, brain, mental), emotional well-being, immune system, and life span. That all rings true. I’m generally less effective than I used to be. Too often, my emotions are out of whack.

The Covid-19 pandemic sent all of this into overdrive. Everyone has their own version of crap to deal with right now. Ours was being forced into a hasty international move. And it sucked. We planned a return to California this summer after spending four fantastic years in London. The plan was for an extended, celebratory exit from a place we hold dear. It’s where Suzy and I lived together the longest and where our sons were born. It will always feel like home. We made many wonderful friends and had the opportunity of a lifetime to live in what I believe is the greatest city in the world.

And in the blink of an eye, it was over. As the exponential spread of Covid-19 started to overwhelm many critical systems, it became clear that we had to make a choice: either leave immediately or be stuck in London for months. Being stuck would jeopardize a career move for Suzy. It also meant being holed-up in a densely populated city with two young kids indefinitely. California meant an escape and forward movement. So, in 48 hours, we packed our bags, took the kids and our dog to Heathrow, left the rest of our belongings behind, and jumped on what we were told at the airport was the final United flight to SFO. Since London was on lockdown by then, we said goodbye to no one. We were gone, just like that. It was painful. Not just for us, but for others we care about.

Instead of recognizing this as the traumatic event it was, and taking a break to focus on my family, I dove straight into work. That was a mistake. People everywhere are dealing with immense pressure and change, which makes work and life intense for everyone. We are all dealing with weird emotions and new life conditions. Our personal lives are on computer displays for all to see. We’re in control of very little and that is unsettling. We’re trapped. At any moment a colleague could break down, snap at you, check out, or say something brilliant. As a general rule, it’s best to assume that everyone is having a mini-crisis right now. Any subpar behavior should be forgiven. Be gentle.

Putting it all together, I’m exhausted. It’s affected my health, happiness, relationships, and performance on more than one front. It’s amazing what a solid night of sleep can reveal. I woke up Saturday feeling like a whole new person. Many worries suddenly seemed small and manageable. In addition to laying the foundation for an enjoyable weekend, it was a big wake up call (see what I did again? 😀).

I can’t and won’t let sleep take a back seat anymore. It must become as big of a priority as anything else in my life because it literally affects everything. And so that’s what I’m going to do. To friends and colleagues who haven’t seen the best of me in the last few years, that’s an oath to you; and also to my family, who relies on me, and to myself, who deserves to feel rested.

Finally, to anyone else reading this who might be struggling on one or more fronts right now, see what getting more sleep can do. If you’re tired, sleep. Sleep until you’re not tired anymore. Everything else will still be there waiting for you. It can wait. Take care.

I don’t doubt that some venture capitalists have left The Valley to start funds elsewhere. However, The Times is massively overselling the reality. It is already well-advertised that venture-backed startups (the recipients of venture capital) are highly concentrated by geography. However, venture capitalists (the ones investing in startups) are concentrated by geography even more. Let’s take a look at the data.

The chart below illustrates the geographic concentration of venture capitalists along four dimensions: firm counts, active portfolio companies, assets under management (value of portfolios), and dry powder (venture capital available to be deployed). I aggregated the four measures by U.S. metropolitan area according to each active venture capital firm’s headquarters location. The data are presented as a share of the U.S. total.

To no surprise, the San Francisco Bay Area (including the San Francisco and San Jose metropolitan areas) dominates: 28 percent of active venture capital firms in the United States are headquartered in this region, yet 42 percent of active portfolio companies, 55 percent of portfolio company value held, and 56 percent of venture capital available to be deployed (“dry powder”) are attached to Bay Area venture capital firms.

Moving further down the list, the New York and Boston metro areas are headquarters to 23 percent of active U.S. venture capital firms, and to 21 percent of all venture-backed portfolio companies, 18 percent of the total value of portfolio companies, and 20 percent of dry powder. Chicago, Los Angeles, Seattle, and Washington (the headquarters of New Enterprise Associates) round out the leading metro areas for venture capitalists.

Combined, these seven regions (or eight metropolitan areas since the Bay Area includes two of them), account for two-thirds of the nation’s venture capital firms and a staggering 89 percent of venture capital available to be deployed (“dry powder”). That outshines the already considerable geographic concentration of venture backed companies.

The next chart shows the geographic concentration of the eight most active locations for venture-backed startups. Seven of the metros are the same as above, with one exception—San Diego replaces Washington. Venture deals, capital invested in those deals, and two outcome metrics—exits (IPOs, M&A, buyouts) and exits of $100 million or more—are highly concentrated at the top, but less so than venture capitalists. Forty-two percent of venture deals and 21 percent of capital invested occurs in places outside of the leading eight metropolitan areas. The shares of total exits and large exits fall in the middle.

So far, we’ve looked at the geographic concentration of venture capitalists and venture-backed startups at just the top of the distribution. To demonstrate concentration across all geographies simultaneously, I calculate a Herfindahl-Hirschman Index (HHI) for each of the measures presented. HHI (the sum of squares of shares for each measure for each metro area) is frequently used to calculate total market concentration. HHI values, which are abstract, aren’t important here. Instead, focus on the relative differences. Higher HHI values indicate greater concentration.

Across the measures, venture capitalists—whether by firm counts, or weighted by active portfolio companies, portfolio value, or deployable capital—are more concentrated geographically than are key measures of venture-backed startup activity and outcomes. Venture firms are nearly 50 percent more concentrated than are venture deals (a proxy for venture-backed startups). Dry powder is similarly 50 percent more concentrated by geography compared with the amount of venture capital going into companies.

These findings may not come as much of a surprise to people in the world of startups and venture capital, however, some of the magnitudes might. It is well understood that the Bay Area dominates most things and in particular for venture capital firms. I expected the Bay Area to dominate, but I admit that I am a little surprised by how much it actually does—especially when compared with the likes of New York and Boston.

For the general public, including federal, state, and local policymakers throughout the country who are searching for ways to stimulate entrepreneurship and venture capital in their jurisdictions, these data points may be nothing short of shocking. After all, it’s not every day you see one-quarter of the businesses and more than half of the value in any industry concentrated in a single geographic area. But that’s the story of venture capital and Silicon Valley—one that goes back many decades.

My objective here isn’t to invalidate The Times article. I thought it was interesting and encouraging. A greater spread of venture capitalists around the country may occur in the coming years as a critical mass of entrepreneurs required for the local provision of that business model takes shape in more places. At the same time, it’s important to ground those possibilities in reality. I like to test claims with data. And, as the data show, the venture capital industry is extremely concentrated by geography. There will always be a tension between the demand for venture investors in more places and the supply of them. Many locales do not and will not have sufficient entrepreneurial activity to support local venture firms. But more will; and the article points to a few of them.

I am particularly interested in policies or programs that:

1. Enhance bottom-up, community-driven solutions (e.g., inviting entrepreneurs and community builders into the process; empowering existing actors or activities rather than dictating new ones from the top down); and

2. Embrace the unique role that entrepreneurs, as change agents, play in shaping and leading the development of startup communities around them (e.g., identify and enable entrepreneur-driven solutions; promote and expand entrepreneur-to-entrepreneur mentoring or investment relationships).

This survey will inform research on economic development via entrepreneurship to be published later this year by myself and Rhett Morris. Participation, of course, is optional, as is disclosing your name or contact information. Should you participate, please submit your response no later than May 15, 2020. Willing participants may be contacted for follow-up. The survey should take no more than 15 minutes to complete.

The link to the survey can be found here: Local Policies to Support Economic Development via Entrepreneurship: Survey

Please take the survey and share with your network! If you have any questions at all, please feel free to reach out. Thank you!

Earlier this month, a group of U.S. Senators led by Amy Klobuchar introduced the New Business Preservation Act to incentivize venture capital formation around the country. The Act, which allocates $2 billion to states under the “Innovation and Startups Equity Investment Program,” enables investors in undercapitalized regions to leverage federal dollars into startup investments. It avoids two well-known traps for government-sponsored venture programs by requiring that public funds are matched with private dollars and that capital is deployed by professional investors.

The Act also continues a long-standing tradition of U.S. federal government involvement in the formation and development of the venture capital industry. 

Although many of its modern inhabitants don’t like to admit it, Silicon Valley owes much of its existence to the U.S. federal government. That is not to say that Silicon Valley isn’t the product of human ingenuity and agency. Clearly, it is. Some of the hardest working and most brilliant minds on the planet have been shaping the world’s leading innovation ecosystem for decades. But that doesn’t change the fact the U.S. government played a decisive role in getting the whole thing kickstarted, and for a period of time, sustained its development in the early stages. 

The clearest mechanism for this support was wartime expenditures on research and development by the U.S. Department of Defense during World War II and the Cold War that followed. This “mission-driven state” generated enormous demand for computing and communications technologies, which shaped entire industries around Boston and Silicon Valley. As venture capitalist and economic historian Bill Janeway remarked: “… the federal government funded construction of a platform on which entrepreneurs and venture capitalists could dance.” 

What may be less known is the federal government’s central role in the birth and early development of the venture capital industry specifically. No one tells this story better than Harvard Business School professor Tom Nicholas in his recent book VC: An American History.  This post summarizes the parts of his book that deal with U.S. government policy. It shows that the New Business Preservation Act and the Innovation and Startups Equity Investment Program it establishes would not be a radical departure from precedent, but rather, an evolution on more than six decades of government support of venture capital in America. 

Small Business Investment Companies (1950s & 60s) 

The U.S. federal government played a major role in developing the venture capital industry early on, through key actions during the late-1950s through the mid-1970s. Three major policy interventions—one direct, two indirect—had the effect of increasing venture capital deployment through both the supply side (limited partners and venture capitalists) and the demand side (entrepreneurs). 

The first of these interventions was the Small Business Act, passed in 1958, which funneled public funds to qualified small business investment companies (SBICs). SBICs acted as venture capitalists by leveraging private capital with public funds. Public funds were made available under preferential tax treatment and attractive borrowing terms—if successful, the federal government didn’t require a return on investment, just a return of the principal. In exchange for generous benefits, SBICs were forced to comply with strict regulatory oversight, which made them unattractive for some early investors. Nonetheless, SBIC was a key on-ramp for many new fund managers.

As the data show, the growth of SBICs was slow at first, but peaked quickly and then tapered off just as fast. SBIC returns were mostly poor and interest from new entrants eventually waned. Even many of the larger, better performing SBICs returned little more than the S&P Composite index (a common benchmark for investment performance).

The lack of early returns from SBICs highlighted three key challenges to venture investing generally, which are highlighted in various context throughout Nicholas’s book. Each of them is a lesson the new legislation should consider: 

1. Venture returns: Systematically producing outsized returns on long-tail investing (whereby portfolio returns are driven by a small number of investments interspersed with many failures) is challenging, regardless of whether one is relying purely on private or publicly-subsidized funds; 

2. Scale matters: Many SBIC funds were severely undercapitalized, which made it difficult to construct a well-diversified portfolio of investments, and to attract talented investment professionals; and

3. Adverse selection: As is frequently the case when public funds are available in exchange for less flexibility, adverse selection was inherent, which tends to attract lower-quality fund managers. Fraud and malpractice were rampant, and many of the SBICs didn’t even invest in high potential companies. Congress responded by applying more oversight, which compounded the problem by deterring the best investors. 

Those challenges aside, the SBIC program made five major contributions to the development of venture capital in America—the significance of which should not be understated, particularly as many other nations and the U.S. states continue to experiment with ways to spark entrepreneurial finance. 

1. Framework: As Nicholas describes, SBIC “established a framework for thinking about the design of risk capital deployment in a context in which market-based venture capital was in limited supply”; 

2. Competition: The wide proliferation of SBICs introduced more competition into a nascent venture industry;

3. Supported key companies: SBIC funds supported many high-tech startups in their formative years, including major breakouts like Intel;

4. Positive externalities: SBICs produced many positive externalities in emergent high-tech hubs, such as creating sufficient demand for the development of specialized service providers; and

5. An entry point: The SBIC program provided an entry point for many talented, often young investors, into an industry that is notoriously closed-off. Legendary Silicon Valley firm Sutter Hill Ventures was created through two SBICs started by its founders William Draper III and Paul Wythes. Draper’s firm, Draper & Johnson Investment Company, was co-founded with Franklin “Pitch” Johnson, who went on to found many high-tech companies over an illustrious career. About the SBIC program Johnson said “inexperienced guys like us couldn’t have raised money without the SBICs.” Hambrecht & Quist, one of the vaunted “Four Horsemen” (leading investment banks serving the high-technology industry and capturing the lion’s share of the tech IPO market up to the Dotcom bust), began as an SBIC. 

The SBIC program continues to this day, supporting more than 300 investment firms each year. Although the program’s goals have shifted to becoming more of a support mechanism for mezzanine finance (later stage), the program’s influential place in sparking a nascent venture capital industry during the 1950s and 1960s in the United States is unquestionable. It also provided the template from which governments around the world have drawn upon to spark venture capital formation in their country.

The ERISA “Prudent Man” Rule (1970s) 

Two policy changes occurred in the 1970s that significantly improved the environment for entrepreneurship and venture capital to thrive—opening up both the supply and demand channels. Unlike with the SBICs, which were a form of direct government intervention in venture capital, these indirect “enabling” policies were meant to improve conditions for private actors to operate within. 

By the mid-1970s, the venture capital industry was still fairly small, with no more than 30 firms of any real substance. But things changed dramatically after Congress amended the “prudent man” rule of the 1974 Employee Retirement Income Security Act (ERISA), which was implemented to protect individual pension and health plans. Under the Act, pension fund managers (as passive investors) could be held liable for breaching their fiduciary duty if the venture fund managers they invested in acted improperly. This had the impact of generally freezing out pension funds—an enormous source of institutional capital—from investing in the venture capital asset class. 

In the year after ERISA was passed, pension fund investments into venture capital fell to zero, and was negligible over the next few years. But after Congress passed a 1979 amendment to relax the prudent man rule, pension fund commitments into venture funds skyrocketed. New pension fund commitments to venture funds doubled in the first year—making it the largest source of funding for venture capital funds. By the mid-1980s, net new commitments into venture capital funds increased by a factor of ten, and pension funds were the single largest source driving this change. 

Capital Gains Taxation (1970s) 

A second major policy change during the 1970s—the lowering of the federal capital gains tax rate—fueled the rapidly growing venture capital industry as well. In the late-1970s, the maximum marginal rate on capital gains was nearly 50 percent. Through the policy change, it was reduced dramatically to 20 percent throughout the first half of the 1980s. While many organized interests contributed to this change in policy, in the book, Nicholas documents the venture capital industry’s central role among them. 

However, it’s important to note that a reduction in the capital gains tax rate was likely not a major contributor to the expansion of the supply of venture capital, but more so, it worked to increase the demand for venture capital. Why? For starters, many institutional investors are tax exempt. One influential academic study demonstrated that the growth in new venture capital commitments during the late-1970s to mid-1980s was driven the most by tax-exempt investors, while investors most sensitive to the tax change (high net worth individuals) actually saw their share of contributions to venture funds decline. The implication from this and other research indicates that reductions in capital gains taxes work to increase the demand for venture capital (the supply of entrepreneurs), because it increases the potential return to their investment (sweat equity and likely lower wages) over the opportunity cost (likely higher wages, benefits, and income stability via employment). 

These two major regulatory and tax changes in the late-1970s and early-1980s enabled the venture capital industry and the startups it supports to accelerate into a rapid growth phase into the 1980s and throughout the 1990s. 

Small Business Innovation and Research Program (1980s) 

Direct government action in venture capital returned in 1982 with the launch of the Small Business Innovation Research program. The program sought to fill the “funding gap” for early-stage, high-technology startups that were (a) reluctant to cede substantial portions of equity to investors, and (b) not being served by existing programs such as SBICs (which began funding later-stage companies). 

The SBIR program, which deploys funds as grants or contracts to emerging small businesses through key federal government agencies, followed the staging structure of the venture capital model (Phase I proof of concept; followed by Phase II and III). The core objective of SBIR was to de-risk commercial opportunities in high-technology areas in an effort to attract more venture capital into the most promising ones. As Nicholas describes it in the book: “This was a government-funded platform designed to encourage creative technological development through the supply of seed money.” Later, Nicholas refers to SBIR as a program that encouraged “technology prototyping.”  

The program remains highly active today, with $4 billion under authorization each year and $28 billion in assets under management. By most accounts, it is a success in spurring experimentation in high-risk areas that are less attractive to private investors. Innovation and entrepreneurship policy experts view the expansion of this program as a key lever for improving economic growth. 

High-Skilled Immigration 

Though not a central focus of the book, the role of high-skilled immigration is present throughout it (and dominant in the modern history of entrepreneurship and venture capital in America). For Nicholas, this begins as early as the mid-1800s, when Samuel Slater, a British entrepreneur, was responsible for bringing the Industrial Revolution to the United States through a partnership with investor and industrialist Moses Brown. As detailed in the book, their partnership resembled a modern venture capital term sheet, and the industrial mill they developed was the “high-tech” industry of that time. 

Nicholas discusses a number of other key immigrants throughout the book, including Eugene Kleiner (of the famed Silicon Valley venture firm Kleiner Perkins), Andy Grove (who was the founding CEO of Intel), entrepreneur and venture capitalist Vinod Khosla, and the father of modern venture capital, Arthur Rock (who was born an American but whose father immigrated from Russia), among others. 

For a deeper examination of the role of immigration on high-technology innovation and entrepreneurship (and therefore, the demand for venture capital), see The Gift of Global Talent: How Migration Shapes Business, Economy & Society, an authoritative review of the evidence by Bill Kerr of Harvard Business School. His work shows that immigrants to the United States make outsized contributions to Nobel Prizes and patents, and to the founding of Silicon Valley high-tech companies, venture-backed startups, and to entrepreneurship overall. 

Final Remarks 

Absent the unprecedented U.S. government appropriations on defense contacting and high-technology research and development, it’s hard to imagine that Silicon Valley would have become the envy of the world. U.S. government investments in science and innovation created many of the conditions that increased demand for venture capital (supply of technology and entrepreneurs), which wouldn’t have occurred otherwise. 

In addition to “feeding the beast” of innovation via the mission-driven state, the U.S. government played a direct and decisive role in the development of venture capital. 

Two manifestations of direct government interventions highlighted in the book—the SBIC program, which played an important role in catalyzing the nascent venture capital industry in the 1950s and 1960s, and the SBIR program, which stimulated early-stage company experimentation beginning in the early-1980s—continue today. 

Two major policy changes in the 1970s—an amendment to the “prudent man” rule in the ERISA regulations that allowed pension funds to invest in venture capital, and the sharp reduction in the capital gains tax rate, which incentivized professionals to pursue startup opportunities by increasing the after-tax returns for doing so—were also critical. 

Government investments in science and education—as illustrated in the book through the famous Genentech case, which was a partnership between government-funded research and private venture capital investors and entrepreneurs—produce the human and intellectual capital that underpins high-tech innovation and entrepreneurship today. 

Finally, the U.S. government’s liberalized stance towards high-skill immigration throughout the 20th century created a major source of inbound talent for Silicon Valley and other innovative regions, and has been a key source of its continued success (though is in danger today). 

The fingerprints of the U.S. federal government are all over the modern venture capital industry—providing key support at its nascency but also through the present day. Current support mechanisms include more permanent fixtures such as SBIR, and cyclical ones, such as the State Small Business Credit Initiative (SSBCI), which emerged out of the Obama Administration following the Great Recession. Indeed, Uncle Sam and venture capitalists have a deep relationship going back decades.

So, how well has the New Business Preservation Act absorbed the lessons of history? In my view, pretty well. By shifting fundraising (matching) and deployment to private actors (venture capitalists), the policy aims to divert the discomfort posed by long-tail venture returns and miscues around adverse selection (choosing unworthy investments) away from state policymakers. One potential pitfall is adverse selection of fund managers. To avoid this problem, policymakers should enlist experienced investment professionals to conduct rigorous screening upfront, and then relaxing requirements for qualifying funds (attracting the best fund managers by having few strings attached, but having the right people in place to identify who those fund managers are). These details can be ironed out once the bill passes. One potential criticism is size. I would like to see the program be much larger. However, the proposal is a completely reasonable size to start with given the novelty, competing public interests, and varying degrees of exposure to venture capital around the country.

Overall, the newly introduced New Business Preservation Act is a welcomed evolution and continuation of the U.S. government’s support of venture capital and entrepreneurship. Congress should adopt it immediately.

This article originally posted at the Center for American Entrepreneurship’s Ideas Blog.

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]]>CommentaryIan HathawayMon, 20 Jan 2020 23:40:13 +0000http://www.ianhathaway.org/blog/2020/1/20/then-all-at-once568398f1a2bab87f93f6958b:5684eb3e1c121093f0473ec7:5e263a65166a41157caceafdLast Sunday I hit send on my first book manuscript for review by the publisher. It’s been nearly three years in the making, full of twists and turns, a roundtrip Transatlantic move with my family, tens of thousands of discarded written words, and two hiatuses totaling twelve whole months in length. When I started, I had a six-month-old son; he’s now three years old and has an eight-month-old brother. It’s been a long time coming and damn does it feel good to finally see the light at the end of the tunnel.

If you don’t know already, it’s a book on entrepreneurial ecosystems co-authored with Brad Feld. We use the concept of complex adaptive systems to explain the behavior of startup communities and entrepreneurial ecosystems. A defining characteristic of complex systems is a process known as emergence. This occurs when the “parts” of a system interact in a way that produces value in novel and unexpected ways. Nobody is in control and the ultimate outcome is difficult or impossible to predict in advance.

My favorite shorthand definitions of these terms are as follows: complexity = the science of interactions; emergence = unpredictable creativity.

Writing a book is a complex, emergent process. The collaboration between Brad and me resulted in something that is much more valuable than what either one of us would have produced on our own (a nonlinear process). The final result is also very different from what either one of us would have predicted at the outset—complexity, which is the core of our thinking, wasn’t even on our radar at the time. It was discovered at the intersection of curiosity and persistence, but it was an emergent outcome nonetheless.

One behavior of complex systems is a concept known as phase transitions, or tipping points, whereby major systemwide shifts occur in a very short period of time. Although changes are actually the result of much longer-term dynamics, large and permanent shifts occur seemingly in an instant. New “sparks” are the proverbial straw that breaks the camel’s back. Examples of tipping points include the Arab Spring or the #MeToo and #TimesUp movements—events that were building for a long time but were quickly and dramatically propelled forward by the actions of a few brave souls.

The same thing happened with our book. The core content was more or less finished by the Summer of 2018. There were major holes in the narrative, with plenty of writing yet to do, but the core ideas were there. The text was fiddled with and slowly developed over the next year, with intermittent bursts followed by large gaps. A draft was assembled in the Summer of 2019 and sent out for review to a small group of colleagues.

These few brave souls were kind enough to wade through what we had written, and the verdict was clear: there was great content in there but it was way too hard to absorb. Too theoretical, poor structure, a snooze fest. Boring. Dry. They were right. Two reviewers, who both have university experience, said that it would be influential with academics. These two strands of comments are correlated. And not the outcome we wanted.

So, there we were, in the Fall of 2019, with a giant pile of useful content but no book—at least not a book that most people would want to read. This was a low point for me, as I seriously began to doubt if this book would ever see the light of day. I wondered if all of our hard work was being squandered. Pressure had been coming from many directions to get it finished. People were constantly asking: “where is it?” I was growing tired of their questioning; not because of them, but because I didn’t have a good answer. At the time, I couldn’t see our way forward.

Then, all at once, everything changed.

The problem with our book wasn’t the content, it was the structure. The chapters were “deep”—self-contained essays or sets of principles and stories that were comprehensive on a topic area. Everything was siloed. There was no flow. We needed to go “wide”—spreading parts of theory, principles, practice, and story across multiple chapters, looking for commonalities among them and weaving them together in a compelling way. To do this, we laid each section of the existing text on the table, so that we could see how the parts needed to be moved around. Since the document was electronic, the “table” was actually a giant spreadsheet.

And it worked. As late as early-November, I was worried that our book was flatlining. Two months later, we sent a completed draft to the publisher that we are both proud of. Everything came together very quickly at the end. The book looks remarkably different from what our colleagues saw in the summer.

Brad and I had a short email exchange on the subject back in late-December:

Ian: I think this is in pretty good shape. Amazing how it all just kind of came together quickly in the end.

Brad: That's how most books work. It's endlessly painful and then, voila! At least that's been my experience.

More than that, it’s how a lot of things work. Forever goes by and it seems like nothing is happening. Then, all at once, everything comes together. One day you have something; the previous day you didn’t.

There’s a valuable lesson here, whether you’re writing a book, building a startup, raising kids, or just trying to improve your health—the most important things in life take a long time to develop. You have to work hard to make them happen and you must understand that progress is uneven and slow. Things are happening even if you can’t see the full picture yet. Often times, there are major delays between a course of action and when its impact can be seen. Then, all at once, things just seem to happen—you don’t know when it’s going to occur and you don’t know what it’s going to look like. You just have to trust the process and be ok with an outcome you didn’t expect.

I am amazed at how different this book is from when I first started writing back in April 2017, and I’m truly stunned by how much different—and significantly better—it became in the last two months. I can’t wait to share it.

I also wouldn’t change much about our process. Sure, we probably could have shortened things by six or maybe even twelve months with a sharper focus, but the best ideas and writing arose from extended breaks or random thoughts scribbled on a napkin that needed time to develop. Had we simply raced ahead we would have ended up with a conventional book. I can say without a doubt that publishing what was written in year one or two would have been a mistake. Our patience, persistence, and curiosity paid off.

So, whatever it is that you’re working on right now that seems hopeless, just keep with it. The nonlinear and sometimes frustrating process you’re going through might actually be the source of your breakthrough idea or solution. You just don’t know it yet. And, the outcome you’re searching for may be much closer than you think. This will all become clear to you much further down the line; you can’t see it now. But it’s there.

In February 2004, Mark Zuckerberg famously launched Facebook from his Harvard dorm room at the age of 19. By that summer, Zuckerberg moved himself and the company to Silicon Valley and never looked back.

Over the next eight years, Facebook would attract half a billion users and nearly $7 billion in venture capital investment, on its way to a May 2012 IPO that valued the company at more than $81 billion. Today, Facebook has more than one billion users and is worth more than $500 billion. Zuckerberg is still CEO, and at 35 years old, has an estimated net worth of $65 billion—making him the eighth richest person in the world.

It’s a fascinating story. So fascinating in fact that Hollywood made a feature film about it called The Social Network. And while the story of Mark Zuckerberg and Facebook has undoubtedly inspired an entire generation of young entrepreneurs and reshaped their imaginations about what’s possible, people too easily forget that a big part of what makes the story compelling is that it’s so unusual. Mark Zuckerburg is not only an outlier—he’s an outlier among outliers.

Researchers have known for a while that peak age for general entrepreneurship occurs around mid-career (mid-30s to mid-40s), but an influential academic study published last year shows just how misguided the popular narrative is that twenty-something tech billionaires are the norm even for high-growth, high-tech entrepreneurship.

Economists Pierre Azoulay, Benjamin Jones, Daniel Kim, and Javier Miranda, analyzed administrative government data on the founders of all U.S. businesses that were started during a recent eight-year period (2007-2014). This restricted-use dataset at the U.S. Census Bureau allowed the researchers to get an accurate and comprehensive view of all business startup activity in America.

The authors calculated the average founder age (at the time of founding) along key startup characteristics (industry, financing, patenting, location) and outcomes (hyper-growth, acquisition, or IPO). Below is the average founder age along these dimensions:

• All companies (with at least one employee): 42 years

• Fastest growing 0.1% of companies: 45 years

• High-tech industry: 43 years

• Venture-backed: 42 years

• Filed patents: 45 years

• Successfully exited (acquisition or IPO): 47 years

• Located in Silicon Valley: 42 years

• Located in an entrepreneurial hub: 41 years

The data show that age at the time of company founding more or less follows a normal statistical distribution (“Bell Curve”), with peak founding age across all U.S. companies (blue line) between the late-30s and early-40s. But for the fastest-growing one percent of firms (red line), the founder age curve is pushed out further to the right (older founders), with peak age clustered around the mid-40s.

Founders aged in their 20s and 30s are less likely to start high-growth companies compared with their share of total companies founded (red line below the blue line on the lefthand side of the graph). Conversely, founders aged 40 years and above are more likely to start high-growth businesses relative to their contribution of total companies founded (red line above the blue line on the righthand side of the graph).

Next, we see two tables showing average founder age by key geographies (top panel) or success outcome (bottom panel). Each table has four columns, first for all firms and then secondly for three types of technology definitions—the first by industry, the second by venture-capital backing, and the third by patenting.

As the data show, the average firm age is pretty similar across these dimensions, with all definitions of high-tech and high-growth startups having higher average founder age than for the benchmark of all firms. One exception is that founders of high-tech and venture-backed firms in Silicon Valley and other key entrepreneurial hubs tend to be slightly younger than founders of all firms in those regions, but the differences are small. Regardless, the average age of these founders is more or less around 40 years of age—far greater than the popular narrative of the mid-20s college dropout.

Finally, the study shows that conditional on starting a company, the probability of achieving “high-success” (fastest growing 0.1% of firms or successful exit) is lowest for founders in their early-20s and increases in a linear fashion along with founder age up to the late-50s. Although the probability of starting a company declines among these older workers, those that do are more likely to succeed.

And yes, it’s true there are more outliers (i.e. younger founders of very successful startups) in sectors like software and in leading regions like Silicon Valley, which helps explain some of these small differences. But overall, this work demonstrates that many of the highest-impact companies in the U.S. are started by founders who are much older than the popular narrative suggests.

Instead of succumbing to emotionally appealing but highly misleading mythology about the characteristics of high-growth, high-tech, and high-impact entrepreneurs, know that the most successful of them typically get started much later than you have been lead to believe.

This article originally published at the Center for American Entrepreneurship.

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]]>AnalysisIan HathawayWed, 27 Nov 2019 11:47:30 +0000http://www.ianhathaway.org/blog/2019/11/27/europes-venture-backed-ipos-and-american-exchanges568398f1a2bab87f93f6958b:5684eb3e1c121093f0473ec7:5dde6258305b2260c95a0392Last month, my friend Nicolas Colin, a Director at The Family, described Europe’s tech IPOs as “boring” in a newsletter. Among other points, Colin argues the need for a deeper ecosystem that links Europe’s entrepreneurs with capital markets. Large IPOs are a big part of this:

We may have IPOs of companies with a European footprint such as Spotify and Farfetch—and the resulting liquidity. But when a European company goes public in the US we miss out on the positive feedback loop that nurtures an ecosystem of investment bankers, analysts, and institutional investors, which in turn will help more European companies go public. What’s more, those IPOs in the US are dependent on the ups and downs of the (partially uncorrelated) US IPO market—and that’s a problem. Nothing like the WeWork debacle has happened here in Europe, but now our tech companies should shelve their IPOs because Adam Neumann was a fraud and SoftBank was negligent in its due diligence? What does it even have to do with us?

A debate over the veracity of Colin’s claim spilled into social media, which focused more so on what one considers “boring” than anything else. Word choice aside, I presume that by “boring” Colin meant “small.” On that, he has a point. In both a game of averages and outliers, many of Europe’s most valuable startups have in fact looked to American exchanges for public listings.

I analyzed data from PitchBook on European venture-backed companies that had an IPO since 2010. I grouped each IPO by exchange and then aggregated counts and value at IPO (the market capitalization on the first day of public trading).

The clear majority of Europe’s venture-backed IPOs listed on European exchanges this decade, but many of the biggest startups looked to American markets for liquidity. Since 2010, 41 European venture-backed company IPOs were listed on the NASDAQ or the New York Stock Exchange, or 10% of the total. But those that did were disproportionately large—accounting for $55 billion in IPO exit value, or 45% of the total.

The biggest was Spotify’s direct listing on the NYSE ($29.5 billion valuation at IPO) in April 2018, followed by Farfetch’s IPO last September, also on the NYSE, which valued the company at $5 billion. Other notable European venture-backed IPOs listed on U.S. exchanges include biotech firms BioNTech, Novocure, Adaptimmune Therapeutics, and Orchard Therapeutics, as well as the advertising platform Criteo. Each had post-IPO valuations above $1 billion.

But, grouping all European exchanges together misses a considerable amount of detail. In fact, seven of the ten largest European venture-backed IPOs this decade were listed on European exchanges—Rocket Internet ($8.4 billion valuation at IPO), Zalando ($6.8 billion), Delivery Hero ($4.9 billion), and Hello Fresh ($1.8 billion) in Frankfurt; Adyen ($8.3 billion) in Amsterdam; and Just Eat ($2.4 billion) and Funding Circle ($2 billion) in London. Even so, seven of the top 15 largest IPOs, or about half, were listed in the U.S.

Deutsche Börse, which manages the Frankfurt exchanges, has hosted the largest listings in Europe. In fact, the $1.7 billion average valuation size of European venture-backed IPOs in Frankfurt is larger than the $1.3 billion average taken across NASDAQ and NYSE. At $400 million, the London Stock Exchange is a distant second, followed by a smattering of exchanges such as the Alternative Investment Market in London, the various Euronext exchanges (most notably in Amsterdam, Brussels, and Paris), and the Nasdaq Nordics, among others, which list many venture-backed IPOs but at a much smaller size.

The data overall show plenty of nuance, as exchanges in Germany, UK, and elsewhere do capture a number of large public offerings of venture-backed companies. But the point remains: most European venture-backed IPOs are small, and the continent has missed key opportunities to strengthen the entrepreneurial ecosystem around capital markets—as some of its largest and most historic venture-backed IPOs have found a better home on American exchanges.

Marc Andreessen’s article from 2007, “The only thing that matters”, is probably the standard-bearer. He writes:

Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account…

That’s as good as any I suppose.

But, let me point to another way of thinking about it, which comes from my good friend Nicolas Colin of The Family. Nicolas helps people identify when product/market fit is or isn’t happening in a rather unique way, by drawing on a historical narrative from politics.

In a 2017 article, “How to Tell if You’re Winning or Losing (The Secret Service Can Give You A Hint)”, Rick Bidder writes about his work on the 1984 U.S. Presidential campaign of then-Colorado Senator Gary Hart.

The story begins in February of that year, just prior to the Iowa and New Hampshire primaries. At the time, it felt as though the campaign was collapsing. Bidder was convinced they were in their final month. And then one day the phone rang. It was the U.S. Secret Service. They wanted to see Bidder and other senior campaign officials promptly the next morning. The Secret Service had a light detail on Hart already, and Bidder thought the point of the meeting was to reprimand his staff for not complying with Secret Service requests—“this would certainly be a full-blown dressing down.”

But what actually occurred that day was an entirely different matter. Bidder writes about his meeting with Agent Johnson from the U.S. Secret Service, as well as Pudge Henkel from the campaign:

Promptly at nine, Agent Johnson entered Pudge’s office. Before any of the Hart team could say a word, Agent Johnson stared directly at Pudge Henkel and began, “This campaign is about to take off, and you’re not ready for it.”

Silence as three jaws dropped to street level, two floors below. We could acknowledge the second half of the statement, but the first? Finally, I stammered, “And . . . just what makes you think that?”

Johnson looked at me. “People are coming up to Hart and want to touch him.”

“What?” Wilson asked.

“Look, “ Johnson said, “ I was in Iowa with Senator Hart three weeks ago, in mid-January, and there was nothing going on. But I was back there for the last four days. People are coming up to him. They want to touch him.” He stopped briefly to take a breath. “I have to keep people from pushing him and trying to get a piece of him. This is always the first indication that something significant is happening for your candidate.”

Silence.

Hart’s campaign eventually did fold, as he narrowly lost the Democratic nomination for President to Walter Mondale.

The article isn’t long, so go ahead and read the whole thing. It’s a fascinating way for conveying what product/market is—when people just have to get a piece of whatever it is you’re selling. That’s the best way to know if you’re onto something. Credit to Nicolas for making that connection. It’s brilliant.

The underreporting and time lags associated with very early deals has become further compounded in recent years. Many startups in Silicon Valley and other leading startup hubs have increasingly relied on unpriced rounds (SAFEs or convertible notes) for their first or even second rounds of financing. Because these rounds are unpriced, they don’t appear in a company’s cap table until after it has raised a priced round later (and further, announced the deal—see above).

Combined, there are structural and cyclical reasons that the underreporting of very early venture rounds is especially acute now and fraught with severe reporting delays. This matters because people want to understand the market trends in near real time.

To test how much of a problem this has become, I grabbed data on first financings from an analysis I did last year and compared them to first financings from a data pull today. The chart below shows the number of first financings in US companies between 2005 and 2017, as reported 14 months ago in August 2018 (light bars) and as reported today (dark bars, residual). The green line shows the percentage increase in reported deals between these two periods.

As the data show, historical revisions were minimal throughout most of the period, but began steadily rising from six years ago before becoming enormous in the latest year the comparison could be made. Annual revisions between the two vintage pulls were around 0%-1% for the years 2005-2012, before climbing to 3%-4% in 2013-2014, 10%-15% in 2015-16, and a eye-popping 40% in 2017.

Said differently, if just 14 months ago in August 2018 you reported first financings for the year 2017 (which I did!), you would have been off by more than 40% compared with today (!!!)—a number that will surely rise over time as first round deals continue to be reported and the PitchBook database is updated to reflect them.

These revisions are so large that they have the ability to overturn entire analyses. In that work from 14 months ago, I erroneously reported a continued drop in first financings for 2017—a steady annual decline that occurred after a peak of first financings in 2014. But as today’s data pull (the October 2019 Vintage) shows, 2017 was actually an increase from 2016 (though still down compared with 2014).

What might this say about the current state of venture first financings? Well, if we assume a similar revision cycle 14 months from now compared with the one I just walked through, 2018 would have been a record year for venture first financings instead of being about flat compared with 2016-2017, and well below the 2014 peak. Check back next year to see how accurate this forecast turns out.

Now the big question is to what extent these massive revisions are being driven by the proliferation of unpriced rounds, a continuation of the inherent underreporting and lagged reporting of venture deals, or improvements in data collection occurring over time. It’s probably a bit of all of these. But my hunch is the first factor is driving up the size of the errors in recent years.

Regardless, the major lesson here is this—be cautious about reporting venture activity too recently. In just a few months, a number of different data vendors and other analysts will be producing year-end reports on venture activity for 2019. They will all be wrong. While this is not new, as I and others have noted in the past, what may be changing is the magnitude of these errors. This will be especially acute at the earliest stages of venture activity (first rounds), where the majority of deals occur.

The general thesis of Paul’s article is simple yet elegant. Cities speak to us. They influence our behavior. They shape who we are. It matters where you live. A lot I would argue. The essay leads with this:

Great cities attract ambitious people. You can sense it when you walk around one. In a hundred subtle ways, the city sends you a message: you could do more; you should try harder.

The surprising thing is how different these messages can be. New York tells you, above all: you should make more money. There are other messages too, of course. You should be hipper. You should be better looking. But the clearest message is that you should be richer.

What I like about Boston (or rather Cambridge) is that the message there is: you should be smarter. You really should get around to reading all those books you've been meaning to.

When you ask what message a city sends, you sometimes get surprising answers. As much as they respect brains in Silicon Valley, the message the Valley sends is: you should be more powerful.

That's not quite the same message New York sends. Power matters in New York too of course, but New York is pretty impressed by a billion dollars even if you merely inherited it. In Silicon Valley no one would care except a few real estate agents. What matters in Silicon Valley is how much effect you have on the world. The reason people there care about Larry and Sergey is not their wealth but the fact that they control Google, which affects practically everyone.

He continues:

How much does it matter what message a city sends? Empirically, the answer seems to be: a lot. You might think that if you had enough strength of mind to do great things, you'd be able to transcend your environment. Where you live should make at most a couple percent difference. But if you look at the historical evidence, it seems to matter more than that. Most people who did great things were clumped together in a few places where that sort of thing was done at the time.

You can see how powerful cities are from something I wrote about earlier: the case of the Milanese Leonardo. Practically every fifteenth century Italian painter you've heard of was from Florence, even though Milan was just as big. People in Florence weren't genetically different, so you have to assume there was someone born in Milan with as much natural ability as Leonardo. What happened to him?

If even someone with the same natural ability as Leonardo couldn't beat the force of environment, do you suppose you can?

I don't. I'm fairly stubborn, but I wouldn't try to fight this force. I'd rather use it. So I've thought a lot about where to live.

I'd always imagined Berkeley would be the ideal place—that it would basically be Cambridge with good weather. But when I finally tried living there a couple years ago, it turned out not to be. The message Berkeley sends is: you should live better. Life in Berkeley is very civilized. It's probably the place in America where someone from Northern Europe would feel most at home. But it's not humming with ambition.

In retrospect it shouldn't have been surprising that a place so pleasant would attract people interested above all in quality of life. Cambridge with good weather, it turns out, is not Cambridge. The people you find in Cambridge are not there by accident. You have to make sacrifices to live there. It's expensive and somewhat grubby, and the weather's often bad. So the kind of people you find in Cambridge are the kind of people who want to live where the smartest people are, even if that means living in an expensive, grubby place with bad weather.

There’s a lot more in the essay. I encourage all of you to read it—more than once. I also encourage you to pick up a copy of The Geography of Genius: A Search for the World's Most Creative Places from Ancient Athens to Silicon Valley, a book by journalist Eric Weiner that goes deep on the history of a bunch of this stuff.

“Where do I want to be?” is a question I ponder a lot, especially as I wrestle with ambition on one hand and things like self-care and familial responsibilities on the other. I believe many people in my demographic—career-focused city-dwellers (with or without families)—ponder this question constantly.

The four cities I know best are Chicago, San Francisco, Washington, and London. Of course my perception of each is colored to some degree by the circumstances of my life at the time I was living there, but overall, I think they hold up pretty well.

Chicago says to me: have a good time and strike a balance. I was in school and much younger then, so that’s surely a part of it. However, Chicago’s laid-back Midwest vibe is unmistakable, and people tend to have good balance between work and play, with a clear lean towards the latter. 

San Francisco has changed. I first moved there before the financial crisis and tech boom that has since followed. Back then, it said to me: get outside and enjoy beautiful things. The city has a very different message today that I don’t care for—arrogance, excess, and above all, a lack of care for others and for the community.

Washington is about being part of something exclusive. This starts with schooling—Washington is notoriously snobby about educational pedigree. You then succeed by choosing and then navigating exclusive organizations. It’s who you know not what you know. Or more to the point, who important likes you and who doesn’t. Washington’s main industry—politics—is inherently rent-seeking and zero-sum. It’s a beautiful city that I love dearly, but for these reasons, entrepreneurial ambition isn’t a part of the social fabric.

Finally, London. This is a hard one because London is so different. It’s the literal melting pot of the world. It’s also a city-state inside of a country that is at war with itself. London says many things, but if I have to distill it to one it is this: be who you are. I feel very free here. Sure, there’s more than a whiff of aristocracy, and if you care about “society” things, you’re probably on the outside looking in. But overall, this is a city where working class and ruling class live in relative proximity. Where people are into a lot of different things and come from many walks of life. London is wild. London is weird. London is cool. It’s also a giant pain in the ass to live in most of the time and it’s a god damn fortune to be here. The weather isn’t nearly as bad as everyone says it is, but it’s not great either. But I guess that’s the point: people have to give up a lot to be here and yet they do it anyway because they’re gaining even more. Otherwise, they wouldn’t do it.

That’s what my city says to me. What does yours say to you?