Pando

Are we starting to see cracks in the bro-economy?

By Sarah Lacy , written on December 19, 2017

From The Travis Shrugged Desk

Whenever outsiders can’t fathom horrific behavior being enabled or valuations paid for companies that barely exist I tell them two things. You might call them the laws of Silicon Valley physics.

The first law is that 95% of the money comes from just 5% of the returns. So what will make or break you is being in that 5%-- period. If you are in that 5% no price matters because the wins are so disproportionate.

You will always gamble on being in the 5% because too many people turned down seemingly crazy ideas at seemingly crazy prices by people who seemed too crazy and have regretted it for the rest of their careers. There is a saying that’s come out of this anxiety: “You can only lose your money once.” The implication is that if you don’t invest you lose your potential to make money many times over.

And that brings us to law #2: Everything that happens here -- and I mean even down to the clothes people wear-- comes down to an almost slavish pattern recognition. I have watched top VCs back young white Ivy League dropouts with the stated reasoning that they fit the pattern of what makes them money. I have watched some of the most powerful people in the world insist they need a “Sheryl” to rein in those wayward founders, and by that they mean a middle-aged woman with kids with operational experience. Brown hair, preferred. I’m barely exaggerating.

It’s like junior high peer-pressure, except the stakes are billions of dollars and the future of, say, democracy or transportation.

Because of the first law, it takes a lot more pattern recognition to determine what you fund, versus what you don’t fund. You only miss one Google or Facebook and you change behavior. You fund a few Secrets, and, oh well, maybe the next one.

Which is why the year-long drunken stumble of Uber is so meaningful. Uber is not only the largest company of this era, it has put off going public for so long and been so restrictive in who can sell stocks, that it is the highest valued, largest paper gamble of private company Silicon Valley history.

All the VCs who are counting on that to be their homerun, who have raised funds off that valuation, who have written books about what investing geniuses they are, who are ranked on the Midas list because of that bet… they may lose their money (what they thought was their money) many many times over. What makes that more astounding is that all of Uber’s wounds are completely self-inflicted. All of this was avoidable had the company, say, not treated female employees like shit, threatened spying on reporters’ kids, not stolen billions in trade secrets, not attempted to smear a rape victim… and on and on and on.

Investors and the board are particularly to blame for giving CEO Travis Kalanick absolutely no oversight and enabling -- even lauding this behavior -- as long as those paper valuations continued to increase.

The end of last week was particularly bad for Uber, just as Softbank is about to bail a lot of those early investors and employees out. A letter surfaced in the Waymo case by a former employee, accuses the company of espionage, bribery, hacking and even more lawbreaking, beyond --yunno-- those laws they were actually funded to break around transportation regulation.

There are some small, inklings, like sprouts coming up after a snowstorm, that investors may be learning a new pattern: Bros who harass women and generally make everyone’s lives awful may not be the best investment risks.

Two pieces of potentially encouraging cracks in the bro economy this week:

  • Microsoft has become the first tech titan to back an end to the mandatory arbitration that limits women’s ability to fight back against sexual harassment.  
  • Hot app HQ Trivia is reportedly facing funding challenge after investors learned about alleged bad behavior.

Both of these are single instances but they still represent dramatic seachanges in tech. Particularly the second one: It was not very long ago that pattern recognition caused investors to back founders because of bad behavior.

Keep it up, the Ellen Paos, the Susan Fowlers, the Niniane Wangs and all the other women speaking up against the bros. You haven’t just humbled arrogant VCs and ousted the largest CE-Bro in Silicon Valley…. You may just cost everyone so much money that you change the culture.