Social Capital in Silicon Valley: an important fix

Two Truths and a Take, Season 2, Episode 1

Hi all, my apologies for the second email; today’s newsletter email Social Capital in Silicon Valley should have arrived in your inboxes a couple hours ago.

There was only one issue with it, which is that I goofed up bad right here:

(I thought I had fixed this correctly, having updated it in the permanent version of the post on, but I guess the Substack edit didn’t go through. My bad.)

My sincere apologies for spelling Sar’s name as San (that was an honest typo; I blame the butterfly keyboard) and also for messing up the link! The correct link is here:

I do recommend you all go read this post, as this was the original inspiration behind why I wrote my current piece.

Thanks and have a great week!


Social Capital in Silicon Valley

Two Truths and a Take, Season 2, Episode 1

It’s January 2020. And if you’re a founder just starting out, trying to create something out of nothing, one of the best investments you can make is still a plane ticket to San Francisco. 

A lot of people, including me, got this wrong when we looked forward to what the 20s would be like. All of the downsides of San Francisco and Silicon Valley as a global tech hub have more or less come true. It’s outrageously expensive; runways are shorter; there’s more competition for talent, narrative and oxygen. There’s no shortage of problems to work on, people to hire, or money in other cities. 

But Silicon Valley still has this unbeatable advantage, available in abundance like nowhere else, that helps startups get off the ground: social capital. (I mean the general term "social capital" here, not the specific company Social Capital where I used to work.) 

I’m continually surprised at how status and social capital in tech are simultaneously something we love to talk about, but also never want to talk about. We love to talk about individual examples of people acquiring influence creatively, or trendy virtue signalling that’s in fashion. But we don’t talk as much about the deep, systemic ways in which social capital makes the current tech industry possible in its current form at all. 

When I wrote about angel investing and social status a couple months ago, it was interesting how much of the discussion was around, “this is right, but it’s not something we really talk about.” So let’s keep talking about it.  

Social capital flows freely in Silicon Valley - if you ask for it the right way

Social capital is one of those terms I see people use generically to mean “community” or “status” or “good vibes”, but it has a specific meaning that’s worth understanding. It’s called social capital for a reason, because like other forms of capital, it works as a production factor. Just like a piece of capital equipment has value because it reduces friction, expense, or human labor of some kind, so do established norms, trust and relationships. 

I got introduced to the concept of social capital from Robert Putnam's book Bowling Alone. Social capital, as he presents it, is a form of wealth that can compound and throw off real dividends when it’s cultivated, or wither and die when it’s drawn down or neglected. Having access to social capital is a privilege. In the business world, social capital is earned over decades, and doled out carefully by those who have it: you can’t just give that stuff away. 

Social capital is especially important if you’re trying to build something out of nothing, and need credibility and momentum in order to open doors and be taken seriously. Building startups outside of an established tech ecosystem is hard: there’s so much inertia and friction you have to fight that without existing momentum to draw from. You face a prohibitively steep climb out the gate.

Meanwhile, it can be surprisingly easy for newcomers to tap into the social fabric of Silicon Valley and acquire that first bit of momentum, if you know how to ask for it. Those inertial barriers just aren’t there in the same way. People actually answer cold emails; people readily help out and make introductions; people will take you seriously. It’s a part of the culture. To some degree, people pay it forward because someone paid it forward to them. But it’s not just people being nice. Newcomers have real currency here. What, though?

Social capital is readily available to anyone, if, and this is a huge if, you know how to ask for it the right way. The magic password is simply asking, using the right language and demonstrating that you’re socially clued in to what’s going on: “Can I be in the group? I’m like you, almost.” 

The Silicon Valley tech ecosystem is a world of pattern matching amidst uncertainty. We pattern match ideas, we pattern match companies, but most of all we pattern match people. If you are new, and you already speak the language and look the part well enough to be able to fit the pattern, but have just enough novelty and freshness to you that you don’t fit the pattern exactly, then people will be interested in you. 

If you’re too different, you won’t fit the pattern at all, so people will ignore you. (Did I mention tech has diversity issues?) And if you’ve been in tech too long, you’ll fit the pattern too well, so people will also ignore you. But if you’re a newcomer who speaks the language? Then you’re interesting. You have “Goldilocks novelty”: a valuable form of social capital, which you can cash in immediately. You’re different enough to have unique potential, but similar enough to fluently use all of the leverage that the tech ecosystem offers you.

How else can you boost your social capital in Silicon Valley? Being a founder is obviously one way. Growth is also good at bestowing status - if you work at a fast-growing startup, even if it’s small or you’re not the founder, you’ll be in demand. Old fashioned charisma, being good at Twitter, or knowing good gossip obviously counts for something. You can also buy your way in by angel investing - so long as you do it the right way. Looking the part sure doesn’t hurt. 

But really it’s about the basics: knowing the words for things; having some situational awareness about what people in tech have opinions about this week. Knowing what the pattens are, and how you fit. It sounds basic but it’s an essential part of signalling: I’d like to join the group, and I have something to offer. 

The minute you acquire “in-group” status and establish a bit of social capital in Silicon Valley, everything about your career becomes easier. Introductions, advice, credibility and seed funding flow freely, hesitation and friction around new ideas goes away. It becomes easier to bootstrap something out of nothing, because you’re not starting with nothing anymore. 

Social capital is distributed differently than conventional power

There’s a famous passage in War and Peace where a young lieutenant, Boris Dubretskoi, learns to navigate the “real system”, which supersedes the official system of influence and power in both the army and in society back at home:

When Boris entered the room, Prince Andrei was listening to an old general, wearing his decorations, who was reporting something to Prince Andrei, with an expression of soldierly servility on his purple face. “Alright. Please wait!” he said to the general, speaking in Russian with the French accent which he used when he spoke with contempt. The moment he noticed Boris he stopped listening to the general who trotted imploringly after him and begged to be heard, while Prince Andrei turned to Boris with a cheerful smile and a nod of the head. 

Boris now clearly understood—what he had already guessed—that side by side with the system of discipline and subordination which were laid down in the Army Regulations, there existed a different and more real system—the system which compelled a tightly laced general with a purple face to wait respectfully for his turn while a mere captain like Prince Andrei chatted with a mere second lieutenant like Boris. 

Boris decided at once that he would be guided not by the official system but by this other unwritten system.

You can imagine an identical scene playing out in San Francisco today. Substitute the purple-faced general with a Fortune 500 CEO, Prince Andrei with a VC, and Boris with a young founder with a small but fast-growing startup. In terms of actual real-world power and influence, it’s clear that the CEO has the most power, the VC significantly less, and the founder virtually none. But not in the unwritten system. In Silicon Valley society, you can easily imagine a scenario where the founder might have the most social capital in the room, and the CEO the least. 

Social capital does not overlap exactly with conventional power or official status. If it did, then it wouldn’t be that useful. Social capital is interesting when it opens doors for people who don’t have power yet. It's actually much more interesting than conventional power, because one is typically a leading indicator of success whereas the other is a lagging indicator. Potential value is far more interesting than value fully realized. Startups exploit that potential. 

When working correctly, social capital helps resolve the chicken-and-egg problem of building something new. For a young founder in Silicon Valley, your social status is the most valuable thing you have: not only because it can open doors for you, but also because using your social status effectively is like a dress rehearsal for raising money and making deals. If you can demonstrate to early prospects and investors that you’re successfully able to promote hyped-up equity in your own reputation, it’s a good sign that you’ll be able to successfully sell hyped-up equity in your startup too. This is that special sort of magic quality that hangs around some founders like a halo. You instinctively know what they’re capable of, because at a social level, you’ve already seen them do it. 

What’s interesting about this special quality, this “halo” of status and social capital, is that it’s not zero sum. It’s not like you’re born with it and either you have it or you don’t. Confidence is contagious. The more social capital there is in the community, the more status and credibility you can acquire as a newcomer, and the more you’ll want to bestow it on other people when it’s their turn. That’s the special feeling you get in Silicon Valley: it’s a place where social capital has compounded, uninterrupted, year after year, summer batch after winter batch. 

After enough compounding, a paradox emerges: as people join the group who are all similar, but slightly different, the group accumulates more new ideas, and yet at the same time becomes increasingly self-similar. The tech scene becomes this growing, shifting mass of peers, all similar enough to one other that they reinforce and validate each others choices, and similar enough that everyone feels overwhelming pressure to perform: competition is everywhere. 

The renewable energy source at the core of Silicon Valley, which drives everyone to work hard, comes from this tension: “I love you for being just like me, because it validates me. And I hate you for being just like me, because it makes us rivals.” The more you’ve bought into the group and benefited from its social capital, the more confidence you’ll feel for what you’re doing, but also the more pressure you’ll feel to not let your peers down. 

Over time, social capital and conventional capital tend to converge. There is a controversial but widely practiced maxim in Silicon Valley that the original founding team and first few employees should be as similar to one another as possible: first, because you’re so fragile at that stage, any unnecessary friction will derail you; second, because what you’re doing is hard, and you need that peer-group tension to push through the early days. 

These early founding and hiring decisions, where social capital matters more than anywhere else, make their lasting imprint through stock options. The wealth generated by a successful startup, which accrues disproportionately to its early members as opposed to its later ones, explicitly trickles down along social lines. 

Social capital is antifragile: it’s either chaotic and growing, or orderly and shrinking

One of the big themes of War and Peace (which is the best book on social capital I’ve ever read, by a mile) is a phenomenon I don’t think there’s a name for, so I’m going to give it one: “Social Fog of War”. 

Social Fog of War is a counterintuitive concept: in order for status- and social capital- driven social systems to work optimally, they must be opaque. You can have a sense for who’s at the top and who’s near the bottom; but the exact position and relative rank of anyone's social status in the community should never be precisely knowable. Social Fog of War means you should never actually know, at any given moment, who is above or below whom.

Why is this so important? You can understand it intuitively with a little thought experiment, courtesy of Venkatesh Rao’s famous seriesThe Gervais Principle. Imagine you’re in a group of ten people, and group membership is cool and desirable. You might have a sense of who’s the alpha of the group, who sets the tone for why the group is high-status. You might also have a sense of who’s at the bottom, and lucky to be there. But for everyone in the middle, their relative status is illegible: hard to say whether Alice is cooler than Bob, or whether they’re above or below average status. 

If everyone suddenly became aware each other’s relative status, it’d be a social disaster: the group would collapse. The people on the bottom half will be made aware of their inferiority: they'll feel self-conscious, like impostors. And the people in the top half will become aware of their superiority - they’ll feel pressure to break off from the group, which is obviously bringing them down. Ignorance was bliss.

The illegibility and opacity of intra-group status was doing something really important - it created space where everyone could belong. The light of day poisons the magic. It’s a delightful paradox: a group that exists to confer social status will fall apart the minute that relative status within the group is made explicit. There’s real social value in the ambiguity: the more there is, the more people can plausibly join, before it fractures into subgroups. 

Silicon Valley is full of this sort of useful ambiguity. Things change so quickly, and status can get established and reassigned so unexpectedly, that Social Fog of War is thicker than normal. The big status-establishing moves, like building a unicorn or landing VC carry, take a long time - there’s a lag between what you’re doing and when it pays off, and all the while, your status will be indeterminate. 

This embrace of ambiguity is best expressed in the tool that founders use to raise their first round: the convertible note. Part of the appeal of convertible notes is that, unlike a priced round, you only have to agree to a valuation cap. It lets your startup's implied value sit comfortably and illegibly in a fuzzy range, rather than explicitly "higher than this comparable, but lower than that comparable."

It works the other way, too. When the pref stack wipes out all the common in an acquisition, a lot of employees keep the halo of having worked for a company that exited for 500 million dollars. There are a lot of people walking around San Francisco right now whose peers believe they’re a lot richer than they really are. If the curtain suddenly got pulled back on a lot of these non-fortunes, it’d be a big problem! Social fog of war keeps things opaque, for the collective benefit. 

San Haribhakti wrote a thoughtful blog post last year that pointed out something else: the brand name credentials in Silicon Valley rotate more quickly than they do elsewhere. On the east coast, it takes a decade for the default high-status credential to shift from working at an investment bank to working in management consulting to working for a fund. In SF, credential rotation happens much faster - every 2 years or so, instead of every 10. At face value, this is useful because it helps rotate out defaults at a healthier clip. But it’s helpful from a social fog of war perspective too. It’s useful that no one knows whose stock will rise next year.

This is a really good thing! It’s a lot harder to segregate people according to their credentials when the credentials themselves are constantly in flux, delayed by years, or otherwise uncertain. And when status is indeterminate, there’s more room for you to belong. Social Fog of War allows social capital and “in-group status” to scale to larger numbers of people. Silicon Valley is a place where status is a giant mystery box, and precisely because of that, it’s a place where social capital is available to the community in larger and more powerful quantities than elsewhere. 

I don’t want to go full Taleb on this, but his concept of Antifragility is really applicable here. Social capital is antifragile: it thrives under conditions of disorder, and it suffers at rest. (This is a big lesson in War and Peace, by the way.) If it’s growing happily and chaotically, a group can continually accommodate new members without diluting the social capital of the group, so long as opacity is maintained. More disorder - in the form of rotating credentials, status illegibility, and a continual influx of new people - makes for more social capital, more collective confidence, and more communal benefits for those who share it. The thicker the Social Fog of War, the longer social capital will be able to compound uninterrupted, before splinter groups start breaking off. 

But when status becomes more codified and explicit, then the social capital of the entire group gets threatened. Clarity and order tilt the game theory away from the communal group and towards less productive posturing and gatekeeping. This is why so many startup incubator programs, mentorship programs, and support networks fail so abysmally. The formal roles, titles and milestones that they impose, even if individually sensible, break the illegibility and inclusion.

The Golden Rule of Silicon Valley

You’ve heard me repeat this over and over, but I’m not going to stop: Silicon Valley works the way it does, as successfully as it does, because it has a rich social contract that governs everyone’s behaviour. Without that social contract, Silicon Valley tech becomes just another industry, or just another bubble. 

One of the most important parts of the Silicon Valley social contract is the code of conduct around how you interact with people above or below your status level. There’s a kind of “Golden Rule” that’s in place if you participate in tech: “Treat others as if they might be the next great founder.” Status illegibility is a virtue. 

This is where I really agree with what Michael Seibel was saying the other month (which prompted the angel investing and social status post) - the Bay Area is different because many more people have experienced upside regret. Hang around for enough time in the Bay Area, and at some point you will meet someone - although you won’t know it at the time - who goes on to do something wildly successful. If you brush them off, it’ll come back to haunt you. This will really make you pause, every time you meet with someone new for the first time, because this new person might be a special founder too. Since there’s a chance they might already be on a status rocket ship, you’d better treat them with that possibility in mind. 

One overarching theme I’ve noticed over the past year or two is that explicit, codified status is coming to Silicon Valley. It’s not barging in and making a big fuss; it’s creeping in quietly. And it makes me a bit worried. 

One way that explicit status is showing up these days is in the incessant virtue signalling, which used to be a harmless distraction but feels like something more than that now. It’s like members of the in-group, conscious that it’s getting crowded in here, feel the need to impose a bit of a tax, or a bit of a purity test, to see who exactly is “virtuous enough” to be really considered in the in group. Oh, you did 6 angel investments this year? That’ll score you some points. Resting heart rate below 50? Wrote some blog posts that hit all the right notes? Great. You can stay in. So long as you keep up the effort. Oh, you can’t make it 3x per week to the boxing gym? Sorry, no room for you in our group. 

Another trend that’s a lot more explicit is the supposed rise in private group chats, where people say what they “really think”. Listen, I’m in some of these chats, and I promise you, they are not a new invention. They’re just exclusion, gossip, and pseudo-intellectual circle jerking. They are the opposite of punk. But they convey something worrisome, which is the idea that if you’re not in these invite-only chats, then you’re missing out on the real scene. (Sometimes I feel like the main point of these group chats is being able to announce, on Twitter, that you’re participating in them.) There’s nothing wrong with private conversations, but escalating social pressure to be “in” these conversations is another story. 

Another trend that’s better intentioned but still suspicious to me is the increasing interest in “curation”, especially for people, that’s propping up everywhere in response to, “There are so many people in tech now and so many ideas; how can we make sure the best ideas and the best people can get discovered?” That’s a good goal, and to the extent that it actually promotes talented people who otherwise wouldn’t get recognized, then that’s great. But the other side of curation is exclusion, and the common basis for both of them is legibility: clearing out the fog, and shining the light of day on what’s out there. I can see why you might want this, but be careful what you wish for. 

That being said, there’s also plenty of evidence that the state of social capital in Silicon Valley is stronger than ever. The recent Front Series C led by a bunch of individual enterprise software founders, for example, is just absolutely awesome. What a triumph of social capital in the ecosystem that individual people are willing to write cheques like this! 

Expect to see a lot more of this, by the way. Startup founders and employees who are sitting on huge social capital reserves and paper stock option gains now have more options to reinvest their wealth back into the community immediately. People are figuring out that swapping their non-liquid equity for other founders’ non-liquid equity is a doubly good deal: it lets them diversify, and it multiplies their social capital with every reinvestment. 

If this plays out the way it could, it could compound into yet another massive advantage for the Bay Area over other startup ecosystems, simply because you need a critical mass of people and social capital in one geographical location for it to work. The 20s will see San Francisco face down some really big problems, and we’ll see if the city makes it out better or worse. But the wealth of social capital they’ve compounded will remain an undeniable asset to the tech community for a long time. 

Permalink to this post is here: Social Capital in Silicon Valley |

Clay Christensen passed away on Thursday, leaving behind a vast legacy in the management world, in tech, and (perhaps some of you may not know) in the LDS church. I will write more about him next week, and how The Innovator’s Dilemma has been one of the most important books to influence my thinking - even if I’ve grown critical of it recently.

Stuff I’m reading this week:

Underutilized fixed assets | Kevin Kwok

“The clock is ticking”: inside the worst US maritime disaster in decades | William Langewiesche, Vanity Fair

Things I’m thinking about in healthcarePart 1 | Part 2Part 3 | Nikhil Krishnan

Guidance on the application of securities legislation to entities facilitating the transfer of crypto assets | Canadian Securities Administrators *An interesting development from up in Canada: Ontario is thinking about codifying “not your keys, not your coins” into securities law. Under this new proposal, crypto IOUs (e.g. your Coinbase balance) will be classified as derivatives, which makes some sense to me! If you have a 1 BTC balance on an exchange, that’s an IOU whose value derives from one BTC somewhere: unless they’re rigorously holding your private keys in custody for you, then they’ve sold you something that might be worth one bitcoin, but isn’t a bitcoin. I don’t hate this ruling! It draws a line between people who hold their own keys on a cold wallet, who have explicitly chosen a DIY path, versus people who want a custodian to just show them a number on an account balance, and who probably should, if you ask me, be subject to all kinds of onerous regulations meant to protect consumers. Anyway, keep an eye out for this to develop. 

What we’re building: Lightning Development Kit | Square Crypto

FTI report into the Jeff Bezos phone hack | Anthony J Ferrante The technical report behind the story of the week. 

Mike Isaac on Grub Street Diet

And finally, I enjoyed this a lot:

Have a great week,


2019 Year in Review

Two Truths and a Take, Season 1 Finale

Welcome to the Season Finale for Two Truths and a Take, Season One. Not much new here, except a look back at all of the posts I wrote over this past year, and what have been some of the recurring themes. If you missed any of these issues (including a few I’ve starred as among my favourites) now’s the time to catch up! Enjoy the new year, and I’ll see you in a couple weeks.

“Startups aren’t economically sensible; they need all the help they can get":

The founding murder and the final boss | September 18

The social subsidy of angel investing | November 27

Stone soup, diversification, and the alchemy of venture | December 6

Abundance (and its consequences):

Cooking as a service | May 9 * This was one of my favourite posts of the year, and I hope you enjoyed it too. Food is a great bellwether for what’s going on in our lives, and the ongoing reinvention of food production, preparation and consumption can show us a lot about how our world is changing around us.

Would you accept cheaper rent in exchange for an Amazon purchasing quota? | June 12

Netflix, positional scarcity & the Red Queen’s Race | September 25

Everything is amazing, but nothing is ours | October 26

What people are like:

Secrets about people: a short and dangerous introduction to René Girard | April 28

The Audio Revolution | October 17 *I spent more time working on this post than any other one, and I hope you read it - including some actionable advice at the end that I am following myself, and am happier for it.

Internet crowds and personal space | November 15

Theory posts:

Positional scarcity | September 7

Disruption theory is real, but wrong | October 3

Bitcoin posts:

Crowds, power and Bitcoin | May 13

Facebook’s crypto strawman | June 19

All the other kids with their pumped up BTCs | June 26

The trillion dollar lawsuit | November 7 *The post that made more people mad than any other this year. Is this story a conspiracy theory? Well, I mean, sure it’s a conspiracy theory. But it’s a conspiracy theory I think is kind of true! I’m sure that I, and everyone else, have elements of this story wrong. I don’t think we’ll ever really know the real truth about what happened. But, really, who cares if it’s true - it’s true now.

Transportation and housing:

What happens if building more housing doesn’t work? | May 22

Why I don’t love Light Rail Transit | September 12  *This post was a real odd one out, in that it didn’t fit with any other themes and is really about a total side interest of mine that has little to do with the theme of this newsletter. But it’s an interesting problem, and one that affects a lot of people.

The car bundle | November 26


Billy Joel, American Kayfabe Master | May 2

Google Chrome, the perfect antitrust villain? | May 30

A midsummer night’s term sheet | July 14 *This was obviously fun to write, and I think you’ll enjoy reading it if you haven’t already.

The players are the artists; the game is the venue | August 10

OuiWork? The quick case for WeWork as an actually disruptive business | August 16

Five writing tips | October 5

Ten predictions for the 2020s | December 17


An interview with Jonathan Hsu of Tribe Capital | July 14

An interview with Zachary Sun of Tierra Biosciences | August 2

An interview with Casey Newton of The Verge | August 2

An interview with Brent Beshore of | October 10

An interview with Jamie Catherwood of OSAM & Investor Amnesia | November 7

And finally, here are some reading links for your Sunday:

Only yesterday: a retrospective of the tech decade | Saku Panditharatne

Hunting for new drugs with AI: an overview | David H Freedman, Nature

China flight systems jammed by pig farm’s African swine fever defences | Mandy Zuo, SCMP

Shopify: a StarCraft inspired business strategy | NonGAAP Mike 

The 2020 FinTwit Long/Short Stock Picking Contest

Seed investors are favouring enterprise startups, and other conclusions from YC Data | Eric Feng

Happy new year, and see you in January!


Ten Predictions for the 2020s: Part Two

Two Truths and a Take, Season 1 Episode 37

Hello everyone! Welcome to our final regular issue of Season One of the newsletter. One more year-in-review issue will hit your inboxes in a couple minutes, and then after that, Two Truths and a Take will go on a break for a couple weeks. We’ll be back with Season Two at the end of January.

As promised, please enjoy five more predictions for the 2020s. You can find a link to the first five here; they were:

  1. Enterprise software in the 2020s will replay Softbank’s Capital-as-a-Moat disaster of the late 2010s. 

  2. There will be no major form-factor that supersedes the smartphone. The phone is it. 

  3. A tale of two cities: the looming feud between the SF and NYC tech scenes 

  4. At some point in the 2020s, the following headline will get printed: “Crypto Finds its Killer App: Guns”

  5. Higher ed: undergrad will stay the same, but grad school will get blown up

Here are 6-10. Enjoy!

#6: There will be a major speculative bubble in biotech companies. 

We’re going to have another bubble. This one will be less like Crypto 2017 and more like Dot Com 1999: it’ll be in the public markets, with retail mom and pop investors, and covered conventionally (and enthusiastically) in the media. And it’s gonna be in biotech. 

It’ll have the three ingredients you need for a genuine bubble:

First: “I’ve seen the future and it’s incredible, we have to get in now even though we don’t understand it.” Biotech is really an ideal sector for mass speculation. It impacts everybody, and it’s inside everyone and everything: the TAM of “biology” is infinite. It’s incredibly complex, so it’s easy for novices to grasp onto a story and its importance without understanding the reality of it. And it’s full of high-leverage potential: it’s totally plausible that biological breakthroughs in health, manufacturing, fuel, etc could generate tens or even hundreds of billions of dollars of value. 

Second: A critical mass of retail investors who are hooked on high returns, as the current bull run eventually runs out of gas (although that may not be for several years!). We’ll have the conditions where a large enough number of regular people, especially Gen Xers who did well in the past 10 years and who are moving into retirement, now have slush money to invest (and the time and boredom to get hooked on it). 

Third: A new kind of financial innovation that becomes the instrument of speculation. These aren’t a necessary component of bubbles, but they sure help. In this case, I bet there’s going to be some new clever financial product that bundles and securitizes the highly speculative IP of biotech companies, in a way that legally lets retail investors buy them through an ETF or something. You can imagine the rationale: “Imagine if regular people could’ve owned a basket of the fastest growing tech unicorns last decade; well, this is that, but for all of these high-potential biology breakthroughs. Make sure you don’t miss out on $BIOVX!”

The bubble may not be in therapeutics; or at least if it is, it won’t be around single-cure narratives like “We may have a pill for Alzheimer’s”. It’s going to be more like, “We’ve made a general breakthrough in biology that has changed the game for everything.” I think the best contender is some breakthrough around energy conversion and biochemical production, where there’s a plausible thesis for “everything that used to be off limits is now economically plausible.” 

So that’s how you’ll have companies promising these crazy business plans and future visions, like in the early days of the internet, that were based on something genuinely real, but by no means were ready for prime time. So you’ll see speculation on all sorts of production - synthetic food, fuel, chemicals, building materials, who knows what - that runs completely out of the real of common sense, but has that critical amount of FOMO and imagination to set off a real bubble. 

#7: The only tech giant I’d be seriously worried about is Google. 

Apple and Microsoft will be fine. Amazon continues to be a cash flow monster, and has been able to put their cash to work more impressively than any other business on earth. Despite what you see on Twitter, Amazon remains overwhelmingly popular and loved by both Democrat and Republican voters, and well over half of American households are Prime members: any kind of government intervention or antitrust pursuit would prompt a consumer revolt like we’ve never seen before. And even if they tried, Amazon could break themselves up first, and be back at work by Monday. 

Facebook is going through a phase of enormous scrutiny, and I really do understand where bearish sentiment around that business comes from. But all the while, Instagram became the most important social media platform in America, and more importantly, WhatsApp has cemented its dominance in much of the rest of the world. Facebook’s ads business remains elite, and they're getting serious about Marketplace and other forms of commerce. (Who knows what’ll happen with Libra, but mock it at your peril.) At the end of the day, Facebook is what the people want, and if you dig into it, they’re what the government wants too. 

That leaves us with Google. In one sense, Google has the strongest position of the five. They won the internet. Like, they really won- not just their dominant position in search advertising and consumer services, but the fact that anyone who wants to build a new piece of the internet has to ask Google’s permission first, or else find out that what they built won’t fit. As I wrote a few months ago in Google Chrome, the perfect antitrust villain, they've mastered the art of Strategic Openness. 

I’ll admit: the inner chambers of Google are largely a mystery to me. But I’ve heard enough conversations in private, from people who know, that Google could be in serious antitrust trouble - or maybe even more serious trouble, with other branches of government. They engage in by far the most actually anticompetitive behaviour of any tech giant. Their size, moat, and voting structure makes them effectively immune to shareholder activism of any kind. They have the most problematic relationship with foreign powers out of any tech giant. Their employees are either protesting or bored. Google has the most at stake to lose. 

Act One of Google was building the world’s greatest search engine, with the world’s greatest business model. Act Two of Google was colonizing the infrastructure of the internet, like a technological British Empire, in order to protect and fuel its crown jewel capital. The 2020s will be Act Three. As the decade begins, Google may well face the biggest real opponent they've ever fought - the United States - at a moment where its internal morale and purpose are crumbling and adrift. They print money, but if you ask me, they’re at risk. 

#8: There will be a significant moral panic around microplastics - not due to their environmental effects, but for their health effects. 

At some point in the 2020s we’re going to have another Leaded Gasoline crisis. We’re going to learn that some sort of chemical or microscopic thing that’s inside everything, all around us, actually has some horrible health effect we never knew about before. My pick for what it’ll be? Microplastics - particularly the microplastics inside clothing, like athleisure. 

The funny thing is, we already know that all of the fancy microplastic stitching and fabric material we put inside athleisure are terrible for the environment. That stretchy, comfy feeling comes at at an affordable price point, but a terrible environmental one - we already know this. But no one cares. We’ll start caring, though, when it turns out that they’re hazardous to us in some way we never understood before. 

I have no idea what kind of health hazard it’ll pose, but it’ll be one that takes a long time to develop, and where childhood exposure gets linked in a study to some awful condition that happens to you later. It could be that all these cheap, fast-fashion clothes are secretly off-gassing some volatile organic compound that we breathe in and gives us cancer later, or maybe it could be something like physical micro plastic particles getting on our hands, and then into our stomach when we eat, and then it gets linked to some digestive disorder or intolerance, or maybe it kills our gut bacteria, or I dunno. 

But by the time we find out, we’ll have been wearing these clothes for 10+ years, and it’ll be a major crisis. In the end, it may well be less of an actual public health risk than we thought, and (hopefully) a lot less than leaded paint and gasoline. It could be something entirely different, but I bet you there’ll be some major crisis around our collective, silent poisoning by something that creates a real panic some time in the next ten years. 

#9: The 2024 and 2028 elections will be overwhelmed by “Campaign Hacking”: not by foreign governments or enemies, but by opportunistic hustlers and entrepreneurs. 

American elections are unique in that go on for so long (more than a year! That is just absolutely incomprehensible to people in other countries) that they create a special kind of media environment. There cannot be a single story arc, or even a reasonable number of story arcs, that fills such a huge void for content. 

If you want attention, there’s an opportunity here. If you can conjure up a campaign story, the media sort of has to cover you in a way that’s not otherwise the case. They need election stories, and they can’t miss out on something that becomes one. Back when the news media was a more organized and gated industry, there was a certain degree of “seriousness” you had to hit in order to meet this requirement. But today’s that’s obviously no longer the case: engagement on its own, anywhere, is all you really need to kick the cycle off. 

I got to thinking of this the other day when news dropped that Donald Glover was endorsing Andrew Yang for president through … an LA pop-up store collaboration? Like, what is this exactly? It feels like a hack of some kind. It’s clever, for one thing; it got everybody talking about it. And when you think about it, why shouldn’t you leverage a presidential endorsement to sell merch and extend your own brand? What else could you do?

To a point, this is fine. Think of it as the “DJ Khaled Campaign Technique”: if you figure out how to boost politicians and yourself by standing next to them and toasting another one in a way that’s actually useful, well, great. But when we start to think of it as a hack, all of the variants on it you can try, it’s gonna get wild. 

One hack might go something like: 

1) Make a big splash of some kind, either with or without a presidential candidate’s support, in a way that associates you with the candidate and makes it “campaign newsworthy.” 

2) Congratulations, you’re now a character in the campaign story. Use it! Go say something controversial: “Post Malone, who dropped a new streaming track in support of the John Delaney campaign last week, has now come out in favour of legalized dogfighting.” (Instagram Story: 2 million likes.)

3) Look at that, you just permanently saddled the campaign with this association, and have a permanent invitation to reopen discourse whenever you want: next streaming track, add a bunch of lines about dogs and then bait the campaign to respond. (Next day’s Washington Post A2: "Delaney Campaign dogged by controversial endorsement”. Streaming track: chart topping.) 

4) Repeat as often as you like. The fact that you’re a campaign story now makes you automatically newsworthy. If you do it right, the storyline can be compelling and entertaining enough that it can temporarily overwhelm any of the actual serious campaign stories going on. 

The old days when there were only a few serious news networks that had serious editorial judgement are gone: they have to compete with whatever’s going viral now. Meanwhile, there’s a new rising class of viral celebrity that doesn’t have traditional brands, managers, or handlers to keep them in line from saying controversial statements. Their power comes for their audience alone, so they can say whatever they want, in a way that wasn’t true for celebrities before. 

We really haven’t yet seen the real extent of what the internet will do to political campaigning. I’m betting that the next creative wave isn’t going to come from the campaigners, but instead from opportunistic hustlers on the outside who figure out how to hijack them. 

Campaign media has always been, you know, the media - there’s a certain slipperiness and grift associated with capturing and holding ratings. But I think it’s likely, given the direction that things are going, that the next couple elections are going to descend further into explicit engagement hacking. At the root of it, really, is a reflexivity hack: the hard and fast rule “if it’s a campaign story, then it’s automatically news” is just designed to be abused. Hustlers and entrepreneurs, even more than politicians themselves, will figure out the formulas for how to force the media to cover you as a campaign story, almost certainly to the detriment of the primary process itself. 

#10: A real startup scam is going to seriously spook the Silicon Valley community.

I’ll leave you with an oddly specific prediction, about one of my perennially favourite topics. 

The prediction is this: some time in the next few years, there’s going to be a hot deal going around the VC Associate group chats and the angel backchannels. It could be a consumer company with monster engagement numbers in another country. Or maybe it’ll be a deep tech venture, founded by a couple of genius technical founders. Either way, it’ll be a deal you just have to get into. 

The founders will be people in the community that everybody know. They’ll be thoughtful and responsive, pedigreed and respected in the scene, and will manage their fundraising tour like pros. They will open up the round to a few junior investors and angels, only to inform them the next day, we’re so sorry - we’re oversubscribed, and there isn’t room for you anymore. Devastating. But then! At the last minute: “We found room for you. Are you able to wire us the money tonight? If you can, we’ll let you in on this, but we’ve gotta close now.” 

A few days later, we find out. The founders have absconded without a trace, with the funds that were wired in early. The engagement numbers were gamed: they looked real, but on further inspection were built out of mobile engagement farming. Or perhaps that technical expertise and potential was real; it’s just vanished, off with the founders. Whatever happens, there’ll be no doubt about it: this was a scam. 

My prediction is that a high profile fundraising scam will happen in Silicon Valley. I’m not talking about a Theranos-style scam (“They said the blood tests worked even though they didn’t”) or a WeWork-style “scam” (“They painted a rosier vision and financial picture than reflected reality). I mean like a real scam: like founders raise a super hyped round of funding, then disappear with the money. And the repercussions from that scam will leave a surprisingly big chill that lingers for a while.

Now why will this matter so much? In terms of absolute dollars, a few million disappearing isn’t all that serious a threat. The real damage and the real threat here isn't financial, it’s social and reputational. 

I’ve long believed that the real mystery of Silicon Valley isn’t the outsider question, “How is Silicon Valley so wild and crazy”, but actually the insider question: “How is Silicon Valley so stable?” It’s built on speculative finance, it’s full of experiments whose outcome you can’t know for years, and it has to move fast enough and fluidly enough that (at early stage anyway) it effectively works on the honour system despite the FOMO environment. It’s so interesting how, in this environment, there aren’t any scams like this. 

I’ve long believed that, yes, Silicon Valley is a bubble - but it’s a bubble that has evolved a strong social contract. That social contract is critical to the whole place working, and not flying apart at 100 miles an hour into scams and grifts, like crypto has (that’s what a real bubble looks like). Silicon Valley has socially engineered something special - the upside of a bubble, without the ugly side. 

Silicon Valley works because it has a code of conduct. Freud would say it’s evolved a superego: a collective social pressure enforcing a certain set of norms about how you behave - when it’s okay to get away with something, and when it isn’t. There are rules.

It’ll be interesting to see what happens when this superego gets challenged.  One of the important components of Silicon Valley working well is early stage investors willing to write checks without really having to worry about the downside - the worst you can lose is 1x your money. Financially, that’ll be true, scam or not. But reputationally? If a high profile scam becomes the talk of the town, there’s nothing scarier than everyone else knowing that you fell for it

The older, seasoned VCs won’t be directly bothered by this at all. They won’t fall for it in the first place, and they’ll be experienced enough to stay the course. But for a large crowd of younger investors, both junior partners at funds and especially the horde of younger angel investors who provide that critical early funding lift to the tech community, it’ll be really spooky. They’re going to experience a new kind of hesitation, and feel a new kind of friction to pulling the trigger on a deal, that can be lethal for seed investing. 

If a critical mass of early investors in Silicon Valley all of a sudden get way more nervous about writing checks, you could see a real snap freeze in seed deals. One high profile scam won’t break it, but it’ll shake the innocence away a little bit. 

Permalink to this post is here: Ten Predictions for the 2020s |

That’s all folks! Have a happy new year, and see you in January with Season Two.


Ten Predictions for the 2020s: Part One

Two Truths and a Take, Season 1 Episode 36

For our last two newsletter issues of the year: ten predictions for the 2020s. First five out today, six through ten out next week. Enjoy, and please email me with takes of your own: if I gather enough good ones, I’ll publish a bonus episode with reader takes.

#1: Enterprise software in the 2020s will replay Softbank’s Capital-as-a-Moat disaster of the late 2010s. 

Here’s a thesis I’ve been chewing on for a little while: The 2020s might become a real slog of a Red Queen’s Race that could mess up the model for funding and selling enterprise software. There are two problematic trends here; each of which on their own would be fine but the combination is dangerous. 

The first is increasing vertical specialization. The previous/current generation of enterprise software is pretty good for a broad swath of things, so in order to be meaningfully better, the next generation of SaaS businesses will probably have no choice but to go industry vertical-specific. Expect a lot of “Linkedin for X, Bank for X, ERP System for X” type pitches for a while, where the core value proposition is “Software that’s actually built for your industry as opposed to being one-size-fits-all.

The second trend is AI as the next big technological wave for business services. Martin Casado of a16z and Gavin Baker had good tweetstorms on how AI will change the business model and funding implications for enterprise software the other day. The issue is that AI is really expensive. It’s more compute intensive, more data-intensive, more resource-intensive in general. The rewards will be immense, but AI businesses will face heavy fixed and variable costs. So there’ll be a huge advantage to being the market leader; more so than in the previous generation of SaaS businesses. 

These “structurally lower enterprise software margins as the world moves to AI”, as Gavin put it, take us towards a more winner-take-all dynamic in enterprise software VC. The scale advantages in AI businesses may simply become a new frontier for capital-as-a-moat funding strategies, and there’s a real danger that enterprise software could turn into Softbank 2019 v2.0. That’s life if you’re going horizontal, but it’s dangerous if you’re going vertical.

Stuffing more and more capital into industry-specific, vertical businesses, i.e. the foie-gras funding model, could be a disaster. It’ll force early stage VCs to demand more deal structure, as they preemptively defend against mega-rounds down the road. It’ll force products to de-specialize, in order to preemptively accommodate the massive TAM that their funding requires. And it’s all but a guarantee that the winner in each vertical will be some overcapitalized monster. This stinks, honestly. In a Red Queen’s Race, no one wins. 

#2: There will be no major form-factor that supersedes the smartphone. The phone is it. 

If you went forward in time to 2029, you’d be surprised that the phones are more or less the same. The 2×5 inch glowing glass rectangle will remain more or less similar as our common interface with the internet and with the world. Nicer in some ways, and they’ll have some genuinely cool AR features, but other than that? We figured out the phone. It’s gonna stay put now. 

What’s inside the phone will be radically different, for sure – the “re-nationalization” of technology into Western and Eastern tech stacks will place some really interesting pressures on the hardware under the hood. It’ll be especially interesting to see what happens to the Android ecosystem as these pressures intensify.

But the average user won’t notice much of a physical or UX difference between today’s physical iPhone X and 2029’s iPhone XXII LX Turbo Limited or whatever it’s called. I think AirPods will be an incredible accessory for Apple over the next decade, and they’ll sell a ton of em, but I don’t really buy the “they’re the new computing platform” story. Same with the watch. I’m pretty bearish on headsets, glasses, or anything that obscures or layers over your vision any time soon.

The place where phones will evolve the most in the 2020s will continue to be the camera. Apple will probably acquire some fancy DSLR manufacturer and have a big event about it. Meanwhile, machine vision will continue to improve, and the scope of things we’ll able to do with it will accelerate at an astounding rate. There’ll be some creative use of the non-visual spectrum that unlock some cool features. In not too long, there will be an iPhone app called “find my keys” where you can wave the phone around the room and it’ll lead you to your keys even if they’re buried under the couch. 

Under the hood, I expect that well over half of the computing horsepower in a smartphone will be dedicated to vision within a few years. AR will arrive in a hundred different little ways, including some unexpected monster hits in the vein of Pokemon Go. But you know what’ll be surprisingly the same in 10 years? The standard way we’ll interact with these games and with our world will be familiar: through our phone screens, almost identically to today. 

#3: A tale of two cities: the looming feud between the SF and NYC tech scenes 

I hinted at this a couple months ago in The Founding Murder and the Final Boss, and the response was pretty telling: a bunch of SF people saying “What? There’s no rivalry. That’s silly.” While the NYC people, as if through gritted teeth, more or less responded “mmmmm”. 

For a long time, the Bay Area has been peerless as a destination for building, funding and scaling startups. Nowhere else compares. Nowhere else has the talent network. Nowhere else has the critical density of young angels and the social status subsidy it creates. Nowhere else has the ease, fluidity, and excessive credibility in the system that you need in order to build first and ask questions later. But that won’t be true forever. 

The New York City tech scene has gone through its ups and downs, but it’s finally starting to accumulate a critical mass of success. Real Deal exits like Datadog, Flatiron, Jet and Peloton are starting to occur regularly. The angel scene is strong, and the product community is great. Most importantly, NYC is such an incredible place to live – especially compared to San Francisco – and has so many other advantages as a financial and media capital that in the long run its advantages for acquiring and accommodating tech talent at scale are undeniable.

Up until this point, the relationship between the NYC and SF tech scenes has been friendly and productive. But that dynamic is changing: SF and NYC Tech used to be a fundamentally unequal relationship, and that kept it cordial. There was no rivalry because they weren’t peers. But now little brother is all grown up. As the relationship turns into a peer relationship, admiration is turning into resentment: slowly, for now, but inevitably. 

The inflection point, of course, was this:

The WeWork saga did a lot of damage to the NYC – SF Tech relationship. WeWork in its rise was a genuine startup miracle. Adam Neumann took every lesson to be learned on reflexivity, every conjuring trick that the Bay Area had figured out, and put on a master class with it. On the way up, SF made it one of their own: look at this great thing we, the tech community, built. 

And then what happens when it all fell apart? The Bay Area talking heads fall into lockstepimmediately, to deny that WeWork was a tech company, that it was symptomatic of anything systemic, or that it had anything to do with the reflexive conjuring formula that they had invented. San Francisco collectively scoffed, sorry to this man. This man is from New York. We don’t know him. 

In the next decade, watch for this rivalry to take shape. San Francisco’s pole position as the leader of the tech world will remain intact. But as the city increasingly turns into a developing country, with a gated class of tech power guarded by protection rackets and surrounded by an increasingly failed state, their loss will be NYC’s gain. 

Each city’s tech scene will come to resent the other’s more and more, and allegiances will be hard to shake: NYC will resent SF for its endless reservoir of technological and tech-cultural capital; SF will resent NYC for being a place people actually want to live. But most importantly, both tech scenes will come to resent each other for being more alike than different with each passing year. 

Watch this story. It’s going to be really fun to spectate. 

#4: At some point in the 2020s, the following headline will get printed: “Crypto Finds its Killer App: Guns”

Crypto is a dumpster fire right now. Narrative after narrative has fallen apart under external attack, or been memed to death through internal sabotage. The worst may be yet to come, if the Tether story lives up to even half of its potential. 

But Bitcoin is holding up. The price may not be, for the time being, but the core network is proving to be annoyingly resilient. The awful years are a much better test of crypto’s real potential than the good years are. It’s not going to go away, even if the current crypto scene largely does. 

The crypto scene we’ve come to know over the last few years has been a bit all over the place, but the theme in common to most of it has been “new finance” / “stack sats, get rich”. Over the next ten years, after our current hangover gets truly washed out, a new one is going to emerge that’s a lot stronger, a lot darker, and a lot more true to the original vision than many people would like to admit: crypto as a part of “Dissident Tech”.

Expect the crypto community to retrench and double down on a core value proposition: crypto as a tool for political and societal dissenters. This means people who don’t really care what the price of Bitcoin is; they actually care about it being uncensorable. That means people who are doing illegal things, it means people on the wrong side of governments, or it could simply mean freedom-oriented people. But the narrative will turn really sharply once the core value proposition embraced genuinely becomes “be un-censorable”, as opposed to “get rich”. 

Expect to see Bitcoin, and cryptocurrency generally, start to show up in a lot of thematically adjacent products, businesses and brands. Guns are going to be one of them. As more countries crack down on gun ownership, and as flashpoints like Hong Kong become internet-fluent conflicts, guns and crypto will get a lot closer together, as will efforts to crack down on both. 

#5: Higher ed: undergrad will stay the same, but grad school will get blown up

Two parts to this prediction: the first I don’t want to go too much into, but I think that the narrative that American higher education is going to collapse in a matter of years is just totally false. There are so many structural forces holding the system in place, and (for most middle or higher income families) so much professional and reputational risk associated with not going to college, that the undergraduate experience isn’t going anywhere. I’m happy that we’re having a conversation around alternatives, but don’t count on any dramatic change any time soon. 

Grad school, on the other hand, is a totally different story. I’m going to write a whole newsletter about this in the new year but for the time being, I think both “classes” of grad school – professional degrees and research degrees – are going to be disrupted pretty dramatically, and pretty soon.

Unlike a typical undergraduate education, the value of a professional graduate degree can be squarely articulated in terms of career mobility. Many of these degrees are where ISAs will really shine as a business model. But who will run them? Perhaps organizations cut in the same vein as Lambda school, but more likely it’ll be employers themselves. 

It’s already standard practice in some white collar businesses for your employer to pay for you to go get an MBA. Expect a lot more of it this coming decade, as tuition sticker prices continue to soar, and larger employers can more effectively “negotiate” on behalf of students, like a health insurer would. It’s only a matter of time before these large employers say enough is enough, we can do this ourselves, and do a better job at it, too.

There’s a really great business to be started here – be the white label platform that lets large employers become professional educators, both for their own cohorts of junior people and also anyone else who makes admissions grade. Professional graduate degrees feel like a good target here because their output ought to be both the most measurable and the highest leverage.

Research graduate degrees, on the other hand, are under less of a direct threat but are arguably in bigger trouble. PhD students pursuing academic research are feeling a more desperate squeeze every year, as they’re smushed through a funnel that keeps them in an overworked, underpaid apprenticeship for the most productive years of their lives. But there’s no way around: the point of a PhD is to establish yourself as a brand in your field, and the only way for a young scientist to do that is through their supervisor’s lab, and through their university department. The grad school model is incredibly leveraged on this constraint. 

But you know what’s blown the whole thing open? Twitter. Twitter is genuinely revolutionizing graduate research, in a way that’s eye-opening for graduate students and quite threatening to their supervisors. Twitter gives students a path to establishing their own brands, both for the work they’re doing but also for their critical thought, their participation in the scientific community, and their individual strengths and personalities. 

This is really exciting for grad students who know how to use Twitter and the rest of the internet as a tool to build their academic careers. But it’s really dangerous for the model, which is leveraged on the fact that students do not have access to such tools, and can only acquire a brand and access through their supervisors.  I’ll write more about this in the new year, but the consequences could be bizarre, and pretty significant for the way that scientific research gets done.

Come back next week for predictions 6 through 10. 

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