Trampled by Unicorns

CHAPTER 6Venture Capital and the Holy Grail of Scale

If it wasn't for venture capital (VC), Silicon Valley and the tech industry at large—at least as we know it today—wouldn't exist. VC is indispensable to innovation, the lifeblood coursing through the ecosystem's veins. Yet simultaneously it has been one of the key factors in Big Tech's nosedive into an ethical quagmire.

VC has been especially critical to the fortunes of tech's herd of unicorns in the Valley and increasingly around the world. As described in 2009 by authors Michel Ferrary and Mark Granovetter in their paper “The Role of Venture Capital Firms in Silicon Valley's Complex Innovation Network,”¹ VC investors bring five elements to the table, and only the first is usually understood. They are financing, selection, signaling, collective learning, and embedding. Financing, of course, refers to venture capitalists' role in funding startups. Without access to early-stage finance there would probably be no Big Tech: Google, Apple, Facebook, and Amazon all took on VC investment. (Not to mention Twitter, Airbnb, WhatsApp, Pinterest, Uber, Deliveroo, WeWork, and just about any other post-2010 internet-enabled startup you care to name.)

Venture investing is a high-stakes, high-risk/high-reward endeavor: as many as three in every four startups fail to return money to their backers, according to a study by Harvard Business School.² That's why “selection” is so important. As the authors note: “Venture capitalists can often ...