My Amazon Review of Tom Nicholas' "VC: An American History"

An Ode to Risk Taking

Harvard Business School Professor Tom Nicholas adds some new insights into the history of venture capital in general and the role of the Silicon Valley venture capitalists in particular. The story has been told many times before, but Nicholas adds some new insights. Especially interesting is his view that the 19^th Century whaling industry operated in a similar manner of venture capital today where specialized agents booked the captains and the ships and received funding from investors willing to take a chance for a big payoff. Just as today the agents were experts in their field and were very active in recruiting talent and what is most interesting the level and pattern of returns in 19^th Century whaling was very similar to that of the recent history of venture capital.

Nicholas also discusses the all-important role of government, first as a purchaser of high technology equipment and second in creating legal structure that enabled pension funds to invest in venture capital and allowing carried interest gains to have favorable tax treatment for the venture capital promoters. He also discusses the now forgotten role of government sponsored small business investment companies that both created an interest in venture capital and developed executives who would go on to bigger and better things.

He is quite good at describing the early roles of Georges Doriot’s American Research and Development who hit it out of the park with its $70,000 investment in Digital Equipment (later worth $350 million) and such Silicon Valley greats as Arthur Rock and Tom Perkins. He highlights the key mantra of the Silicon Valley venture capitalists as “people, technology and markets.”

Where he goes astray is that either some of his numerical examples of the gains achieved by the venture capitalists versus the market as whole is wither not clear or may even be wrong. He also shines on the huge investor losses taken by public investors as a result of the 1990’s bubble. The VC’s were hardly innocent in this process. Further he doesn’t really go much beyond 2000 to gives us a picture of where venture capital is today. To me it seems most VC’s are chasing asset-light software and although they talk a big game on green technology they are not really there. Why? Green technology especially carbon capture is extraordinarily capital intensive. Lastly Nicholas has to make his obligatory pitch for more gender diversity in the industry.

Simply put Nicholas has given us a good history, but it could have been better.

For the full amazon URL see: https://www.amazon.com/review/RH523PJHU6QL1/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Duff McDonald's "The Golden Passport: Harvard Business School, The Limits of Capitalism, and the Moral Failure of the MBA Elite"

Put the Blame on HBS

Duff McDonald has written a very long (672 pages in the print edition) minutia filled anti-American business and anti-Harvard Business School screed. For the most part he believes that American business can’t do almost anything right and he places the blame on the “West Point of Capitalism,” the Harvard Business School for practically everything that is wrong with America.

He doesn’t like the managerial capitalism of the 1950s that ran aground in the 1970s and the shareholder capitalism that began to evolve in the 1980s. What he would prefer is some broad version of “stakeholder” capitalism that protects the environment and combats income inequality, but my question is whether business is the vehicle to do that. My guess is that if business tried as it did minimally in the late 1960s he would use the leftist pejorative term “corporate liberalism.”

The villain of his piece is finance professor Michael Jensen who laid the intellectual foundations for shareholder capitalism in the late 1970s. Out of this flows leveraged buyouts, mass layoffs and the philosophy of short-termism with respect to the undo focus of corporate management on meeting quarterly earnings expectations. He however conveniently ignores such successful corporations as Amazon, Google and Berkshire-Hathaway who invested for the long run and mightily succeeded.

McDonald is highly critical of HBS’ case method of instruction which by its very nature lacks real theoretical underpinnings. That is true, but the case method is useful in organizing how to think about very real business problems. It also leads to superb teaching. He admits that pretty much every professor at HBS is a great teacher, a skill that is lacking at other business schools.

He does favorably mention Harvard professor General Georges Doroit who was an expert on logistics and went on to found the venture capital industry in the early 1950s with his American Research and Development. He also singles out for praise Arthur Rock who was one of the earliest venture capitalists in Silicon Valley.

In the interests of full disclosure I have an MBA, not from Harvard, and taught MBAs. As a professor I used discussion of formal finance theory with an occasional case study in corporate finance. Indeed in the most case intensive course I taught, I so inspired one student that many years later he endowed a teaching award in my name. As a result it is hard for me to get too worked up about McDonald’s criticism of the case method.

With McDonald continually in the attack mode his book makes for a very difficult read so I would recommend readers to find better things to do with their time.  

The full Amazon URL is:

https://www.amazon.com/review/R1H3VHOMZUQ6XK/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv