Social Capital in Silicon Valley
Alex Danco, 2020-01-23
Facts and Opinions
SV, despite its shortcomings, has an unbeatable advantage: social capital.
It’s a form of wealth, needs to be cultivated over years (decades?).
It’s a privilege, not a given.
Doled out carefully, not given away just because.
Required to open doors, build things and being taken seriously. Get introductions, advice and seed funding.
Prohibitively hard for the uninitiated to get into SV, once you’re accepted – doors are wide open.
The magic password to get in is 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 almost like you”.
Pattern matching: walk like an SV duck and quack like an SV duck —> you get a shot at being interesting and heard.
If you fit ALL the boxes, your novelty wears off. For a newcomer the “Goldilocks novelty” when you’re still interesting needs to be used immediately.
How to become interesting:
Be a founder [MK: ahem, this is too broad of a statement]
Growth [even if you’re not the founder]
Charisma, gossip and Twitter fame :)
Buying your way as an angel investor.
Still, signalling is very important: patterns, situations, flavours of the week.
Social capital != positional power (CEO, VC, etc.)
It’s a “potential value” first and foremost, and it opens doors.
So it’s the #1 thing to accumulate before successful fundraising and deal making.
In SV social capital is contagious (like confidence): you give and receive.
Group dynamics: groups of similar people with slight diversity have pressure to perform, in-group (not always healthy) competition. On the other hand, loyalty to the group is still paramount.
Social capital also has huge impact on the amount of stock options received in the beginning of the company’s operations.
Fog of war: optimal social capital-driven systems are opaque, i.e. at any given point in time you don’t know the social status of someone relative to others.
It’s very important as revealing each other’s “score” will ruin the group: “inferior” people will leave the group out of shame; “superior” will leave the group that’s become a drag on their “contributions”.
Everyone could belong, but the longer people are not aware of their score, the larger the group becomes before falling apart into fractions-subgroups.
For most people the fog of war takes a very long time to dissipate, and their status is undeterminable during this process.
Convertible notes are a good example of coming up with a cap without benchmarks.
Company exits (with pref shares and liqprefs) make employees look way more sexy than they hope to be; most of the time they get way less than others think they have.
Credentials [aka a job section in a CV] in SV are rotated way more frequently than elsewhere, and it’s good because your company can become the next star.
While there’s uncertainty about sexiness of a company, there’s more room to belong. I.e. being in a group is possible for a larger number of people.
More disorder —> more social capital and more people can enjoy the opacity of their status.
Many incubators, mentorship programs and support networks fail because they try to bring order in the very place that needs magic.
Fun fact: swapping non-public/non-liquid equity in your company for someone else’s non-liquid equity is diversification, and it multiplies the social capital.
The Golden Rule of SV
SV is first and foremost built on the social contract that governs everyone’s behaviour.
Treat everyone (supposedly below your level) as the next great founder. [I.e. don’t step on the shoes attached to the ass you’ll have to kiss later]
Upside regret: SV is full of people who said no to something turning to be wildly successful. People are scared of it.
Trend: Virtue signalling is turning into a drag on groups, exposing people’s scores on many scales, and also killing the opacity.
Trend: FOMO [fear of missing out]: private chats / groups exclusion, gossip, pseudo-intellectual circle-jerking. If you’re not in – your FOMO indicator explodes.
Trend: curation of content and dialog. And people, of course, making it kind of cool for those who make the cut and a dead end for those who don’t.