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.

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