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A Summary of

Power in the Valley

Mario Gabriele
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The author likes to think about Rasputin (among other subjects)

Theories of Power

French and Raven define six sources of influence - Coercive power forces compliance - Reward power pays for compliance - Legitimate power rules by social norms (expectation of compliance) - Expert power rules through experience (expectation of knowledge) - Informational power rules through proprietary access - Referent power rules by character (power of personality)

Rasputin had referent power

An illiterate Siberian peasant conquered the Russian court with charisma - Charming St. Petersburg parlors with "strange manners" - Won over church officials even among rumors of orgies - Referent power can only be defeated in one way - how do you make someone less themselves? - With Rasputin, it was cyanide and three bullets - hopefully that doesn't happen in the Valley - Certain founders and leaders have had similar power - Steve Jobs, Bill Clinton, etc.

VC needs referent power

VC has expanded as an asset class, with more money for fewer startups - which has implications for the industry - There's an escalation of competition, money in early funds = power to the startup - Valuations are up and more "value-adds" are provided - but everyone has that now - VC never had coercive power, reward power is just more money, legitimate power is only for brand-name firms - Expert power has paid off - specialized firms hold experience or proprietary tools, but competition will erode these advantages - Informational advantages are also useful but erodable- first dibs is nice, but anyone with money can copy scouting tactics

Venture will turn to those with soft skills and empathy

  • VC Guide is an anonymous review site - has its problems, but can clearly rate investors
  • Praising the "approachable" and damning the "pompous"
  • Service is now everything - charm, content, salesmen
  • Could even lead to specialization in roles, with "pickers" directing frontman to a target
  • Capital is being commoditized, institutions lose appeals, expertise is common, and informational edges are copied - but real power lies with referent power
  • Persuading by personality, compelling like Rasputin, may be the edge It's not just understanding markets, it's understanding people
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