Elon Musk said Tuesday at a Financial Times conference that if he does indeed purchase Twitter — Friday morning Musk tweeted that the deal was “temporarily on hold” — he will reinstate former President Donald Trump’s account. After the January 6, 2021, assault on the Capitol, Trump was permanently suspended by Twitter for using it to incite violence.
Musk added that under his ownership, if users say something “destructive to the world, then there should be perhaps a timeout, a temporary suspension, or that particular tweet should be made invisible. … I think if there are tweets that are wrong and bad, those should be either deleted or made invisible, and a suspension, a temporary suspension, is appropriate, but not a permanent ban.”
This standard, of course, is incredibly vague — everything and nothing could be deemed “destructive to the world” or “wrong and bad.” As Alex Stamos, the former chief security officer at Facebook, pointed out, Musk’s words suggest that he’s given no thought to why the question of content moderation on Twitter is so vexed:
Watching Elon try to openly recreate several decades of trust and safety work by tens of thousands of people from first principles is likely to give me a stroke. https://t.co/QurCunPkrR
The scary fact is that no one knows what to do about the dangerous chain reaction that can happen when Twitter collides with world leaders generally, and Trump specifically.
Given the fact that Trump could plausibly be elected president again in 2024, we have to hope that someone at Twitter will consider this, rather than, as Musk does now, just blithely advocate “free speech” with some ad hoc, unpredictable restrictions.
That’s particularly true because Mark Esper, Trump’s defense secretary toward the end of his term, has confirmed in his new book “A Sacred Oath” that Trump and Twitter could have combined to end human civilization in January 2018.
While it’s largely been forgotten now, there was a significant chance that the U.S. and North Korea would go to war during the first year of the Trump administration. Retired military and diplomatic experts at the time estimated the odds as being 20, 30, or even 50 percent.
Such a war might easily have become, as Trump ally Sen. Jim Risch, R-Idaho, said during the period of greatest danger, “one of the worst catastrophic events in the history of our civilization. It is going to be very, very brief. The end of it is going to see mass casualties the likes of which the planet has never seen. It will be of biblical proportions.”
When Trump took office in January 2017, U.S. intelligence believed that North Korea had manufactured dozens of nuclear devices. In July 2017, the North Korean government successfully tested intercontinental ballistic missiles that could reach the U.S.
It was this — the possibility that the U.S. was vulnerable to the nuclear sword of Damocles that we had dangled over North Korea’s head for decades — that caused Trump to proclaim in August that “North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen.” The next month at the United Nations, Trump similarly said the U.S. might be forced “to totally destroy North Korea. Rocket Man [i.e., North Korean leader Kim Jong Un] is on a suicide mission.”
Trump then jumped on Twitter that month to proclaim that Kim was “obviously a madman” who “will be tested like never before!” He followed it up the same day by tweeting, “Just heard Foreign Minister of North Korea speak at U. N. If he echoes thoughts of Little Rocket Man, they won’t be around much longer!”
Such berserk bellicosity from a U.S. president would be alarming under any circumstances but was especially so involving North Korea. Jeffrey Lewis, a longtime North Korea observer and professor at the Middlebury Institute of International Studies at Monterey, was so worried about Trump’s behavior that he wrote an entire speculative novel imagining how the president might accidentally start a nuclear war via tweet.
“North Korea,” Lewis told me recently via Twitter direct message, “has a nuclear strategy that relies on preemptively using nuclear weapons to repel a US invasion. If North Korean leaders think an invasion is imminent, their plan — at least on paper — is to use nuclear weapons against US forces in South Korea and Japan to destroy any invasion forces and shock the United States.”
And the North Korean government, Lewis said, doesn’t “have the kind of global hi-tech monitoring system the United States does. Instead they have to rely on signs and indicators. We don’t really know what indicators they use, but we think one of the most important indicators that the North Koreans rely on is the presence of military families in South Korea. The North Koreans think the U.S. would evacuate those families to safety before any invasion.”
This was the situation on January 3, 2018, when Trump tweeted, “North Korean Leader Kim Jong Un just stated that the ‘Nuclear Button is on his desk at all times.’ … I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!”
Then president-Donald Trump took to Twitter to threaten North Korean leader Kim Jong-un on Jan. 2, 2018.
Esper, then serving as secretary of the Army, learned later that month that Trump was about to order all U.S. military dependents out of South Korea — announcing it on Twitter. “Kim would probably view a U.S. evacuation as a prelude to a conflict,” Esper writes in his book, echoing Lewis’s fears. “Would he strike first, targeting Seoul? … Would this be like the beginning of World War I? … This was a dangerous game of chicken, and with nuclear roosters no less.”
Thankfully for all humanity, someone — Esper still has no idea who — “talked the president out of sending the tweet. … War averted.”
What Twitter should do if Trump is again president is an extraordinary conundrum.
Esper understandably remained anxious throughout the rest of his tenure in the Trump administration, with war with North Korea always at the top of his mind. “Who knew when another doomsday tweet might come?” he asks. “We had to be ready.”
However, Twitter was not and is not ready. What Twitter should do if Trump is again president is an extraordinary conundrum. World leaders obviously have many ways to communicate with the world and the right to do so. But Twitter is unique in that it allows them — at least those who want to — to issue proclamations with no intermediaries or counsel, just by getting their phone out of their pocket. And Trump is uniquely erratic and foolhardy.
It would be nice if there was a universal Twitter policy that dealt with the danger of Trump and Twitter — possibly no presidents and prime ministers, especially ones that lead nuclear powers, should be permitted to have Twitter accounts. They could still deal death and destruction upon the world on purpose, but this kind of circuit breaker might make them less likely to do so by accident.
Or perhaps Trump should be dealt with specifically, if he ever claws his way back to the Oval Office. That wouldn’t be ideal, but then again, neither is global thermonuclear war.
At the very least, it would be nice to imagine that the people running Twitter, whether that’s Musk or anyone else, have spent a great deal of time pondering the existential danger created by their bird app. But as of now, there’s little sign of this on the horizon. (Musk did not immediately respond to a request for comment on whether he is aware of this history.)
Ramallah, Occupied West Bank – Israeli forces have shot dead Al Jazeera’s journalist Shireen Abu Akleh in the occupied West Bank, according to witnesses and the Palestinian health ministry.
Abu Akleh, a longtime TV correspondent for Al Jazeera Arabic, was killed on Wednesday while covering Israeli army raids in the city of Jenin in the northern occupied West Bank.
She was rushed to a hospital in Jenin in critical condition, where she was declared dead shortly after, at 7:15am (4:15 GMT), according to the Palestinian health ministry.
Abu Akleh was wearing a press vest and was standing with other journalists when she was killed.
Another Al Jazeera journalist, Ali al-Samoudi, was also wounded by a bullet in the back at the scene. He is now in stable condition.
The head of the medicine department at al-Najah University in Nablus confirmed that Abu Akleh was shot in the head. He said that her body was transferred for an autopsy based on an order from the public prosecution.
Abu Akleh’s body was carried out of the university coated in a Palestinian flag, after which she will be taken to the Istishari Hospital in Ramallah.
An official funeral will be held for her tomorrow morning at the Palestinian presidency headquarters in Ramallah.
Al-Samoudi and other journalists at the scene said there were no Palestinian fighters present when the journalists were shot, directly disputing an Israeli statement referencing the possibility that it was Palestinian fire.
“We were going to film the Israeli army operation and suddenly they shot us without asking us to leave or stop filming,” said al-Samoudi.
“The first bullet hit me and the second bullet hit Shireen … there was no Palestinian military resistance at all at the scene.”
Shatha Hanaysha, a local journalist who was standing next to Abu Akleh when she was shot, also told Al Jazeera that there had been no confrontations between Palestinian fighters and the Israeli army. She said the group of journalists had been directly targeted.
“We were four journalists, we were all wearing vests, all wearing helmets,” Hanaysha said. “The [Israeli] occupation army did not stop firing even after she collapsed. I couldn’t even extend my arm to pull her because of the shots being fired. The army was adamant on shooting to kill.”
The details of Abu Akleh’s killing are still emerging, but videos of the incident show that she was shot in the head, said Al Jazeera’s Nida Ibrahim.
“What we know for now is that the Palestinian health ministry has announced her death. Shireen Abu Akleh was covering the events unfolding in Jenin, specifically, an Israeli raid on the city, which is north of the occupied West Bank, when she was hit by a bullet to the head,” Ibrahim said, speaking from the Palestinian city of Ramallah.
In her last email to the network, Abu Akleh sent a message to Al Jazeera’s Ramallah bureau at 6:13am (3:13 GMT) in which she wrote: “Occupation forces storm Jenin and besiege a house in the Jabriyat neighbourhood. On the way there – I will bring you news as soon as the picture becomes clear.”
Separately on Wednesday in the occupied West Bank, the Palestinian health ministry said an 18 year old Palestinian, Thaer Mislet-Yazouri, was shot dead by Israeli forces in the town of al-Bireh, near the illegal settlement of Psagot.
Shock and grief
Abu Akleh, who was a dual Palestinian-American national, was one of Al Jazeera’s first field correspondents, joining the network in 1997.
Grief and sorrow filled the Al Jazeera offices in downtown Ramallah as the news quickly spread and dozens of colleagues, fellow journalists, friends, and Palestinian figures poured in, including Palestinian politicians Hanan Ashrawi and Khalida Jarrar.
Palestinian MP Khalida Jarrar said that Abu Akleh was the voice of Palestinians and was killed by “the monstrosity of Israeli colonialism and occupation”.
“Shireen was always my voice from the prison cells,” Jarrar told Al Jazeera, adding that a month into her last detention by Israel, Shireen was the first person she saw at her court hearings.
“Shireen was our voice. It is unbelievable. It is a crime, it is all clear – intentional and direct targeting. She was targeted. It’s clear,” said Jarrar.
The Palestinian presidency condemned the killing, saying in a statement that it holds the Israeli occupation responsible.
Palestinian Authority (PA) government spokesperson Ibrahim Melhem described it as a “comprehensive crime committed against a well-known journalist”.
“The killing was deliberate… There will be an autopsy by Palestinian medics, which will be followed by a report including all the details of the killing,” Melhem told Al Jazeera.
“However, all the witnesses present at the scene of the crime ensures that it was an Israeli sniper that committed the crime in a deliberate way.”
Yair Lapid, the Israeli foreign minister, said Tel Aviv was offering a “joint pathological investigation” into Abu Akleh’s “sad death”. He added that “journalists must be protected in conflict zones”.
One of Abu Akleh’s former colleagues, Mohammad Hawwash, who knew her for more than 25 years, said she was a “real journalist”.
“Shereen was a professional and unbiased journalist who conveyed the reality and events as they are,” Hawwash, 70, told Al Jazeera.
Palestine TV correspondent Christine Rinawi, who was often with Abu Akleh in the field in Jerusalem, said the late reporter was a “professor in the world of journalism.”
“We would meet for hours in the field, we would be arrested together, we were wounded together. Shireen was a message throughout all her journalistic life, and even in her martyrdom, she is a message,” Rinawi told Al Jazeera.
“This is a sad day, a black day. There are no words to explain the pain that we are all going through,” she added.
The Israeli military said its soldiers had come under attack with heavy gunfire and explosives while operating in Jenin, and that they fired back. It added that it was “investigating the event”.
Al Jazeera’s offices in the Gaza Strip, in a building that also housed the Associated Press, were bombed by Israeli forces during an offensive a year ago, and Palestinian and international journalists say they have been regularly targeted by Israeli forces in the occupied West Bank and occupied East Jerusalem.
Many in Palestine and abroad took to social media to express their shock and grief.
“Israeli occupation forces assassinated our beloved journalist Shireen Abu Akleh while covering their brutality in Jenin this morning. Shireen was most prominent Palestinian journalist and a close friend,” wrote Husam Zomlot, the Palestinian ambassador to the United Kingdom.
Israeli occupation forces assassinated our beloved journalist Shireen Abu Akleh while covering their brutality in Jenin this morning. Shireen was most prominent Palestinian journalist and a close friend. Now we will hear the “concerns” of the UK govt & the international community pic.twitter.com/M6lKTbceHJ
Those who knew her described her as brave, kind and a voice for the Palestinians.
“Shireen was a brave, kind and high integrity journalist that I and millions of Palestinians grew up watching,” wrote Fadi Quran, an activist at the campaign group, Avaaz.
“Horrified to hear of Israel’s killing of Al Jazeera journalist Shireen Abu Akleh in Jenin! Shireen has boldly covered Israel’s aggression in Palestine for over two decades,” wrote Huwaida Arraf, a Palestinian-American activist and lawyer.
“In disbelief,” wrote Salem Barahmeh, a Palestinian activist. “We grew up to her reporting on the second intifada. She was our voice. Rest in power and peace. Another day, another tragedy.”
In disbelief. Israeli apartheid forces killed Al Jazeera journalist Shireen Abu Akleh this morning while covering their invasion of Jenin. We grew up to her reporting on the second intifada. She was our voice. Rest in power and peace. Another day, another tragedy. https://t.co/FkaNdCTFUU
Giles Trendle, Al Jazeera’s managing director, said the network was “shocked and saddened” by the death of Shireen Abu Akleh.
“We have had a history throughout the world but particularly in this region, where we have had tragedies,” he said, calling for a transparent investigation of the killing of Abu Akleh.
“As journalists, we carry on. Our mission is to carry on. We will not be silenced,” said Trendle. “Our mission is always to carry on to inform the world what is happening. And that is more important ever.”
WinRed PAC, the for-profit Republican fundraising juggernaut, raised more than $2.24 billion for GOP campaigns and committees in the 2020 election. But somehow, that gargantuan undertaking appears to have cost the PAC almost nothing.
As the old saw goes, it takes money to make money. According to the 13 campaign finance experts interviewed for this article, WinRed has not disclosed possibly tens of millions of dollars in PAC expenses. In doing so, WinRed, which Republican leaders forced on campaigns in the 2020 election, has kept secret the identities of the people and firms who work for it and provide its services. According to these experts, based on WinRed’s disclosures, the PAC appearsto have potentially crossed the blurry lines of federal campaign finance laws.
Former FEC commissioner Ann Ravel reviewed WinRed’s filings, and called them “absurd” and “nothing short of scandalous.”
“I can’t think of any mechanism or loophole that would permit this. Really.” Ravel, who stepped down from the agency in 2017, told The Daily Beast. “It has the appearance of being, if not outright fraudulent, at least not complying with the intent of disclosure laws. On its face that’s what any reasonable federal auditor would think.”
“This isn’t like anything we’ve seen on this scale,” Jordan Libowitz, communications director for government watchdog Citizens for Responsibility and Ethics in Washington (CREW), told The Daily Beast upon CREW’s extensive legal review of the disclosures. “With the publicly available information we have, it appears potentially illegal.”
PACs are required by law to disclose their expenses. ActBlue—WinRed’s Democratic non-profit counterpart—reports a range of costs common to virtually all functional PACs. Those payments cover expenses like staff salaries, transaction fees, travel and meals, Uber rides, rent, administrative costs, communications, legal and accounting work, payroll taxes, and bank fees.
WinRed’s PAC claims to pay for none of those things.
“"If I were a GOP campaign, I’d be pissed." ”
Disclosure is the heart of campaign finance law. And if WinRed doesn’t disclose its expenses, that means donors, campaigns, regulators, and the public cannot see who the organization pays.
But according to filings with the Federal Election Commission, the PAC paid a grand total of $1,522.55 for the 2020 election. All of that meager amount went to its sister company, a for-profit corporation called WinRed Technical Services LLC, for “merchandise.”
Over the same period, ActBlue—a nonprofit—raised double that amount, $4.4 billion. It reported spending a little over $42 million on operating costs, about one percent of its total. To put that in perspective, WinRed PAC’s $1,502.55 budget was around 3.57 thousandths of 1 percent the size of ActBlue’s. If WinRed expended 1 percent of its $2.24 billion—ActBlue’s approximate rate—its operating budget would be $22.4 million. (ActBlue declined to comment for this article.)
WinRed’s reports baffled all the campaign finance experts consulted by The Daily Beast, some of whom declined to comment on the record, citing possible conflicts of interest.
Michael Kang, endowed professor of law at Northwestern University, said the PAC is “on shaky legal ground in almost every respect.” Tim Werner, election law specialist at the University of Texas McCombs School of Business, said it appears to be “an incredible grift.” Norm Eisen, senior fellow in governance studies at the Brookings Institution, called it “highly unusual” and pointed to the “striking” contrast with ActBlue’s transparency.
“It’s hard to understand how a PAC of this volume could operate with such minimal expenses,” Eisen said. “It’s so unusual that it’s incumbent upon WinRed to answer these questions. And if they won’t do so, the FEC should make them.”
A spokesperson with WinRed’s public affairs firm—Bullpen Strategy Group—did not answer detailed questions about WinRed’s reporting, with four days of follow-ups. That firm, which the spokesperson said in an email fields questions for the PAC, doesn’t appear on its expenses.
The core issue, campaign finance specialists say, appears to lie with WinRed PAC’s relationship to its sister corporation—WinRed Technical Services LLC. In theory, it is supposed to pass along donations to various Republican candidates.
As WinRed’s website explains it, “Donations made on our platform go to the WinRed PAC and then get transfered [sic] directly to the candidate you want it to go to.”
But the relationship is far more complicated. WinRed’s for-profit arm, WinRed Technical Services (WTS), provides and maintains the technological infrastructure, as well as WinRed’s website and its fundraising landing pages. It also processes and forwards the contributions to the PAC, and acts as a sort of combo merchant bank-billing service between campaigns and their vendors.
The setup is so tangled that it has tripped up veteran Republican campaign treasurers.
With WinRed, it just appears that WinRed Technical Services “does everything,” in the words of Brett Kappel, who specializes in campaign finance law at Harmon Curran. “WinRed PAC, as far as we know, has no employees, but does everything through one vendor—WinRed Technical Services,” Kappel said. “The law requires PACs to pay fair market value for all services, and to report services rendered for free as in-kind contributions.”
Experts said they don’t see how the WinRed PAC could function completely autonomously. It would have to pay for services and overhead, noted Werner, of the University of Texas, “which would also include server expenses, bandwidth costs, maintenance, internet, and the rest.”
FEC rules state that contributions are “all forms of support including money and other things of value.” PAC contributions are capped at $5,000 a year, and they cannot come from companies, such as WTS, and be used to cover all costs. And in-kind contributions must also be reported as expenses in order to balance the books.
“Unless you’re claiming that all of this costs less than five grand per individual per year, there’s not a path to say these are in-kind contributions,” Dan Weiner, Deputy Director for Election Reform at the Brennan Center, said. “And corporations can’t make in-kind contributions to PACs.”
WinRed’s reports do not show any of this spending, and as a private company, WinRed Technical Services doesn’t have to disclose its finances. That means the vendors WinRed contracts will never be public—and neither will their payments.
But there does in fact appear to be an arcane loophole.
A PAC like WinRed can use a separate bank account, called a “nonfederal” account, to accept and spend money. And if WinRed doesn’t give money to state candidates, the PAC can pay vendors with that account and legally keep it a secret.
Libowitz, of CREW, said that if WinRed does exploit this loophole the “legal hocus pocus” is still “clearly a way of intentionally hiding how they spend their money.” But that doesn’t necessarily mean the law will allow it.
“People will often do things under the hope they don't get caught, or that the FEC doesn’t want to enforce the law. But the law always lags behind the people who want to break it,” he said. “Specific schemes don’t get explicitly outlawed or codified until someone tries them.”
Last July, the Campaign Legal Center hit the Trump campaign with a federal complaint alleging a similar lack of disclosure was illegal. The complaint cited hundreds of millions of dollars the campaign paid a shell company called American Made Media Consultants, which then forwarded the money to unknown final vendors. The case is ongoing.
The concealment mechanism has implications beyond WinRed’s PAC. The option is available to any federal PAC in WinRed’s class, including so-called “scam PACs.”
The setup also blinds the campaigns, many of whom were strong-armed into using WinRed for the 2020 election. Republican campaign officials have complained about WinRed’s opacity, which conceals who is making money at their expense. And WinRed’s convoluted transaction model has frustrated a number of GOP candidates and committees, leaving some of them on the hook with the FEC. Rep. Jim Jordan (R-OH), for instance, came under federal scrutiny this year after his campaign misreported roughly $3 million, chalked up in large part to confusion about WinRed’s slicing and dicing.
Campaigns also grumble about the high transaction fees. ActBlue charges a flat rate of 3.95 percent for transactions. And while WinRed charges 3.8 percent, it takes another 30 cents from every transaction, no matter the dollar amount. That adds up to a bigger cut than other Republican processing platforms such as Anedot or Revv, the company launched by WinRed founder Gerrit Lansing for the 2016 election.
Lansing did not reply when asked for comment.
“If I were a GOP campaign, I’d be pissed,” Werner, of the University of Texas, said. “It’s not an issue of ideology or good government. It just sounds like an incredible grift, lining the pockets of unknown companies, and at the cost of candidates who don’t know what this conduit is doing with their money. You don’t know they can be trusted.”
Speculative bubbles have a way of leaving in their wake dozens of discredited economic writers, whose careers after the crash are forever haunted by the enthusiastic pronouncements they made while prices still rose. As John Kenneth Galbraith wrote in his history of the Wall Street crash, academics in the run-up to disaster praised the stockbrokers of their day for shaking off the “heavy armor of tradition” and adopting “vision for the future and boundless hope and optimism.” In June 1929, financier Bernard Baruch explained the rapid rise in stock prices by insisting it reflected a sober appraisal of economic fortunes: “The economic condition of the world seems on the verge of a great forward movement.” As the NYSE soared, one Princeton economist saw fit to comment that stocks were “not at present overvalued.” And in mid-October 1929, Irving Fisher of Yale made one of the most infamous predictions in the history of forecasting: “Stock prices have reached what looks like a permanently high plateau.”
Memories of 1929 come to mind when readingThe Power Law: Venture Capital and the Making of the New Future, British journalist Sebastian Mallaby’s jaunty depiction of venture capital (VC for short) and its role in the U.S. economy. By helping to create “networks” that link inventors with ideas to investors with capital, VC funds have played an “unmistakable” part in developing new technologies, ranging from personal computers to routers to e-commerce to biotech. Besides all the tech, without this “strange tribe of financiers,” a “staggering amount of wealth might never have been created.”
Mallaby is the Paul A. Volcker Senior Fellow in International Economics at the Council on Foreign Relations, and his appraisal of VC thus carries a special imprimatur. The CFR is a century-old organization known for grooming Cold Warriors, an Upper East Side bastion of respectable elite opinion. The backing of one of its fellows (one who occupies a chair named for the Federal Reserve chairman responsible for hiking interest rates in the late 1970s, no less) might seem to underscore the eminent reasonableness of VC today. But readingThe Power Law, a book replete with tales of dorky young men becoming insanely wealthy, buttoned-down investors muscling out founders who have grown too unpredictable, and financiers plying prospects with dinners or committing oddly large sums of money after meeting with pitchmen for absurdly short periods of time, one has a queasy sense that regardless of Mallaby’s fulsome praise, the fundamentals—on many levels—are far less than sound.
If you’re not a twentysomething college student or recent grad who is into trading tips about crypto and Robinhood, you may be forgiven for wondering what precisely defines venture capital. You may also wonder why it matters, if you’re not in the circle of people aspiring to fantastic wealth.
Venture capital refers to investment funds that invest in companies in their early stages, often giving fledgling entrepreneurs capital in return for shares of stock in the new business. Frequently, they seek some form of control over the company in addition to their equity—such as the power to appoint a CEO with expertise in running a company (as opposed to the inventor who has developed a new technology but has no actual experience managing a business). They cash in when the successful company finally has an IPO, or initial public offering, selling its stock to the broad public.
We are in an important moment to think about venture capital, because the past year has seen a flood of new money pour into VC funds, with the number of deals funded at all-time highs. Record numbers of private companies have stock valued at over a billion dollars on paper—known as “unicorns,” a term coined in 2013 by financier Aileen Lee—even though they have yet to test this by going public. Today, there are more than 1,000 such “unicorns” around the world, compared to fewer than 200 in 2016. Venture capital equaled 11 percent of all nonresidential fixed investment in 2021, significantly more than the 7 percent it equaled in 2000, the height of the dot-com frenzy, let alone the average of under 2 percent per year between 1980 and 2007 (figures that do not come from Mallaby but from the economics writer Doug Henwood). In other words, it’s a critical time for a serious exploration of the world VC is building, what its investments are, and what its economic but also political impact has been, and is likely to be.
The Power Lawis not that exploration. In part, this is because Mallaby spends much of his time repeating much of what venture capitalists say about themselves, with little distance or critique. Take the title of the book, which comes from the idea that the “power law” is what differentiates venture capital from other approaches to investing. The basic idea is that, while most startup companies fail, those that succeed grow at an exponential rate that more than makes up for the losses. If nine out of 10 new firms in which a VC fund invests go bankrupt, but the tenth gives investors a return 100 times the initial investment, the fund will still be wildly successful. Rather than looking to the average—the “bell curve” distribution of results, in which most cluster near the middle with marginal cases on either side—the VC model privileges the outlier phenomena (the “long tail” of the distribution), insisting that these are the cases that matter the most. So a venture fund seeks out those companies that break all the rules and launch into new territory—for only in this way will it recoup its losses and succeed. Radical transformation, not the ordinary ebb and flow of price competition, is what matters; venture seeks out companies that are able to attain and hold a monopoly position for a period of time because they have developed something that never existed before. As Mallaby writes, “Venture capitalists look for radical departures from the past. Tail events are all they care about.”
Mallaby treats the “power law” like something on the order of the law of gravity. Its logic is simple. Success begets more success: “Once Jeff Bezos achieves great riches, his opportunities for further enrichment multiply; the more a scientific paper is cited, the better known it is and the more likely it is to attract further citations.” In his invocation of the “power law” in venture capital, Mallaby is essentially echoing the writing of PayPal co-founder and Trump backer Peter Thiel, whom he cites in the notes and even quotes in the text but without quite making clear the extent to which the formulation is really Thiel’s. Thiel and his co-author, Blake Masters, wrote in their 2014 book,Zero to One, that the “best investment” in a venture fund must be capable of outperforming the rest of the fund combined. “We don’t live in a normal world; we live under a power law,” they wrote. (With Thiel’s financial backing, Masters is now making a bid for the U.S. Senate in Arizona on the platform that Trump won the 2020 election—talk about the long tail.) But despite Thiel’s politics and personal interest in the industry, Mallaby takes his depiction of VC as a revolutionary, transformative, and overwhelmingly positive force largely at face value.
With his emphasis on the funders instead of the founders, Mallaby revises some of the oft-told legends about the early days of VC in Northern California. The defection of eight engineers from Shockley Semiconductor Laboratory en masse to start their own company in 1957, for example, is often presented as the moment when entrepreneurial scientists declared they were no longer willing to be employee-drones in the lab of a dictatorial boss, and thus as the origin of Silicon Valley. Frequently, this story is told from the perspective of the scientists; in such accounts, the founders are the heroes, the visionary inventors who had the courage to share their breakthroughs with the world. But Mallaby points out that they needed money to make the break, and in his view the venture capitalists who financed their “liberation” should really be praised instead.
Historians such as Fred Turner and Margaret O’Mara have emphasized the centrality of the hippie vibe of Northern California to the emergence of the tech industry: pot smoking at Atari, garage tinkerers building the early PCs, Steve Jobs as a long-haired fruitarian who disliked shoes. Mallaby sees it differently. In his view, the unabashed love of lucre was the key to the rise of Silicon Valley. As he argues, “the Valley’s distinguishing genius is that the patina of the counterculture combines with a frank lust for riches.” True, boring old Bell Labs scientists developed the transistor; the first popular web browser was created at the University of Illinois; military computer scientists invented the internet. But it was the promise of vast personal enrichment through stock options that turned these technological advances into shiny consumer products. In one memorable scene, Thomas Perkins, one of the venture capitalists who backed the biotech company Genentech, invites the founder, Robert Swanson, and a few nerdy researchers to his mansion. “Perkins showed off his tumbling gardens and tapestries and vintage cars, and the group ate dinner served by a uniformed butler. Standing outside the mansion, Swanson waved at it excitedly and exclaimed to his researchers, ‘This is what we’re all working for!’”
Using this framework, Mallaby runs through many of the greatest hits of venture capital—the rise of Sequoia and Kleiner Perkins (two of the venerable VC funds); the funding of Apple, Cisco, Google, Facebook; the rise of tech hubs in other parts of the world, especially China. Throughout, there are lots of stock characters: the finicky, brilliant founders; the daredevil investors, many of whom Mallaby depicts as temperamental outsiders driven by an atavistic compulsion to show up the Wall Street WASPs who resemble their junior high tormentors. He reports on “intriguing” meetings between visionaries who cannot be bothered with dull social norms like wearing pants to meetings, preferring to wear pajama bottoms and lounge in hot tubs. There are dreamy conversations on private planes, in which inventors in love with their own genius are moved to near-religious ecstasy by imagining a computer you write on directly with a stylus, rather than typing. We learn that Travis Kalanick, founder of Uber, apparently liked to call a would-be financier “homie,” as in “Hey, homie, I really wanna do this deal with you, but I have to go with this other firm, for the benefit of the company.”
Most of this reporting, though, serves to reinforce the oft-repeated clichés of the industry. Mallaby writes, “Most financiers value companies by projecting their cash flows. Venture capitalists frequently back startups before they have cash flows to analyze.” He cheerily describes the efforts of the financiers to schmooze and seduce the tech guys, disdaining hard numbers about returns as they compete against one another to be cut in: “Venture capitalists meet people, charm people, and seldom bother with spreadsheets.” Or as he puts it elsewhere with a presumably straight face, “to persuade investors to bet on the technologies of tomorrow, you must first unshackle them from the financial metrics of yesterday.”
But yesterday’s metrics have a way of making themselves felt in time, and what really comes across inThe Power Lawis just how susceptible the culture of VC is to panicked speculation. Between inventors who dangle the promise of wealth for an untested new technology; the mantra of revolutionary change; the quasi-ideological rejection of experience, expertise, and bookkeeping; and the constant warnings that the real danger is being too timid and cautious, that VCs have to goall into make any real money—what could go wrong?
Mallaby comes closest to a warning in his concluding chapter, which deals with the fraud of Elizabeth Holmes, the collapse of WeWork, and the tribulations of Uber. In each case, eager investors handed over lots of money to people who played the role of brilliant entrepreneur but did not have a technology or a business plan that could turn a profit. The Stanford dropout Holmes was able to bluff her way into hundreds of millions of dollars for Theranos, her company selling a technology that was simply fraudulent (blood analysis done at home that promised to diagnose numerous problems from a few drops of blood): It did not work, had no prospect of working, and was nothing but a fantasy. WeWork was not engaged in criminal fraud, but it, too, was a story of empty promises: A founder, Adam Neumann, presented himself as a charismatic guru who claimed to have discovered a radical new way of organizing working space that made it a “platform” that would gain from “network effects”—certainly not just a landlord beholden to bricks and mortar and local real estate markets. Meanwhile, Uber founder Kalanick was able to whip VCs into a froth while building a global company premised on unrealistically low prices, low wages for its drivers, and a general strategy of undercutting public transit that has only turned a profit for two quarters (as of this writing).
Of course, Mallaby is aware of the dangers of “unicorn poker,” but he largely brushes them aside. Like many in the VC world, he depicts the suckers as outsiders and late-stage investors—people who are riding the wave of cheap money, not those with experience in the field. That increasingly jumpy VCs played a key role in ousting the boorish Kalanick is only further evidence (for Mallaby) of the utility of VC. But it is worth asking whether the line between the smart money and the dumb is so clear-cut. Today, the old formula—eager founder pitches reticent investor—has been reversed, as investors cold-call startups they deem promising to offer funding.The New York Times’ Erin Griffith’s reporting on Holmes’s fraud trial has highlighted the many prominent longtime Valley executives (such as Larry Ellison, a co-founder of Oracle) and VC figures who showered Theranos with cash, terrified of failing to spot a unicorn. Even Holmes’s plaintive defense at her trial shows how adept she was at working the industry’s nostrums: “They weren’t interested in today or tomorrow or next month,” she said of her investors. “They were interested in what kind of change we could make.” Evenafterthe verdict, one of Holmes’s backers said in a statement that he was afraid that it might tamp down new deals: “A willingness to bet on these entrepreneurs and their visions has made Silicon Valley the innovation engine of the world.” As Mallaby puts it, “Try and fail, don’t fail to try.”
You wouldn’t know it fromThe Power Law, but there are real indications that VC is in for a bumpy ride ahead. Record amounts of money have been pouring into startups ($330 billion in 2021, more than double the 2020 figure), while investors insist that the pandemic has so revolutionized society that digital whiteboards and e-payments companies and online editing startups and firms that create marketplaces for NFTs are all suddenly valued at more than $10 billion. But at the same time, venture capitalists increasingly have been funding later-stage firms, pumping up their valuations instead of focusing on the new companies that are supposed to be their raison d’etre—perhaps a sign that there’s skepticism that the startups will pan out.
Meanwhile, the market for “secondaries” (when the first VC investors sell their stakes) has been growing, as early investors and founders, frustrated by how long it is taking their firms to mount an IPO—and perhaps anxious about what will happen once that day arrives—sell their shares to investors looking to get out of a volatile NYSE. Sequoia, one of the grand old venture capitalist firms, has recently combined all its funds together (including those that trade already-public companies) so that it will no longer have a fund dedicated only to startups. And VC investments in cryptocurrencies are growing rapidly ($27 billion by the end of 2021, according toThe New York Times)—many of these made by venture capital wings of crypto companies, which see themselves as unconcerned with anything as mundane as “returns.” How long will this long view endure if the Fed does raise interest rates, or if other political and economic crises make this kind of investment seem a little less fun?
In fact, it is hard not to wonder whether the glory days of VC are already in the past. Thiel and Elon Musk and the rest can project that there are innumerable new frontiers to conquer—space rides! Cures for cancer! All just waiting to be unlocked by dollops of equity financing! But the companies that are winning funds today are a far cry from the foundational technology—the transistors, semiconductors, routers, personal computers, web browsers, search engines—that venture capitalists once backed. One has to wonder: Might not the early VCs have entered on the ground floor of a unique wave of technological innovation, itself based upon post–World War II investments in education and basic science—which has run its course, so that today’s investors are left to throw their cash at the best apps for editing grammar and hailing rides?
Our society actually does face a real crisis of investment, even innovation—but it is not about who can make the best new app, the cleverest gadget, the most revolutionary e-wallet. The real challenges are familiar and seemingly intractable: how to build good schools for everyone in our cities; how to invest in bridges and roads and basic infrastructure; how to make higher education available to all; how to invest in basic science; how to provide health care. All of these are serious problems of “the future,” but they are about politics and public finance rather than entrepreneurship (let alone the “flow of molten money” that Mallaby imagines streaming through a Shanghai neighborhood on the banks of the Huangpu River). The defenders of VC might plead that green tech is exactly the kind of revolutionary change it’s made for—but in reality, climate-related technologies only accounted for about $30 billion (5 percent) of all VC deals around the world in 2021, a far cry from the kind of extensive investment that is needed to make possible an economy less dependent on carbon and capable of slowing climate change. Analogous to building the interstate highway system or electrifying the countryside, a transformation of this scale will have to be made with a long view of human needs, rather than the churn of stock prices.
Mallaby pays little attention to the larger political and economic context for VC’s rise (although he does note in passing the late-1970s cuts to capital gains taxes that helped stimulate its emergence). But it cannot be separated from the recent revitalization of privately held wealth. Just as the late nineteenth century saw the rise of the publicly traded corporation, the opposite seems to be happening now—privately held fortunes are becoming more prominent in our politics, as Henwood has written in his work on the ruling class and the decline of WASP elites. (See his 2021Jacobinarticle, “TAKE ME TO YOUR LEADER: THE ROT OF THE AMERICAN RULING CLASS.”) These kinds of firms have played a key role in promulgating the antisocial libertarianism that often reflects the views of owners who have to answer to no one but themselves. Because VC is predicated on the idea that starting a company is one of the great adventures of life, in creating buzz and excitement about being an entrepreneur, it helps to feed the idea that the only way to have a stake in society is through the romance and thrill of possession.
In the mid-twentieth century, the Austrian émigré economist Joseph Schumpeter bemoaned the disappearance of the trailblazing entrepreneur into the bureaucracy of corporate R&D, and warned that this would mark the end of capitalism. As he wrote, “Success in industry and commerce requires a lot of stamina, yet industrial and commercial activity is essentially unheroic in the knight’s sense—no flourishing of swords about it, not much physical prowess, no chance to gallop the armored horse into the enemy, preferably a heretic or heathen—and the ideology that glorifies the idea of fighting for fighting’s sake and of victory for victory’s sake understandably withers in the office among all the columns of figures.” Implicit in Schumpeter’s concern was the question: Once the family fortunes vanished into bland corporate boards, who would care to defend wealth and property any longer? But the past 40 years have seen a revival of the idea of self-branding and entrepreneurship at all levels of the economic order. And by infusing new passion into the idea of ownership, venture capital has reversed the trends Schumpeter feared—as a cultural trope as much as a reality. It has helped to make possible and to regenerate the privately held firm as a major form of wealth, and with it a politics of intense free-market faith and absolute certainty that the winners deserve to be at the top.
Over the past few months, the world into whichThe Power Lawwas published has been shaken deeply. All of a sudden, it seems, the old order of national boundaries and rivalries has reasserted itself with dangerous force, which makes Mallaby’s upbeat vision of endless innovation and scads of money yet to be made feel oddly out of place. One may not be reassured about the state of world events on learning that one of Peter Thiel’s latest unicorns is a defense startup named Anduril that (as Mallaby helpfully reports) “embodies the audacity of the Valley.” The last pages ofThe Power Law, which allude to looming conflicts with China, try to join VC to some idea of “national power”—an issue absent in the rest of the book, which unfolds in the free-market global utopia of post–Cold War politics. It’s a sign of the times that an erudite journalist stationed at the austere CFR could openly swoon before the spectacle of so much money, with only the slightest overlay of concern for the interests of society at large. In the end, his book is really a lesson not in the power law, but in the law of power.
What happens when we are faced with a complete erosion of our right to be whole in the eyes of the law, and the same politicians who have failed us again and again ask for our votes? When do we stop begging the people in power to listen to us, and force them to?
"But more often, the people elected to protect our rights see our rage as an obstacle, something to be blunted and pacified...What happens when the strategy fails? What is the reason exactly to have waited this long? What happens when we are faced with a complete erosion of our right to be whole in the eyes of the law, and the same politicians who have failed us again and again ask for our votes? When do we stop begging the people in power to listen to us, and force them to?"