Capitalism versus Communism explained in Chaos Monkeys

Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley by Antonio Garcia Martinez muses on the differences between modern-day Capitalism and old-school Communism (really Socialism, as societies such as Cuba and Soviet Russia were simply on the road to true Communism):

In Havana, my cousins were forced to listen to rambling speeches about maintaining core values inside a one-dimensional cult of personality. In Menlo Park, I was sitting in a tent full of people wearing identical uniforms of Facebook swag and doing the same. Back in Havana, my cousins were eyeing posters of Che and Fidel on crumbling buildings and the sides of lurching, belching buses. Alongside were rousing posters, designed in that wonderfully retro socialist realism only the Cubans still embraced: ¡TODO POR LA REVOLUCIÓN! ¡HASTA LA VICTORIA SIEMPRE! ¡PATRIA O MUERTE, VENCEREMOS! Meanwhile, I was walking around Facebook, surrounded by stenciled portraits of Mark and equally exhortatory posters: PROCEED AND BE BOLD! GET IN OVER YOUR HEAD! MAKE AN IMPACT! At their extremes, capitalism and communism become equivalent: Endless toil motivated by lapidary ideals handed down by a revered and unquestioned leader, and put into practice by a leadership caste selected for its adherence to aforementioned principles, and richly rewarded for its willingness to grind whatever human grist the mill required? Same in both. A (mostly) pliant media that flatters the existing system of production, framing it as the only such system possible? Check! Foot soldiers who sacrifice their families and personal lives for the efficient running of the system, and who view their sole human value through the prism of advancement within that system? Welcome to the People’s Republic of Facebook.

But one can simply quit a job in capitalism, while from communism there is no escape, you’ll protest. As for the actual ability to opt out under capitalism: look at Seattle or SF real estate prices, and the cost of a decent US education, and consider whether Amazon or Facebook employees could really opt out of their treadmill. I’ve never known one who did, and I know many. Ask your average family providers, even those in a two-income family, whether they felt they could simply quit when they liked. They could barely get a few weeks off when they had a child, much less opt out. Switching jobs would amount to nothing more than changing the color of the shackles.

Facebook is full of true believers who really, really, really are not doing it for the money, and really, really will not stop until every man, woman, and child on earth is staring into a blue-framed window with a Facebook logo. Which, if you think about it, is much scarier than simple greed. The greedy man can always be bought at some price or another, and his behavior is predictable. But the true zealot? He can’t be had at any price, and there’s no telling what his mad visions will have him and his followers do.

More: read Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley

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Angel funding structure explained by Chaos Monkeys

Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley by Antonio Garcia Martinez explains some of the typical structures around seed-round investing in Silicon Valley:

This is how Y Combinator works. For three months, the selected startup founders meet weekly for a dinner with some eminent startup personage. The dinners are not relaxed social affairs: they’re competitive demos in which founders try to one-up each other with increasingly developed products, upward-sloping user graphs, or funding news, within a context of technocamaraderie and shared suffering. The weekly cadence imposes order on the always-full-throttle startup chaos, and is a welcome respite from the grinding toil and stomach-churning stress. I always tried to sit directly in the front row to take the speaker’s measure. Marissa Mayer’s hands shook and she spoke at an anxious clip; she arrived escorted by a Google “handler,” the only speaker to do so.

Enter the investor’s great friend: the cap. The cap dictates the maximum number at which the company will be valued, for the purposes of calculating the investor’s stake when the company takes more investment capital. In our previous example, say the initial $100,000 investment had been done at a cap of $3 million. Then, despite the company’s raising later at a valuation of $10 million, the angel’s stake amounts to $100,000 ÷ $3 million = 3.3%, a much bigger slice. The angel’s effective price per share is that of the cap (rather than that of the valuation), giving him a huge discount on the equity compared with investors who just put money in. As a result, this cap is perceived in essence, if not in contractual reality, to be a proxy for the valuation of the company at the time of the angel’s investment. Early-stage entrepreneurs will bandy about their cap number as if it were a real company valuation, when in truth it’s an input to a hypothetical calculation that may or may not play out in the future.

Sacca had a very different attitude toward potential deals. Which is why Sacca, or any VC really, would push you to mimic his own distorted risk profile, which prefers a tenfold return, even if it marginally increases the chance of complete failure. Twofold just ain’t cool enough for the limited partners, and not why they handed over their money to Sacca in the first place. The risk expectations of founders and investors can often be severely misaligned. I hate sports analogies, but here’s one to explain this vital point: most VCs are playing a version of baseball in which the only way to score is to hit a home run when you’re at bat. They don’t care if you disgrace or impoverish yourself and strike out, and they don’t care if you get a solid line drive that lands you on second. To them, strikeouts and getting on base are equally pointless, and so they’ll push to proverbially “swing for the fences” no matter the count or the team you’re up against.

The reason for this all-or-nothing approach is how their funds are structured. VCs (or so-called angels like Sacca) raise a fund, out of which they’ll provision some number of investments. Barring doubling down on the same company, which they might do if the fund still has money when a company raises again, those investments are effectively “fire and forget.” The fund’s total profit will be calculated from whatever those initial bets return. Unlike, say, a hedge fund portfolio manager, who rolls the winnings from one good bet into the next, compounding a series of returns into something truly huge, VCs do not take liquidity from one company’s exit and pour it into yet another’s.* This, at heart, is why the go-big-or-go-home strategy makes the Silicon Valley world turn, and why entrepreneurs push themselves to be either the next Airbnb, or nothing. The entrepreneur who bucks this and creates a long-term business of recurring revenue but relatively slow growth is dismissed as running a mere “lifestyle business,” which is a dirty word among VCs. Of course, the entrepreneurs are quite happy to run a revenue-generating concern that spits out cash as low-tax dividends, and dedicate their lives to skiing or guitar playing or whatever. But their investors will hate them for it, and the entrepreneurs will suffer a loss of social capital as a result, and perhaps find they can’t raise money for their next venture.

What about the larger culture?

As every new arrival in California comes to learn, that superficially sunny “Hi!” they get from everybody is really, “Fuck you, I don’t care.” It cuts both ways, though. They won’t hold it against you if you’re a no-show at their wedding, and they’ll step right over a homeless person on their way to a mindfulness yoga class. It’s a society in which all men and women live in their own self-contained bubble, unattached to traditional anchors like family or religion, and largely unperturbed by outside social forces like income inequality or the Syrian Civil War. “Take it light, man” elevated to life philosophy. Ultimately, the Valley attitude is an empowered anomie turbocharged by selfishness, respecting some nominal “feel-good” principals of progress or collective technological striving, but in truth pursuing a continual self-development refracted through the capitalist prism: hippies with a capitalization table and a vesting schedule.

Characteristics of a successful founder?

What’s it take to do startups? It certainly isn’t intelligence. I was in the lower third of my PhD class in physics at Berkeley, and I had to take my preliminary exams three times before I passed. Most of the founders I know are certainly crafty and quick-witted, but compared with some of the certified geniuses I met in academia, they aren’t going to win any Fields Medals or Nobels. It certainly isn’t technical skill. I’m a crappy programmer, and I can hack crude prototypes of finished products at best. Some founders are technical virtuosos, but I suspect most weren’t the top students in their respective computer science classes (assuming they even had a formal education). It’s not unique product or market vision. Anyone who used Google’s ads-buying tool for all of five minutes, and then registered that that piece of shit was a $70 billion per year moneymaker, could see the need for AdGrok.

In my limited experience, there are two traits that distinguish successful startup founders at whatever level of the game, from the forgettably minuscule (e.g., AdGrok) to the epoch changing (e.g., SpaceX). First, the ability to monomaniacally and obsessively focus on one thing and one thing only, at the expense of everything else in life. I lived, breathed, and shat AdGrok. Thanks to focusing on AdGrok, I watched my daughter grow up through the frame of a Skype window while I was in AdGrok’s Mountain View shit hole. I had no social life outside of schmooze-and-booze tech events, at which I would wear my AdGrok T-shirt and engage in techno small talk with people I didn’t really care about. I had no hobbies or outside activities of any kind, except very occasional trips to the gym. My sailboat, into which I had poured two years of money and weekends to restore, slowly rotted in the sun. I never read anything except the tech press. Movies were out of the question. The ladies? While I was nominally still in a relationship with British Trader, my penis was anatomically equivalent to my coccyx: a purposeless vestige of a bygone era.

Second, the ability to take and endure endless amounts of shit.

The typical exit?

The fact was that even as the wheeler-dealer CEO, I owned no part of AdGrok. Nothing. Not one share. Neither did the boys. As is the case for every early-stage entrepreneur. So to actually see any proceeds from the AdGrok side of the deal, I’d have to have been there at least another couple of months as the deal got finished up. At the end of the day, AdGrok was simply a long, stressful job interview for Facebook (and ditto for the boys at Twitter). We all claim we “sold” AdGrok, but in reality, AdGrok was merely leverage to score the job offers that actually made us the real financial upside, job offers we would not have been able to score otherwise. The corporate-development teams of large companies, insofar as their small-company deals are concerned, are really glorified HR recruiters with fatter checkbooks. That’s another little detail the self-glorifying founders of acquired companies often fail to mention.

More: read Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley

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Casino growth limited by smartphones?

Reno’s casinos aren’t exactly hopping on a Friday night. Atlantic City is presumably doing even worse. Could smartphones, Facebook, etc. be the worst enemies of the casino industry? If people used to come to casinos partly out of boredom, even in an ever-richer world it might be tough for casinos to grow. A bored person can download an app or check Facebook. Separately, Apple, Verizon, and Comcast do a pretty good job of mining out consumers’ entertainment dollars, which also leaves less for casinos to harvest.

Should investors short casino stocks the day that VR is perfected?

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Medals versus cash in the age of Peter the Great

Peter the Great: His Life and World talks about how the tsar saved the Russian treasury a lot of money:

It was Peter himself who carried home another Western practice which simultaneously broadened the sophistication of Russian society and saved the state land and money. The traditional Russian manner of rewarding important services to the tsar had been the bestowal of large estates or gifts of money. In the West, Peter discovered the thriftier device of awarding decorations—orders, crosses and stars. Imitating such foreign decorations as England’s Order of the Garter and the Hapsburg Order of the Golden Fleece, Peter created an exclusive order of Russian knighthood, the Order of St. Andrew, named after the patron saint of Russia. The new knights were distinguished by a broad light-blue ribbon worn diagonally across the chest and the cross of St. Andrew in black on white enamel.

Thus, for over two centuries, human nature being what it is, these pieces of colored ribbon and bits of silver and enamel became worth as much to Russian generals, admirals, ministers and other officials as thousands of acres of good Russian earth.

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Chaos Monkeys: Relations between the sexes in Silicon Valley

Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley by Antonio Garcia Martinez complements the New York Times coverage of Ellen Pao and similar.

How do men and women (or “employees who currently identify as men” and “employees who currently identify as women”) get along at Facebook?

Picture the Facebook corporate scene for a moment: buildings full of young, emotionally inept male geeks, and sprinkled throughout them, maybe a 10 percent population of young women. What could possibly go wrong? Rather than harshly regulate every step of this sexual-legal minefield, Facebook preferred to lay down basic guidelines. Delicately, but unambiguously, our HR Man stated that we could ask a coworker out once, but no meant no, and you had no more lets after that. After one ask, you were done, and anything beyond that was subject to sanction. So you get one shot on goal, do you? I thought. Better use that one shot wisely.

An idle mind is the devil’s playground, as the saying goes, so in the meantime I got down to the serious business, as some product managers do, of trying to bang my product marketing manager. PMMess, as we’ll call her, was composed of alternating Bézier curves from top to bottom: convex, then concave, and then convex again, in a vertical undulation you couldn’t take your eyes off of. Unlike most women at Facebook (or in the Bay Area, really) she knew how to dress; forties-style, form-fitting dresses from neck to knee were her mainstay. Her blond hair was offset by olive skin, and bright blue eyes shone like headlights from her neotenic face. She had a charming perfectionism around email orthography and usage, despite the generally rushed illiteracy that reigned in Facebook corporate communication. We traded flirtarious barbs around whether CPM was an initialism or an abbreviation, and whether a needlessly flowery formulation of mine, written in response to some insipid corporate conversation, was a metonym or a metaphor. Like me, PMMess would lose herself in bouts of louche, ethanolic self-destruction that typically ended in some disinhibited act of carnality. A couple of times already, such behavior had involved me, though only at a relatively PG-rated level of barside making out.

What are employers missing by having more male employees than female employees? [Remember the question of “Should the SEC make it illegal for public companies to employ men?”] Martinez differs from Hillary Clinton here:

Most women in the Bay Area are soft and weak, cosseted and naive despite their claims of worldliness, and generally full of shit. They have their self-regarding entitlement feminism, and ceaselessly vaunt their independence, but the reality is, come the epidemic plague or foreign invasion, they’d become precisely the sort of useless baggage you’d trade for a box of shotgun shells or a jerry can of diesel.

What about after hours?

The runway for its accelerated particles travels alongside Sand Hill Road, under Interstate 280, and into the foothills of the Santa Cruz Mountains, which define the western border of Silicon Valley. Lastly, there’s a high-class brothel: the Rosewood Sand Hill, a posh restaurant and hotel complex wedged in between SLAC and the Sand Hill–Interstate 280 intersection. Thursday nights at Sand Hill are famous for serving as “cougar nights,” where older, lonely women (and younger ones explicitly on the clock) congregate to ensnare Sand Hill’s wealthy denizens.

Martinez chronicles his close association with one particular woman, whom he refers to as “British Trader” due to her former career as an oil trader:

The contemporary honeymoon of a several-week fuck-fest, consummated at the start of a new romantic liaison, played itself out comme il faut. No surprises really, other than British Trader’s taste for being physically dominated in bed, a bit of a surprise given her alpha-female exterior. To a woman, every girlfriend of mine has been intelligent, ambitious, and independent. Until very recently, all were vastly more successful and wealthier than me. And yet, come the pressing hour of physical need, so unfolded the countless boudoir scenes recalling Fragonard’s Le Verrou: a ravished chambermaid, half resisting and half yielding, violently seized in the arms of her predatory lover, who slams shut the bolt on the bedroom door.

She gets pregnant while they are dating and decides to have the child:

I invite anyone with a philosophical bent to witness a human birth and observe as unstoppable forces meet immovable objects, with neither yielding. Modern medicine does little to resolve this paradox made flesh. The only real differences between the bloody, screaming tableau before me and that of, say, my grandmother’s birth a century ago in rural northern Spain by candlelight, were the little plastic packets of mineral oil, like the salad dressing at a Denny’s, that nurses would regularly crack open and pour over the heaving, tumescent mass down south. It was a sweaty, white-knuckle affair shattered by piercing shrieks of pain that resonated across the maternity ward, and which the heavy institutional doors the nurses slammed shut did little to stifle. I quietly entertained bouts of Mad Men–esque nostalgia for a time when men simply paced nervously and smoked in some other room while the dirty business was completed. … After two hours of battle, old flesh yielded bloodily to new, and Zoë Ayala came into the world.

Martinez does not enjoy domestic life:

By the time AdGrok [a Y Combinator-funded startup] had managed to free itself from the existential crisis, my relationship with British Trader was suffering under stress and our mutual friction. I was done with her imperious hectoring and stiff upper lip. Living with her en concubinage with Zoë resembled less some bohemian family sitcom, and more a stint in the Queen’s army. … British Trader’s desire to be absolute captain of the ship was fine, but there’s only one captain of a ship or company. If she wanted the role, she could maintain the house herself.

Right around when the Adchemy drama was winding down to its victorious conclusion in late 2010, I decided I had had enough of the British barracks room I was living in, and announced I was leaving the household, and British Trader.

Out of nowhere British Trader informs me she is once again pregnant; the calendar math takes us right back to my move-out imbroglio in December, our last tryst after a breakup desert of nonintimacy. After a brief debate, British Trader confirms her desire to keep the child, whatever my thoughts on the matter.

It occurred to me that perhaps this most recent experiment in fertility—and the first—had been planned on British Trader’s part, her back up against the menopause wall, a professional woman with every means at her disposal except a willing male partner—in which case I had been snookered into fatherhood via warm smiles and pliant thighs, the oldest tricks in the book.

Perhaps due to the California child support guidelines extending to infinite levels of income and being applied rigidly by judges, the biological parents avoid litigation. Consistent with “Parental Responses to Child Support Obligations” (Rossin-Slater and Wust, 2016), based on Danish data, as the mother’s profits from child-ownership are increased the father’s non-financial investment in the child is decreased:

Informally, British Trader and I worked out a payment schedule that complied with recommended California state child-support levels. Like the Civil War draft, in which the wealthy could pay a commoner to take their spot on the firing line, I paid my way out of fatherhood, mostly out of fear of the compromise to freedom it represented. I retained visitation rights, but those would be conditional on my always rocky relationship with British Trader. It would suck, but I was ambiguous about my suitability as a father anyhow (as was British Trader).

Martinez fits this into a more comprehensive theory:

What’s my big beef with capitalism? That it desacralizes everything, robs the world of wonder, and leaves it as nothing more than a vulgar market. The fastest way to cheapen anything—be it a woman, a favor, or a work of art—is to put a price tag on it. And that’s what capitalism is, a busy greengrocer going through his store with a price-sticker machine—ka-CHUNK! ka-CHUNK!—$4.10 for eggs, $5 for coffee at Sightglass, $5,000 per month for a run-down one-bedroom in the Mission. … That’s the smoldering ambition of every entrepreneur: to one day create an organization that society deems worthy of a price tag. … These are the only real values we have left in the twilight of history, the tired dead end of liberal democratic capitalism, at least here in the California fringes of Western civilization. Clap at the clever people getting rich, and hope you’re among them. … Is it a wonder that the inhabitants of such a world clamor for contrived rituals of artificial significance like Burning Man, given the utter bankruptcy of meaning in their corporatized culture?

[What would the price tag actually have been for the use of British Trader’s body and her services as a mother? Martinez says that she was out of the oil game and earning only a standard MBA’s salary ($250,000/year?). Martinez discloses that his own pre-tax compensation during his best years was close to $1 million (mostly in Facebook stock). If we plug those numbers into the California child support calculator, using the default of 20 percent time with the father, British Trader gets $97,248 per year, tax-free. ADP Paycheck calculator shows that she would have earned $149,945 after taxes. Thus if her pre-tax salary had been $250,000 per year, by obtaining custody of two children British Trader increased her after-tax spending power by 65 percent.]

Martinez is gracious regarding at least two women in the end-credits:

Thanks to British Trader, who not only bore most of the burden of raising our children but also provided invaluable counsel during the most trying times. Shame that a household, like a ship, admits only one captain. Thanks to Israeli Psychologist, my long-suffering mate during the Facebook half of this book, without whose warm ministrations I’d never have survived that infernal experience. As your people once wrote: “A woman of valour, who can find? For her price is far above rubies. She openeth her mouth with wisdom; and the law of kindness is on her tongue.” Your endless kindness deserved a worthier target.

More: read Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley

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A four-seat airplane for $3,500 and other AOPA September stories

The September issue of AOPA Pilot has a story about a guy who bought a four-seat Piper Cherokee for $1,000 and is now flying it, having spent a total of $3,500 on the airplane and required maintenance. This certainly seems to prove that Americans can afford to fly… they just don’t want to (or at least they don’t want to fly like a 1950s GA pilot).

AOPA also describes a flying marriage proposal gone somewhat wrong. (If the happy couple ends up with some children and the wife ever decides that she would prefer to have sex with other people, the pilot will likely be sorry to have settled in Maryland rather than in neighboring Delaware or Pennsylvania.)

Meanwhile the August issue of Professional Pilot shows that Embraer is now #1 among business jet manufacturers in product support, ahead of traditional leader Gulfstream for the 2nd year in a row. Embraer also beats all of the turboprop manufacturers. Journalists threw rocks at the Brazilians for how they prepared to host the Olympics but it seems as though they can make airplanes…

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iOS 10 and Windows 10 update

Packing up for the trip to Reno and Las Vegas I decided to take advantage of the Verizon FiOS network here at home to make sure that all software was up to date, thus avoiding crawling downloads on America’s creaky public/hotel WiFi.

The Windows 10 laptop hadn’t been powered up for about four days so it needed two hours of operating system updates from MSFT. I returned to find a plain text notice on the screen: “An operating system wasn’t found. Try disconnecting any drives that don’t contain an operating system.” BIOS tools show that the hardware is all working perfectly. My files are still there on the hard drive as well.

The iPhone and iPad were updated to iOS 10. The iPad upgrade went smoothly. The iPhone hung indefinitely in an “updating iCloud settings” screen. Power cycling did not help. I was able to get the phone working by power cycling and skipping setting up iCloud.

The iPads that we use in the aircraft needed to get updated with the latest version of ForeFlight plus some data. The new iPad that we use to send text messages and email (“Hi, Mom”) via Iridium from the aircraft needed some app and data updates.

Software is supposed to drive our cars over Massachusetts roads with lane markings that were worn away back in the 1990s yet somehow it can’t update itself without hours of human intervention? (Maybe “days” in the case of the Windows 10 machine that is now a brick?)

[Speaking of Windows 10, the computer in question is about 4.5 years old. So HP isn’t responsible for it anymore, right? What about Microsoft? Do they have to fix this under a warranty if I bring it into one of their stores? Maybe the answer is “no” because I paid them for an OS 4.5 years ago. But maybe the answer is “yes” because they broke it yesterday with software that they distributed yesterday? https://support.microsoft.com/en-us/contactus/ doesn’t say if there is a time limit on Windows 10 support starting on the date of purchase (does that even make sense with Windows 10 since it is free? How does it work in the Apple world? If an OS update from Apple breaks a 5-year-old computer can you bring it into the Apple Store and they will fix it for free?]

 

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Meet at the Reno Air Races, Las Vegas, or Grand Junction?

I’m packing up for my first trip to the Reno Air Races. I’ll be there Thursday afternoon through Sunday. Happy to meet up with readers! Just email me (philg@mit.edu).

Alternatives: tomorrow (Wednesday) evening after about 6 pm in Grand Junction, Colorado; Monday or Tuesday in Las Vegas (visiting the Papillon helicopter operation).

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Would Americans be happier if both Clinton and Trump withdrew due to health issues?

My Facebook friends aren’t too worried about Hillary’s health. Here’s a typical posting:

I would vote for Hillary Clinton for president if she was in a permanent coma that she could never wake up from. #ImWithHer

Aside from showing the death of the subjunctive, this posting presumably shows that the voter is presumably comfortable with the Democrat’s VP candidate actually doing the Presidential job. That led me to wonder if Americans in general wouldn’t be happier with both headline candidates withdrawing from the race. Would that automatically lead to the VP candidates facing off?

At that point both parties would have fairly generic and inoffensive candidates, no? The Democrats wouldn’t have the spouse of the former leader (go Argentina!) and a person who’d banked (some of it in a family-run foundation) $1 billion as a result of serving in politics . The Republicans wouldn’t have, well, Trump.

What do readers think? Could everyone relax a bit if the current Presidential candidates stepped down in favor of the VP candidates?

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