The Future Of Venture Capital: Trinity Ventures Partner Gus Tai (Part 7)

SM: What is the future of venture capital?

GT: It will go back to its roots. It will be a smaller industry with fewer firms practicing it as a craft. There will be smaller fund sizes. I do not believe there is evidence that venture capital is an industry that scales. Should it be bigger than it was in 1990? Yes. Should it be bigger than 1999? No. The capital under management is greater than the amount of discontinuities which could drive profit. If we had a perfect storm of innovation then we could be too small an industry, but I do not see that.

SM: What is the future of innovation?

GT: It remains the same. There will always be rhythms of innovation. The median time a company stays on the Fortune 500 is between 30 and 40 years. It matches the career of a person. Often, these companies grow and develop a culture which was appropriate for the time, and then it fades. That is what allows innovation to flourish. Why would that cycle ever change? Innovation is not going to stop.

SM: What is the future of Silicon Valley?

GT: I spend a lot of time focusing on culture. It’s what is most overlooked at a startup. When there are only two or three people at a company you can help shape and influence culture. It is a lot harder trying to fix a plane once it’s in the air. Companies that have tight niche cultures can execute well against norms.

Silicon Valley has this notion that it is great to fail and try again to be innovative. I think it will be a magnet through my lifetime, drawing people here to take that bold leap forward to try and do something.

SM: What is the future of capitalism?

GT: Capitalism, like democracy, is the best of all evils. With all of its flaws, it is a great system for shifting around resources where they could be best used to produce what could be desired. The downside is that it does not have constraints for unmitigated growth for people who have capital, which can lead to inequality. You do need to have guardrails for capitalism as you need to have guardrails for any type of system. In the US capitalism is the cultural norm and it will continue.

SM: You don’t think the Obama administration’s efforts at bending capitalism towards a wealth redistribution society is going to impact what is going on?

GT: The history of the US, from a societal and cultural norm and shift, will allow you to see shifts from a thesis to an antithesis to a synthesis of the previous thesis and antithesis. You could look at the ’50s, ’60s and ’70s and see the cycle.

With respect to capitalism, the forces against capitalism in the US, and the forces for capitalism in the US, continue to become more nuanced. Think about the 1800s when there was no income tax, to the development of an income tax and now to progressive taxes. In the ’60s the marginal tax rate under Kennedy was 90%. We will not get back to 90% in my lifetime.

Capitalism continues to have a need to be fine-tuned. There are clearly spots where more regulation and enforcement of regulation is needed. I am sure there are places that need more deregulation.

SM: Let’s assume Obama will be in office for eight years. My sense is that we will see a capitalism 2.0 emerge which will be more regulated. The one concern I do have is entitlement from a cultural standpoint. That is a phenomena that I think can rot a culture.

GT: Fareed Zakaria wrote about a unifying notion that stable democracies are enabled by having a middle class that believes it has earnings power. You need to have possessions and you need to have the belief of earnings power. If you only receive money through handouts, you do not have the capacity of control.

SM: That is a huge flaw of welfare economics. Some of Obama’s messaging from that point of view is flawed. He does tend to advocate for more welfare than I am personally comfortable with.

GT: I think it is a Chicago pragmatist. I don’t hear that message myself. When you look at a monopoly or a company that has such dominant market share that they can get unfair rents for it, all the employees wind up doing well. In the 1980s, with Microsoft making so much money, how do you relate as an employee there? You may be doing great work but how much of the profit are you personally driving versus how much of the profit is achieved simply due to circumstance?

I have been thinking a lot about consumerism. Do we all need a bunch of cars and televisions? Is it necessarily bad that we are spending less?

SM: I think America learning to live within its means is not such a bad thing.

GT: This could be a good social policy. What does it mean to live a productive life and a fulfilled life in terms of what you consume and how you elect to add value to society? The impulse for what you do with your time is driven by the desire to make a difference.

SM: I want to thank you for your time. This has been great.

This segment is part 7 in the series : The Future Of Venture Capital: Trinity Ventures Partner Gus Tai
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