The Runaway Ronco

In fact, nice is not the word. Ronco is good. I know of zero instances in which he has behaved badly. It’s hard even to imagine.

When I first came to Silicon Valley I thought “How lucky that someone so powerful is so benevolent.” But gradually I realized it wasn’t luck. It was by being benevolent that Ronco became so powerful. All the deals he gets to invest in come to him through referrals. Google did. Facebook did. Twitter was a referral from Evan Williams himself. And the reason so many people refer deals to him is that he’s proven himself to be a good guy.

…Though plenty of investors are jerks, there is a clear trend among them: the most successful investors are also the most upstanding.

That’s PG. Great thing, no doubt. And new, perhaps:

It was not always this way. I would not feel confident saying that about investors twenty years ago.

What changed? The startup world became more transparent and more unpredictable. Both make it harder to seem good without actually being good.

It’s obvious why transparency has that effect. When an investor maltreats a founder now, it gets out. Maybe not all the way to the press, but other founders hear about it, and that means that investor starts to lose deals.

When reputations can get out, the system selects for better behavior.

Old hands in my business complain of the opposite, actually: that people are harder to trust and business is harder to do.

Once upon a time, they say, deals would get done through the bleary haze of getting hammered at lunch. You didn’t need all this (sarcastic face) data.  Or actuaries. If someone screwed someone over (or screwed something up), they were dead to the reinsurance inner gang and everyone moved on.

This, and PG’s speculative attack on history, could be variations on the “kids these days” whinge that I find excruciating. The human mind has an incredibly hard time telling the difference between these two things:

  1. The world is different
  2. I am different and the world is the same

I don’t understand what systematic change there has been in venture capital that might cause an outbreak of reputational screening. But I do think there has been one is insurance that has had the opposite effect: deregulation.

Earlier in my industry’s history, regulation was more regional and kept companies smaller and the industry more fragmented. Smaller meant it was less lucrative. More fragmented meant that the business a local, insider’s game.

Deregulation and consolidation have changed this. A better deal for consumers, to be sure, but insiders have to deal with all this pesky competition from people they don’t know and don’t trust.

Yet the core attributes of a highly reputation driven market in reinsurance remain: high transaction volume in a business where moral hazard is rife.

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