Matthew Mandel

I’ve written previously about the deep tech opportunity. While lean software startups have been a great place to invest venture capital over the last thirty years, I believe we’re living through a shift where future returns in venture capital will be more driven by companies that engage in fundamental innovation. Another way to put this thesis is that I don’t believe we’ve reached an “end of history” of venture capital.

In his excellent book The End of History and The Last Man, Francis Fukuyama argues that liberal democracy represents the “end of history” of human political organization, meaning there are no advances to be made in forms of political regimes. While we might stray away from liberal democracy, that would be a strict regression. Following Kojève and Hegel, Fukuyama identifies the core human needs as the satisfaction of material desires (food, shelter, health, etc) and the recognition by one’s community of one’s dignity– for some, the dignity we all share as equals and for others the dignity of being superior. Liberal democracy, Fukuyama thinks, is uniquely well-suited to our nature because it provides for everyone’s material needs by sublimating the drive to be a superior into participation in the market, while giving everyone a baseline sense of equality through democratic participation. In this way, liberal democracy makes us rich, makes the superior among us feel recognized as such, and makes the rest of feel recognized as worthy equals.

In general, Fukuyaman approaches to histories of different domains argue that institutions evolve towards some insuperable end-state based on their underlying constraints. The epitome of human political organization is liberal democracy because only liberal democracy satisfies the needs of human nature. A Fukuyaman approach to architecture might suggest that the history of architecture ended with the rise of the Neoclassical style, perhaps because it perfectly melds the needs for function and beauty, or something like that.

Returning to venture capital, advocates of lean software startups might be best understood as defending a Fukuyaman theory of the history of venture capital. They think we reached the end of venture history in the 90s with the ascent of the lean software startup. They might identify the underlying constraints on startups as having to, in a capital efficient way, build a product people want, sell it to them, and prevent others from competing for that businesses. Under those constraints, lean software startups could look like the perfect model for satisfying the inherent needs of a startup. After all, as I lay out in my essay on the deep tech opportunity, lean software startups built on the internet are uniquely capable of being quickly and cheaply iterated on with customer feedback, easily distributed widely, and defended through strong network effects. According to this theory of the history of venture, the lean software investing style of the last thirty years optimally satisfies the needs of startups just as liberal democracy optimally meets the needs of humans.

I ultimately argue in the essay that these benefits of lean software startups are actually more contingent than we might have naively believed. I argue their advantages were being eroded in real time and concluded that that far from permanently redefining venture capital, lean startups might ultimately be remembered as an anomaly in venture’s history. Another way to put this argument is that I don’t believe the history of venture capital ended, and I reject the Fukuyaman approach.

Yes, the best way to do venture capital must be indexed to what makes for a great startup. However, perhaps unlike human nature, what a startup needs to be great has varied throughout history depending on the social and technological pressures of the time. History will not bend to satisfy our fixed concept of a great startup, so venture capitalists must adapt to funding the kinds of startups that thrive in each new historical moment.