‘A Nearly Infinite Pool of Ignorance’
Two tech pioneers on what the collapse of Silicon Valley Bank reveals. A podcast with Mitch Kapor and Freada Kapor Klein, about their new book.
The collapse of Silicon Valley Bank appears not to have brought down the larger banking system, thanks to over-the-weekend rescue efforts by the FDIC, the Treasury, and other federal officials. Competence in governing is portrayed as ho-hum and boring, until we all depend on it.
Yet the SVB crisis has highlighted not just the financial but also some cultural and civic failings of America’s finance-and-technology juggernaut. During the crisis we heard from prominent tech-bro “disrupters” who had previously scoffed at the old, stodgy machinery of government yet desperately sent up the Bat Signal when they needed federal help. One of them wrote an opinion column that the Wall Street Journal actually published, arguing that having a too-diverse board (five women, one Black member, two veterans, “1 LGBTQ+”) was what led Silicon Valley Bank astray:
“I’m not saying 12 white men would have avoided this mess,” Andy Kessler wrote in the piece—which is how you say the quiet part out loud—“but the company may have been distracted by diversity demands.”
I’m not saying this is racist…
This must explain how things went wrong with Sam Bankman-Fried’s crypto frauds, with the leadership of Lehman Brothers and Enron, with Bernie Madoff, with rail safety at Norfolk Southern or at Boeing with the 737 Max.
Today we hear some different voices from the tech world. Back in the 1980s, Mitchell Kapor was a founder of the Lotus Development Corporation and designed its best-selling spreadsheet, 1-2-3. (The Lotus of his time also produced a heartbreakingly beautiful piece of early software, the legendary Lotus Agenda.) For the past dozen years he and his wife, the longtime social activist Freada Kapor Klein, have run the Kapor Center and Kapor Capital, to bring millions of dollars in investment capital to the innovators, start-ups, and communities that have been left out of most VC portfolios.
They have explained their rationale, their success (and failure) stories, and their results in a new book that is officially published today. It’s called Closing the Equity Gap, and I recommend it.
In the book they tell stories about how they found the people they’ve backed; they explain the evolution of their own views; and they give practical suggestions for both entrepreneurs and investors.
One of their themes that most resonates for me is the difference between “pedigree” and “distance traveled.” Pedigree is the set of credentials you bring to life: family background, perhaps family wealth, brand-name education, who-you-know. By contrast, “distance traveled” is what you’ve done on your own. Nearly 40 years ago I made a parallel case as a cover story in The Atlantic, and later in my book about American opportunity, More Like Us.
The timing was coincidental, but when I had a chance to talk with both of them yesterday morning, March 13, it seemed natural to connect their argument with the side of start-up culture then dominating the news.
You can listen to our full discussion, 37 minutes long, here:
Below are a few representative quotes, in some cases streamlined and clarified, to give you a sense of the discussion. In these quotes I use “Kapor” to identify Mitch Kapor, and “Klein” for Freada Kapor Klein.
James Fallows A big theme of your book is that the technology culture needs to be more socially aware, socially involved, socially responsible.
How do you think about this moment, of the Silicon Valley Bank collapse? Will there be any kind of reflection either within the industry, or about the industry?
Freada Kapor Klein I think it will be a watershed moment.
I do think the silver lining, because depositors are being made whole, would be another push for the very insular tech community to hold a mirror up to itself.
In an unflattering way. Not just a flattering self-congratulatory way.
And to think about its larger impact in this country and in the world.
What we’ve seen through our startup investing, and through other efforts that we support philanthropically in tech, is that [the tech economy] has been focused on making a few people stars, and making a small number of people incredibly wealthy. With no regard for the impact on the larger society.
Mitch Kapor I think Silicon Valley Bank was a very mainstream institution within the tech ecosystem. So it should fairly be subject to the criticisms of the tech ecosystem that we have in in general:
Which is that it is very self-regarding. It has typically overlooked a great deal of wonderful talent, and underestimated talent that doesn't come with a proper pedigree.
The kinds of companies we've invested in have founders who have great “distance traveled” stories. Silicon Valley Bank was no particular friend of theirs.
And yes, it's great that everyone who is a depositor is covered. But as Freada said, the best outcome would be a self-reflective moment for the tech community not to be so insular. And to think more about how it is allocating its money, and who is getting it.
I can't say I'm completely bullish that that will happen. But it is, as they used to say, a teachable moment…
Fallows You talk about the distance traveled of many of the people you've supported. Can you briefly recap the distances you have traveled in coming to your current work?
Klein I have a pretty lifelong history of being a social activist. I co-founded the first group on sexual harassment in the US. That was in the mid 1970s. I have always been interested in where power derives in this country and how to best effect social change. That really gave me the impetus to work within the tech sector.
Kapor In my case, like a lot of tech founders, I started out as a kid who was really good at math and skipped a grade and was a social misfit.
And Lotus started in the 80s, a million years ago, and became a huge success. Freada was hired literally with a job description to make Lotus the most progressive employer in the US. Because I wanted a kind of company where even a misfit like me could fit in.
Fast forward another dozen years. We got together as a couple. And our work started fusing together.
I was doing a lot of angel investing in the 2000s. Freada said, wouldn't you be happier if the investments you made were better aligned with your personal values? But I thought, if I’m just doing “mission” companies, I’m going to miss out on all the exciting stuff.
We decided to do an experiment to see if we could find a way to invest in companies, and as Freada says, close gaps of access and opportunity and outcome for low income communities and communities of color. Could we do that as funders and succeed, with big financial returns? That’s the story of Kapor Capital that we tell in the book…
Fallows You know the old joke about the economics professor who believes in efficient markets. He sees a $5 bill lying on the street and says: Well, that can’t actually be a $5 bill, because if it were somebody would already have picked it up.
There’s a version that applies to your kind of investing. If it actually were so financially rewarding, other people would already be doing it. How do you respond to that?
Kapor I would say it comes out of the nearly infinite pool of ignorance of the mainstream investment community. It is a fundamentally mistaken belief that comes out of unexamined assumptions. And we do take that apart in the book and provide an alternative account. It's just wrong.