Valley of the Gods

by Alexandra Wolfe

  There were so many Silicon names at South by Southwest that attending the rest of the festival was almost unnecessary for the upper echelon of visitors. Simon was arranging for Apple executives to meet with developers as Steve Bing walked through the lobby with his staff. Lady Gaga’s former manager Troy Carter was getting ready to host an afternoon hackathon. Nearby were Justin Bieber’s manager Scooter Braun, 500 Startups founder Dave McClure, and Josh Abramson, who launched the popular comedy website College-Humor. Simon was there with Celestine Johnson, who was representing Eric Schmidt’s venture capital firm Innovation Endeavors, which had sponsored an “innovation mansion” where entrepreneurs running their twenty-two portfolio companies could stay for the week to brainstorm.

  Marcy’s eyes darted around the room to see who she could make introductions to—they were in the thick of SXSW deal making. “We’re creating this playground, their dream environments for them to foster innovation, to cultivate community,” Johnson was explaining. It was based on DevHouse, a Palo Alto company that housed engineers together to encourage them to come up with ideas. “I heard the founders of Pinterest actually met at a DevHouse,” she confided.

  Surrounding her in the lobby was a mash-up of tech company workers and Hollywood types, which was partly intentional. Agencies in Los Angeles had started to hire actors to partner with start-ups for promotional activities. Now the trend was to create viral campaigns matching celebrities with tech product launches. Uber, the ride-sharing app, got endorsements from such celebrities as Ashton Kutcher, Neil Patrick Harris, and Kate Upton.

  As Uber’s Travis Kalanick walked across the lobby, Simon flagged him down. Nearby, two former Apple executives on the couch were telling him his logo was too masculine. But Kalanick didn’t want to give the U a curlicue to feminize the concept, so he told them he was sticking with his manly upside-down horseshoe. “Travis continues to be focused on leading the vision and direction of the company from the early days to the present,” said Simon, who was an early-stage Uber investor.

  Dressed in designer jeans, a beige polo shirt, and a cowboy hat, Kalanick belonged to the engineering frat clan. It was the second year that Uber had sponsored Uber pedicabs in Austin through UberEats. This year they would be delivering barbecue. The iPhone app had added cows to the map of cars, and as Kalanick explained, “If you’re hungry, you push the cow, and boom, bring me barbecue!”

  Between the Uber barbecue (“powered by Iron Works”) and Uber’s recently launched site—including Ubers from Last Night (a spinoff of the site Texts from Last Night, on which people post embarrassing texts while riding Ubers the night ­before)—the company was making inroads. A few years later, it had expanded internationally. Uber’s problem wasn’t publicity but policy. Although Simon didn’t officially advise Uber, her PR strategy helped other companies with that too.

  She used to advise the Founders Fund, but more recently the firm was working with a different kind of strategist. Susan Mac­Tavish Best was the anti-Simon. Instead of flying around the globe to different events, she hosted get-togethers in both of her homes. Best looked Bohemian. Her ancestry was Scottish, and she still decorated her house with tartans. A self-described lifestyle guru, Best hosted parties for young founders and invited media there to mingle. She would make specialty cocktails in mason jars with cute little labels and colorful chalkboard signs of what dinner would be. For Hampton Creek, a “food technology company” that engineered plant food substitutes for mayo and eggs, she invited her media friends and Silicon Valley friends, as well as former Grateful Dead lyricist John Perry Barlow, which gave it all a flavor of old-world hippy-dippy community. She cultivated the young fellows on both coasts with the promise of being included in something that might be viewed as cool. She was a connoisseur of indie bands and start-ups on the verge that she would merge with reporters, venture capitalists, and entrepreneurs to give a little edge to a largely edgeless industry.

  Her anti–Silicon Valley upbringing gave her a kind of carte blanche to be hoodie free. She wore dresses with plunging necklines, bright-red lipstick, and tight leather pants. In addition to Founders Fund, Best used to work with Lulu, a print-on-demand book publishing company, and Klout, a site that ranked people’s social media presences. Lately, however, she had become the queen of impromptu techie feasts. At the same time, along with aiding in tech companies’ growth, fundraising, and marketing strategies, she launched her own company, Living MacTavish. In San Francisco she hosted an evening on California’s proposed secession with Tim Draper and novelist Michelle Richmond. On another night, she cooked dinner for Burning Man cofounder Larry Harvey and musician Jerry Harrison. Over the past year, she has held events featuring an interview with food writer Michael Pollan and artist Amanda Feilding on the use of psilocybin for end-of-life treatment for eighty and has hosted salons where entrepreneurs, distillers, and NASA engineers discuss what it would be like to live on Mars. MacTavish regularly runs sixty to seventy miles a week, so she interviewed 4-Hour Workweek author Tim Ferriss and ultra­marathoner Dean Karnazes on “going to extremes” in front of another crowd.

  On the East Coast, she would do the same kind of networking with entertainment people. But there, at least the media group she gathered had realized something: they felt the tug of technology, and it was taking their industry away from them. Technology had run away from the media and outrun it. The blogosphere, social media networks, and Twitter were replacing print, but they were so vast they couldn’t be manipulated. Betting on people or betting on followers was not a meritocracy anymore. It was who had the most technological traction, and who had manufactured the most buzz.

  • • •

  Laura Deming certainly had buzz attached to her name, but it gave her an uneasy feeling. She was uncomfortable with promoting herself. She had heard that some people go to such lengths as manipulating Wikipedia pages. People posed as Wikipedia writers to change entries, but they were actually just publicists. Who needed facts? The blogosphere could run away with the news, the gossip could overwhelm the conversation, and even the subjects realized they couldn’t control what was said about them. It was an irony that both Simon and Best, and now even Deming, were all too aware of. There was a huge disconnect between what the press knew and said and what the reality was. It was the fog of where the actual value was and what some of these companies actually did. The new media thickened that fog. What were these valuations? What was all this money?

  What could these digital armies do if they changed Google results or made connections or gained followers for marketing reasons? What was failure if no one could see it? Deming wondered if she really was too young to fail, and if anyone knew what failure even meant anymore.

  * * *

  I. “At a Bay Area Club, Exclusivity Is Tested,” by Sheila Marikar, New York Times, January 10, 2014.

  9

  The New New Money

  Laura Deming’s friend Paul Gu was one of the quieter roommates in the house she shared with five other Thiel fellows in downtown Palo Alto. Back in 2012, when they all lived there together, none imagined that he would end up being the most successful in their 2011 class—at least by funding standards. Gu had received far less press than many of the other kids in the class, such as Dale Stephens and John Burnham. He started the fellowship drifting from idea to idea without coming up with anything that stuck. Six months in he had nothing to show for it.

  But then Paul hit upon a concept that would become a new way to deal with money. It sidestepped the banking system and provided something different. His company would be among the first in Silicon Valley to let people loan to other people. It took out the middle man, it ignored the institution. It was so Silicon Valley.

  The son of Chinese immigrants who came to the United States to study at Arizona State University and give their son a better education, Gu showed academic promise early on. He went to Yale University, where he soon assimilated into dorm culture and
style. Gu was tall and wiry, and dressed in the typical postdorm uniform of loose jeans and a sweatshirt or baggy T-shirt. He blended into the background. But he was a welcome presence and a calm observer who smiled a lot. And he was focused on what he was doing. Deming liked him. He was her kind of person, after all. There wasn’t the usual Silicon Valley trendiness about him. He wasn’t trying to be a billionaire just after landing at San Francisco International Airport—though he wouldn’t have minded. But still, his attitude was refreshingly free of affectation.

  Deming had met Gu during the finals rounds at the Hyatt but hadn’t gotten to know him back then. He’d stayed close to David Luan and Daniel Friedman, the fellows who started a robotics company together and who applied at the same time while they were sophomores at Yale University. In fact, Gu was with Friedman in the school science lab when he found out he’d won the fellowship. The calls came in on their cell phones, in succession. “We pretty much jumped into the air to chest bump and promptly dropped our phones, with the Thiel Foundation still on the line,” Gu remembered later.

  After accepting the fellowship, he moved from New Haven to New York, where the twenty-year-old started trying to figure out what his start-up would be. It was easier to leave school and start in Manhattan, where he already had friends, and it was easy to get around. It was different from college, but he’d experienced two years of school, and New York was new and exciting. There was so much more to do there than up in New Haven; plus, Gu was familiar with the city from weekend trips in with his friends.

  At Yale, he’d taken economics and computer science, spending his days building trading models and doing problem sets—skills he thought would lead him to a career in finance. He knew he didn’t want to go into academia. He always thought he’d do something in business. Wall Street didn’t appeal to him, though. He was more independent and longed to start something on his own. It was this impatience that in part led Paul to apply to the fellowship. He just wanted to work for himself. When the Thiel Fellowship came up, he thought he’d go for it. Why not? “It seemed like sort of an obviously good thing to apply for,” he remembered. “I did that and luckily got it.”

  While he was enjoying his social life, staying in touch with his Yale friends and meeting entrepreneurs in New York through a shared work space he used, he was starting to get frustrated that he couldn’t come up with a company that worked. He and the cofounders he casually collaborated with to start a local ­e-commerce site called 404Market were frustrated and unable to attract any attention, or customers. Still, he gave it six months, but by month four was starting to look around for another opportunity.

  Gu had been thinking about problems he could solve through technology. That was beginning to become the standard refrain among aspiring entrepreneurs: find a problem to fix. Lately, founders had become so overzealous in this endeavor that problems were created that never existed, or problems were oversolved to the detriment of practicality, such as iPad menus at airports, which took live servers to explain to frustrated users. It took Gu six months of working in New York to develop some real problem that wasn’t being attacked from all sides by twenty- and thirty-somethings salivating to stumble upon the next TaskRabbit—a company that lets you find strangers who will do small tasks via an app. But then Paul realized the biggest unsolved problem was all too obvious: he knew too many contemporaries who were broke.

  Some of his friends weren’t doing so well, either. Gu didn’t have a credit history, and he had no home to borrow against. He wasn’t sure what to do. What if people could loan him money directly? Maybe they could do it online or through an app. Maybe he didn’t even have to go through a bank.

  When his friends tried to get loans to pay off their student debts or start companies, they had little to go on. So Gu decided he would come up with a formula that would predict people’s future salaries based on their college performance and thereby give people—not institutions—enough information and leverage to loan directly. In return, the investor would get a percentage of the person’s future salary.

  He had also met his future cofounders: two Google employees who were twenty years older than he was and thought this idea of his could become a real business. They had been thinking about the same issues young people had, but they already had jobs—good ones. One of them, David Girouard, was president of Google Enterprise, a line of business products such as Gmail for businesses, which was rebranded in 2014 as Google for Work. They were established in Silicon Valley. Gu considered him the perfect partner. Girouard had the experience, and Paul had the algorithm that would use metrics such as a GPA, the person’s career goals, and past internships to predict future salaries. They would join forces to start a new company called Upstart and would fund mostly young people who couldn’t get a line of credit or a loan. Seven other student entrepreneurs wanted to participate, and the beta-testing team was formed.I

  Gu realized early on he needed to get to California to have a shot. He figured the place to start a business was Palo Alto, not New York, so he packed up his Tribeca apartment and flew across the country and moved in with a few of the other Thiel fellows.

  In spring 2012 he and his new cofounders raised money within a few weeks to get started, thanks to their connections through the Thiel Fellowship. The Founders Fund invested too. They worked in office space reserved for incubating companies in Google Ventures and then Kleiner Perkins—right on Sand Hill Road. It was like they’d arrived. But they hadn’t, really; they were merely where it was all happening. Upstart had an algorithm, but it needed to find a seamless way to make the company work that would benefit both investors and those seeking loans. “We sort of had this general concept of a problem in mind, but the solution was quite different than what we are building today,” Paul said.

  Socially, Gu missed New York. However, the move was easier because he was living with Deming and two other fellows, Darren Zhu and David Luan. He soon adopted their routine. He was having a better time than some of the other fellows and didn’t feel quite as isolated. It helped to have a focus. And his company was starting to get traction now that it had a few established Silicon Valley executives on board. Moving out there only after he had a workable idea turned out to be more helpful than he could have imagined.

  Many of the others had moved around from house to house or from one co-living community to another. They had run out of their stipends sooner than expected. Gu, on the other hand, was getting paid, thanks to that early funding. Soon that amount would increase. He was also trying to solve the same problem with which the Thiel Fellowship took issue: the burden of carrying student debt into a world that didn’t treat them like their college counselors did.

  That first year and a half, the group was trying to figure out an income share agreement in which young people would share a percentage of their future income with those who had loaned them money. The idea was for it to be different from the way a loan typically worked. But other companies were catching up to them. The idea clicked with a generation of students who no longer could rely on tracked careers, or traditional industries, to offer them jobs upon graduation. It has been estimated that by 2020, 50 percent of the United States’ workforce will be freelance. Steady regular full-time jobs weren’t as common anymore.

  But getting it right continued to be a challenge. “We pretty soon realized that was not going to be mainstream market product because it was very complicated, and a lot of manual time spent explaining what this was and why people should want it,” Gu explained. They built different models, but the product was too complicated, so the team decided to make Upstart more of a traditional loan company.

  Gu met some of his early investors through the fellowship’s extended network of fellows. He met them at Thiel fellow functions and meet-ups. It wasn’t that he particularly enjoyed going to these events. He mostly socialized to network. The fellowship didn’t have a structured meeting system, except occasional Friday gatherings at a casua
l Palo Alto restaurant. “It was really just everybody doing their own thing,” he recalled. Sometimes more organized groups got together, but usually everyone fended for himself.

  Paul, however, seemed to thrive in this unguided system. He liked that there wasn’t a formal structure to success there. “I think the sort of traditional system is very linear in that you know what to do in order to succeed,” he explained. “You’ll most deterministically get to a certain level of success, and, basically, when you’re trying to start a company, there’s not really a textbook for what exactly you need to do. And even if you do the things that are the textbook, it doesn’t guarantee success—because the textbook doesn’t really exist.” Gu enjoyed the added risk.

  Meanwhile, his job was to assess risk in the same way that East Coast businesses and industries did. His whole company used success metrics, such as GPA, to predict future success. At Upstart, Gu focused on specific ways to do that. “It’s not whether you can pay [back the loan],” he maintained. “It’s a question of how important you see your obligation.” He realized that people who were diligent in school and studied conscientiously tended to honor their commitments. It was a way to judge people through data. In a place where social skills were poor, to put it mildly, algorithms served as a more reliable predictor.II

  Gu went so far as to say the algorithm even judged a person’s character. Indicators pointed to warnings that someone might not necessarily be reliable, such as if he or she had used prepaid wireless numbers—a possible warning sign that the person didn’t have a steady paycheck.

  So now Silicon Valley was even trying to crunch data and numbers to determine character. Perhaps this data could predict a person’s morality, responsibility, and reliability. Maybe cloud-based personnel software could replace human perception, and help human resources departments predict when employees will quit, how they will perform, and how long someone will keep a job. It characterized managers as “rainmakers” or “terminators.” Analyzing employees through key words, such as a Google search, was becoming more and more common as even something as ephemeral as character was becoming digitized.