The key reason the valley is the hub for startups is the concentration of the right mix of people: talented engineers, ambitious thought leaders, and rich people who are hoping to 1) get richer 2) be a part of the next great technology and/or 3) give back to the community.
As Paul Graham puts it, “nerds and rich people.”
More than the presence of the people, it is the ecosystem of repeated interaction and strong connectedness between the groups that makes things work best. Most (VC funded) entrepreneurs are not more than 2 degrees away from any other investor or top entrepreneur in the valley.
This closely-connected system is disadvantageous in that gossip and negative info spreads like bacteria, but also has an advantage of creating a high reward for cooperation among its members. This benefit for cooperation is loosely related to the concept of Reciprocal Altruism, developed by Robert Trivers to explain cooperation in evolutionary contexts.
In essence, Reciprocal Altruism means that, in cases where there will be multiple interactions, you should cooperate with another party until they defect at which point, you should never cooperate with them again.
Essentially: trust someone until they screw you over and then never trust that person again.
The theory is that the output of reciprocal altruism is higher in the long term, even if short term gains are compromised. If you are willing to incur some cost for the benefit of the other party in one situation, then if roles are reversed, you would expect that they would do the same. Both parties are constantly cooperating to maximize the sum of the long term output of both parties.
The closely connected (and high-gossip) system of Silicon Valley amplifies this effect. Instead of having just two parties that know whether the other party has cooperated or defected, every action can easily reverberate to everyone around the valley.
There are a few necessary conditions for this concept to hold true: the cost incurred should be slight relative to the benefit to the other party, roles should often reverse, and one must remember who cooperated and who defected.
All conditions exist here. People are often interacting with the same people repeatedly and institutional memory is strong because of the chatter and the existence of tech blogs.
If an investor screws over an entrepreneur, everybody hears about it quickly… both in real time and any time that his contacts ask which investors they should (or should not) go to. (For instance, Silver Lake might have some dealflow issues in the short-term).
Almost all entrepreneurs have investor black lists. I use the “investor screwing the entrepreneur” example only because it is the one that we hear most often about, but there are many examples of where this concept comes into play: founders screwing over each other, employees stealing IP, entrepreneurs going back on their word to investors, partnership agreements being broken…
Many of my most successful mentors, advisors, and role models follow this framework (whether or not they would use the phrase). Trust, cooperation and loyalty is extremely important to them, (as it is for me) and when that is broken, they do not trust or cooperate with them ever again.
Some people will defect and break that trust and it is likely that those folks are repeat offenders.
So:
1) Surround yourself with a team, investors, advisors, mentors, partners and service providers that you can continuously trust and cooperate with. When they show you otherwise, act fast and avoid working with them ever again.
2) Don’t screw people over.
*Special thanks to Tony Espinoza for introducing me to the concept and academic research
**For more academic info on this concept, check out:
http://joelvelasco.net/teaching/tawp/Trivers%2071%20-%20evolution%20of%20reciprocal%20altruism.pdf
http://www.apaonline.org/publications/newsletters/v00n2_Computers_15.aspx
Good stuff.
A great way to play it, where ever you are.
Great read.
. Screwing others is evil. I don’t worry about it as much as I leave it on Karma. To live (and be happy), you have to trust. It all comes back to you one day 
‘Sangha’ in Sanskrit means a gathering or community united by a common vision or purpose. Stay in Sangha of people who can be trusted, share your visions and who you can learn from. Worked well for me so far.
Hey Rajeev. I like how you articulated that. Would’ve saved me my own comment if I had noticed it sooner!
Edward-
I think that you explained it better than me. We are essentially saying the same thing..
Well said, Evan! Seems like you were paying attention in class.
I would add that even when we believe it’s a *one time* interaction, it’s still always best to follow the Golden Rule: “Do unto others as you would have them do unto you”
Many times we think of events as one time interactions when they are actually not. The woman you cut off on the freeway could be the investor you’ll rush to meet the following week. As you point out, it’s a small world. Always applying the Golden Rule frees you from the challenge of trying to decide if the current situation is a one time event, or a repeated interaction. Like Google’s “Do no evil” motto, it simplifies decision making.
Most importantly, it’s the right thing to do.
Thus, I would suggest that the concept of Reciprocal Altruism extends beyond situations were you expect multiple interactions. In fact, I’d say it’s closely related to the concept of generalized reciprocity. http://bit.ly/qKfN6l. You exchange “good will” with others, with the expectation that the value will balance out over time. Of course, once you are crossed by one individual, you’re in your right to cease exchanging good will with them.
[...] Why the Valley Works and Why Not to Screw Over People By Evan Reas [...]
Evan – great seeing your stuff on the Startup Digest reading list!
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