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G100 Network Notebook | October 2016

The “Startup Yoda” of Silicon Valley

That characterization comes from The New Yorker‘s fascinating portrait of Sam Altman, President of Y Combinator, whose alumni companies fetch a total valuation of more than $80 billion. The comprehensive profile contains a delightful succession story that highlights what makes YC unique – a discerning eye for talent and relentless focus on strategic growth. An excerpt:

[Sam] recently tweeted that YC’s empire reached 14% of the value of Alphabet…adding, “Long way to go…” It’s a blatantly unfair comparison: YC’s average ownership of its companies, diluted by subsequent venture funding, is just 3%. Yet Altman told me that, “unlike Google, we grow faster as we get bigger. We could catch them in 10 years.”

Can Technology Drive Global Growth?

Promising new research begins to quantify the economic potential of artificial intelligence. After analyzing 12 developed economies – responsible for more than 50% of world economic output, Accenture found AI could potentially double growth rates by 2035. Much of this growth will come from increasing the efficiency of people and capital, not replacing them.

Praedicat, a company providing risk modeling services to property and casualty insurers, is improving underwriters’ risk-pricing abilities. Using machine learning and big data processing technologies, its AI platform reads more than 22 million peer reviewed scientific papers to identify serious emerging risks. As a result, underwriters can not only price risk more accurately, but also create new insurance products.

From a future of work perspective, USC business professor John Boudreau argues the job displacement threat posed by AI and automation is greatly exaggerated and overlooks an important nuance:

The variation of tasks within occupations has a huge impact on work automation risk. Even in occupations at a high risk of automation, workers often perform tasks which are hard to automate, such as group work or face-to-face interactions with customers, clients, etc.

Why CEOs Fear Activist Investors

Activist investors won board seats in 46% of recent contests, an impressive – and intimidating – track record that doubles the rate of CEO turnover, a survey by FTI Consulting found. Steve Balet, head of corporate governance and activist engagement, adds in a Bloomberg report:

Even in cases where activists do not gain board seats, CEOs leave their post 71% greater than the normal rate.

What the Evolution of Private Equity Means for Business

A “silent revolution” underway in private equity is shifting the focus of portfolio management from turnarounds to transformation, Dave Ulrich observes in Harvard Business Review. He expects this change to have a profound impact on business, as private equity firms become “innovation incubators for insights on transformative leadership and organization.” Before that can happen, however, private equity itself needs to transform:

For phase three (buy and transform), financial discipline is not an event, but a pattern; strategic clarity is not a direction, but a commitment; operational excellence is not a tool, but a mindset. That means that in this phase, PE firms also require expertise into leadership, talent, and organizational capabilities and culture. Acquired organizations have organization capabilities that have to be transformed and talent that must be assessed and upgraded.

Is the Fed a Slave to Markets?

Yes, according to Kevin Warsh, the former Fed Governor who helped navigate the 2008 financial crisis. In The Wall Street Journal, the Hoover Institution fellow makes a compelling case for reforming the central bank and sharply criticizes the institution from which he resigned. One striking fact? The majority of S&P 500 gains made after 2008 happened on the same days that the FOMC made decisions. He adds:

The biggest banks’ growth in market share corresponds to that of their principal regulator. They are joint-venture partners with the Fed, serving as quasi-public utilities. As the dispenser of fault and favor, the Fed is contributing to the public perception of an unfair, inequitable economic system.