Ex nihilo is one of those concepts that makes you immediately suspicious. When someone claims to have made something out of nothing, there is almost always an inconvenient history that they intend to eclipse. The fantasy that before us there was nothing has a great deal of ideological power. The creator ex nihilo gets to claim some faint emanation of divine power—the wealth creator and the job creator are treated as distant cousins to the capital-C Creator.
The same is true for the idea of terra nullius. When tech came to a stretch of Northern California along the San Francisco Bay, it reframed the world it found as a bunch of apricot groves, a rail line, and not much else. This kind of pioneering story abounds in Silicon Valley. It’s not just the architecture, which seems to pretend that nothing was there before whatever spaceship of an office park landed in a given lot. Rather, it’s the environmentalist facade of an industry whose dirty beginnings—above all, in the known carcinogen, trichloroethylene, long used to clean semiconductors—have dotted Santa Clara County with a record number of Superfund sites. It’s the way, looking at the names of the wealthiest people in the Valley, you get the sense of wealth that’s been created by this generation rather than inherited from previous ones. Of course, the Zuckerberg-Chan dynasty may one day amuse the Bay Area’s society columnists with their coke-fueled antics at the annual Cotillion Debutante ball. Maybe X AE A-XII Musk will one day run for governor of California like so many scions before him who were born on third base and think they hit a triple.
But for now, this wealth feels new. And the newness is part of its allure, its legitimacy. Stories abound about how Silicon Valley’s newly rich don’t know how to spend their money, or how they spend it on absurd things. There is something reassuring about that framing, suggesting as it does that these protagonists are new to wealth and privilege, that wealth is foreign to them.
Years ago, I became fascinated with the question of how “new” the money invested and made in Silicon Valley really is. It has fascinated me in part because it is on some level an unanswerable question: how do you decide whether money is really “new”? Even asking the question, asking where money came from, teases out some inconvenient continuities, and a different understanding of how this industry and the place it has made its home came to be.
Supertankers of privilege
Silicon Valley is good at persuading people to accept its self-perception as fact—a useful tactic, since a lot rides on that perception. In 2014, Forbes ran an analysis showing that “the wealthiest people in the country are increasingly self-made, leaving behind an era when dynasties inherited and concentrated wealth.” The leading indicator, they pointed out, was tech, where “more than 94 percent of the tech billionaires created their fortunes themselves.” (The numbers were much lower for sectors such as manufacturing.)
How did Forbes determine tech wasn’t dynastic? The authors ranked Silicon Valley’s super-rich on a 1-10 scale. A “1” on their scale denoted “inherited fortune but not working to increase it”; a “4” meant “inherited fortune and increased it in a meaningful way”; a “7,” “self-made who got a head start from wealthy parents and moneyed background”; and an “8” was self-made but “came from a middle- or upper-middle-class background.” To rank a “10,” you basically had to be left in a basket on a river.
The results of the analysis aren’t particularly surprising. It turns out tech is mostly, by these calculations, “8s.” After all, that’s what the methodology was basically created to deliver. Anyone involved in tech in the last forty years who wound up as a billionaire likely grew their fortune significantly. You’d have to be an idiot, or actively trying, not to. But even beyond that, the methodology is profoundly telling. There is the unspoken assumption that growing one’s wealth was somehow the opposite of being dynastic. There is also the idea that money only grows due to some immense effort—in fact, their one example of a “1,” Laurene Powell Jobs, is evidence of how hard it is to avoid growing your wealth once it’s reached a certain level of absurdity. And the suggestion that anyone “6” and above “truly made it on their own” is staggering. When a certain “billionaire” ex-president ranks in the middle of your scale, the off-ness of the scale seems to be the point.
The most interesting questions about wealth transmission in America, however, happen within the “8s”—that is, among the twenty million millionaires as opposed to the 600 ro so billionaires in the US. Forbes set up their method around the idea that dynastic wealth and wealth multiplying from one generation to the next are mutually exclusive, as though taking an eighty million dollar fortune and turning it into a billion-dollar fortune is somehow the opposite of the dynastic transmission of capital. There’s one kind of story about capitalism being told when you highlight how Meg Whitman, former CEO of eBay and Hewlett Packard (and, um, Quibi), is a self-made billionaire who ran for governor of California as just “Meg.” And another when you think about the fact that she comes from two Boston Brahmin families, and one of her sons bears the almost comically dynastic name Griffith Rutherford Harsh V. (“Griff,” as he’s known, is the direct descendant of a revolutionary war general, so if anything the “V” is lowballing it.)
Rather than a story of disruption and discontinuity, the story of Silicon Valley can be told as one of family legacies. Rather than upjumped kids in hoodies upsetting the staid operations of capital, it’s wealth doing what it always does—attracting more wealth. Think of the way Aaron Sorkin chooses to frame Mark Zuckerberg’s rise in The Social Network: here Mark Zuckerberg in a sloppy hoodie, there the Winklevoss twins—“men of Harvard,” constantly in blazers, and, as portrayed by a duplicated Armie Hammer, radiating inherited privilege from every pore. That doesn’t seem exactly untrue to life. Born in the Hamptons and raised in Greenwich, Connecticut, the Winklevoss twins surely led a life of privilege before coming to Harvard. What’s perhaps more remarkable is Sorkin’s insistence that slovenly, mousy Mark Zuckerberg, who was raised in Westchester County, and attended Phillips Exeter Academy, is somehow not just less cool than them, but socioeconomically distinct. What Sorkin insists on framing as Old Money versus The New Economy, in actuality, was more like two supertankers of privilege colliding (or, as Forbes would call them, “8s”).
The idea that industry creates wealth out of nothing is one that US capitalism compulsively projects onto whatever segment of the economy is particularly new and shiny. Part of this idea is the notion that new elites disrupt older systems of wealth and privilege. The deck gets reshuffled, old systems of privilege get upended. The promise contained in such an idea seems deeply connected to American notions of equality. If wealth, power, and legitimacy comes from upending the old order, if fortunes are remade with each generation in different fields, the thinking goes, then there is something deeply anti-dynastic and possibly even egalitarian about wealth generation in this country.
From The Summit to Sand Hill Road
When you’re dealing with the San Francisco Bay Area, the question “where does the money come from?” is the obvious but perhaps less interesting one. San Francisco made its wealth in gold, San José in silver—or in supplying those trying to get rich off gold or silver. Generations of ranchers made vast fortunes on giant estancias carved from the land of the many peoples and nations now collectively known as the Muwekma Ohlone, and then from the territorial loot of the Mexican-American War. San Francisco was, and still is, a banking town—and with the advent of highways, the groves and fields up and down the Peninsula became subdivisions where home values skyrocketed. The Department of Defense invested in the region, funding whatever technology might help defeat the Soviets. When Silicon Valley started making unimaginable amounts of money, in other words, it did so in a place already awash in cash. The more interesting question is: where did that money go?
If you tell the story of Silicon Valley as the story of children, grandchildren, or great-grandchildren, it becomes a story of money changing shape: shipping wealth becoming real estate holdings, becoming office parks, becoming bitcoin. When you tell the story this way, it’s less about mansions overlooking the Mission or the Presidio, but rather of The Summit atop tony Russian Hill.
There are open and literal connections between the old guard and the new. Dede Wilsey, for example, a fixture of the SF social scene, was old-money dynastic to the point that she frequently claimed that the 1980s soap opera Falcon Crest was modeled on her clan. Her son Trevor Traina is a serial founder, whose successes (do you remember CompareNet?) mostly occurred during the first boom. Walter Haas III, the latest scion of a billionaire dynasty that goes back to the founding of Levi Strauss, is himself a founder.
There are also emerging dynasties that bring together different corners of the Silicon Valley cosmos. Laura Arrillaga-Andreessen, for instance, is the daughter of John Arrillaga, Silicon Valley’s biggest commercial landlord and a Stanford mega-donor; she is married to Marc Andreessen, creator of Netscape and partner in the VC fund Andreessen Horowitz. Beyond such matches made on Sand Hill Road, there is the role family wealth has played in Silicon Valley’s preferred funding model, where family money is all over, and yet at the same time quite difficult to detect.
From the outside, Silicon Valley can seem a rather mysterious engine for value generation. At the center of that mystery is so-called “venture capital.” Even within the venture capital pipeline there are more and less public segments, and wherever the mystery is most mysterious, the pipeline at its most opaque, there seems to be a pretty good chance, in the end, that the black box contains nothing but family money.
When the former US Ambassador to NATO, General William Henry Draper Jr., founded Draper, Gaither & Anderson in 1959, it was the first venture capital firm on the West Coast. Draper modeled the fund on the outfits that invested family money for the Vanderbilts, the Whitneys, the Carnegies, and other industrialists out east. Draper, Gaither & Anderson’s initial investors included the Rockefeller family and the Hellmans, founders of San Francisco–headquartered Wells Fargo Bank. Stanford’s then-provost Frederick Terman convinced DG&A to set up shop at 851 Welch Road, immediately abutting the university’s campus. The historian Leslie Berlin has pointed to the clear marching orders DG&A was receiving from the Rockefellers: no real estate please; rather, the point was to connect Rockefeller cash with high tech.
With time, the Drapers turned venture investing into a dynastic concern of their own. William Henry Draper Jr.’s son William Henry Draper III cofounded Sutter Hill Ventures, a legendary private equity firm based in Palo Alto. Draper’s grandson Tim Draper, before becoming famous for constantly proposing to split the Golden State into a number of smaller states that would allow Californians to shop around for their ideal California, founded Draper Fisher Jurvetson, which was an early investor in Baidu, Tesla, and, more controversially, Theranos. Tim’s daughter Jesse, who starred in several Nickelodeon shows, also runs her own venture fund, Halogen Ventures, which invests in companies founded by women.
The Friends and Family Round
Dynasties like the Drapers may not be the norm in Silicon Valley, but they’re not uncommon either. Family money shapes Silicon Valley companies, even if it does so in ways that are less readily apparent than the big bets of famous investors. That’s partly because family money gets in before anyone gets famous. VCs advise aspiring startup founders to raise money with a “friends and family” round even before turning to angel investors. “Friends and family” is entirely private, it’s decidedly small-bore, and it leaves very few traces unless someone sues (and there’s an entire cottage industry in Silicon Valley making sure that no one does). Absent a Theranos-sized fuckup, there’s usually no way to know if a founder’s parents, who both happened to work for Goldman Sachs, invested a critical $200K to help Junior get his business off the ground.
When it comes to angel investors and venture capital funds, while much of their money comes from endowments, pension funds, insurance companies, and the like, one major source is “family offices.” That is a euphemism for investment funds run for one or sometimes a handful of immensely wealthy families. As the historian Tom Nicholas points out in VC: An American History, the structure of modern venture capital investment grew out of the need to formalize family offices in the 1920s. According to an April 2021 Financial Times report, there are over 7,000 family offices worldwide (a 40 percent rise from 2017 to 2019), managing about six trillion dollars in assets. The trend line has been pointing up ever since the financial crisis of 2008. And, as Crunchbase reported in 2018, family offices seem to be increasingly keen on investing in startups directly: pivoting, as it were, from contributing to VC funds to behaving like VCs in their own right. A 2020 report by Silicon Valley Bank suggests that over 90 percent of family offices prefer to get involved in the early stages of venture investing (meaning Seed or Series A).
In Silicon Valley, many family offices were founded to manage the fabulous wealth of the tech billionaires themselves (for instance the Omidyar Network, which manages investments on behalf of the family of eBay founder Pierre Omidyar)—so relatively recent money. But some money is positively ancient. The Rockefellers’ family office, Venrock, was a crucial early investor in both Intel and Apple Computers. The Bechtel family, having made a fortune in construction going all the way back to the Western Pacific Railroad, incorporated as Bechtel in San Francisco in 1889. The family is as old money as they come in San Francisco—Bohemian Club, generations of Stanford alumni, the works. (I am—fun fact—writing this essay sitting across from a building on the Stanford campus that bears the Bechtel family name.) Their family office is called The Fremont Group, which was once run by former US Secretary of State and longtime SF high society fixture George P. Shultz. Through Trinity Ventures, founded in 1986, the Bechtels also invested directly in companies like Extreme Networks, Blue Nile, and mommy-supplier extraordinaire Zulily.
One partner at a venture capital fund told me that, in his experience, VCs turn to family offices when first starting out. Big as family funds can be, the inflow of capital represented by, say, a pension fund or a university endowment is both much bigger and much more reliable. Family offices generally do not get access to what a big university endowment gets access to. The only way family offices get to play in a hot new fund is to have invested in the firm’s funds back when it was just starting out. That means that on the whole family money comes into play early in the process of fund formation.
Between the “friends and family” round, the family office’s role in fund formation, and their preference for early-stage investment, the family is Silicon Valley’s ultimate incubator. Combine that with the fact that friends and family rounds tend to be extremely informal, and that family offices are barely regulated by the FDIC and SEC, and you notice that the system is perfectly set up to clothe family wealth in the trappings of an open market.
The only time you get even a slight glimpse is when things go seriously wrong: when companies collapse, when people go to jail, when very wealthy people sue each other. When Theranos collapsed, it became pretty clear that wealthy families—from the Waltons, to the DeVos family, to, yes, the Drapers—had been Theranos’s main backers. Other Theranos investors, like George Shultz, while not mega-rich themselves, were fixtures of the family office world. In general, it seems that very little of the billions in valuations that evaporated had come to the biotech-startup in the way most startups make their money—one reason why Elizabeth Holmes was able to get away with her deceptions for so long.
Disembodied and Reconstituted
If family money is everywhere in Silicon Valley, albeit almost undetectably so, there’s one place where anyone making money in the Valley looks to pass it on to the next generation and to the generations after that: real estate. The federal estate tax exemption is $11.7 million as of 2021, and just owning two or three buildings in the right zip codes in the Bay Area means you leave just a trace in the federal ledgers when you die. IRS agents thus have a box seat for the way Silicon Valley moves its dynastic project forward.
The thing is, they’re not seeing tech wealth show up in estate tax filings quite yet. As one agent told me, in most of the cases the Bay Area offices handle, “wealth is made through buying real estate, or indeed by inheritance. Some may dabble in high tech investments, but only after making money another way.”
Some of this has to do with the fact that most techies are still young. But some of it probably has to do with the fact that the wealth that migrates from one generation to the next isn’t usually in stocks anyway. Where the IRS is seeing tech show up is in gift tax enforcement, which is handled by the same office. Techies, the IRS agent says, “are young and wealthy and hearing from the lawyers in the area about how to start gifting” their money. That means the fabulously valued stocks likely change shape into something else—among other things, real estate.
If anything, real estate has probably outperformed tech since tech moved in. Silicon Valley as a collection of companies has experienced boom and bust, but as a physical location the stretch of the San Francisco Peninsula between Burlingame and San José seems to have known only one endless boom. That boom has been extremely narrowly distributed: buying some Tesla stock is not attainable for most, but still a hell of a lot more attainable than owning property in Mountain View. Real estate is still the greatest repository of dynastic wealth—and the greatest source of intergenerational immiseration.
Even before a single semiconductor company moved in, the Valley made some families very rich and ensured that others would be deprived of their spin of the wheel. As the historian Stephen Pitti has noted, as Santa Clara County developed, the powers that be were concerned to attract more residents to the area, where the mining economy had largely given way to an overwhelmingly agriculture-based economy. They were concerned that not enough white people would stay in the area, and that too many Asians and Latinos might. As a result, small farming tracts were readily made available to white Americans and immigrants from Europe (Italians, Spaniards, Portuguese), while Mexican Americans were kept “as a naturally mobile, low-wage labor force.”
With each subsequent generation, those small parcels had a way of generating ever more massive amounts of wealth. The well-documented explosion in home values in the area is almost entirely due to an explosion in the value of land. The inequality fostered by the nearly feudal land distribution promoted in the County has given rise to the escalating differences between the area’s rich and poor.
Almost every campus up and down the Valley has a story like the new Apple spaceship: the Glendenning Farm, slowly sold off to developers in the middle of the last century, until Hewlett Packard plopped down its headquarters (long called the “apricot division”), eventually selling it to Apple. Some of the local landowners seem to have gotten stiffed by the bargain, but the rapid development also created massive wealth for some. Richard Peery and John Arrillaga bought up massive tracts of land and became two of the largest commercial landlords in the Valley. Justin Jacobs Jr. plopped down the cheap, interchangeable concrete tilt-up buildings, which still make up a majority of the low-flung Silicon Valley office parks.
Most centrally, the area once occupied by the large estate maintained by the railroad barons Leland and Jane Stanford transformed itself into Stanford University, an investment behemoth and still Silicon Valley’s largest landowner. On the surface, this transformation seems perhaps the most unusual in the Valley, but it might be the most representative. Stanford University represents a frustrated dynastic project: named after Leland and Jane’s son, Leland Jr., who died a year before the university was founded, it is home to his gravesite and is dedicated to his memory. Disembodied and reconstituted as a tax-exempt entity, indivisible by the vagaries of family squabbles and immune to the decadence that might have befallen actual generations of Stanfords, Leland Stanford Jr. has dominated the area more effectively than any dynasty made of flesh and blood could have.
And that seems to make unfortunate Leland Stanford Jr. something of a patron saint for the entire area, where wealth has enormous inertia and nevertheless constantly changes shape. There is an old comedy bit where Chris Rock distinguishes between being rich and being wealthy. “Rich is some shit you can lose with a crazy summer and a drug habit,” he jokes. “You can’t get rid of wealth.” Through all its transformations—from precious metals to land to superconductors to photo-sharing apps—Silicon Valley seems determined to prove that last part right.