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Is Larry Summers about to create waves in Silicon Valley? Two weeks after joining the board of Square, the former Treasury Secretary and Harvard president has decided to lend his name to Andreessen Horowitz, the hottest venture-capital firm in the Valley these days.
Summers is known less for his technology expertise and more for his status as the ultimate insider at the nexus of academic economics and government. He isn’t the first high-profile former government official to gravitate to Silicon Valley in recent years. Former vice president Al Gore’s presence on Apple’s board and role as a senior advisor to Google (NSDQ: GOOG) has helped burnish the progressive and “green” credentials of both companies. Gore is also a partner at VC titan Kleiner Perkins Caufield & Byers, where he works on green investments.
In an interview with Kara Swisher, Summers said he was joining Andreessen Horowitz because he feels that “technology in general and information technology in particular is now having a real pervasive macroeconomic impact in our time.” Summers was introduced to the firm by his former aide Sheryl Sandberg, who is now Facebook’s COO. Marc Andreessen sits on Facebook’s board.
“Long after people have lost their memory of the dramatic financial crisis in recent years, they will remember what technology has done to transform our economy in these same years,” Summers said. (That may be true for some people, but likely not the 7 million Americans who lost their jobs during the recession.)
Two weeks ago, Summers joined the board of Square, Twitter co-founder Jack Dorsey’s mobile payments startup, which just announced a $100 million venture capital round that values the company at $1 billion.
Summers, of course, brings some baggage with him, and not just his reputation as a steamrolling administrator prone to making impolitic remarks. He endorsed the Gramm–Leach–Bliley Act in his role as Bill Clinton’s deputy Treasury Secretary. That law repealed parts of the 1933 Glass–Steagall Act, paving the the way for massive consolidation in the financial-services industry, which some argue created the “too-big-to-fail” financial institutions that were publicly bailed out during the financial crisis.
As Treasury Secretary, Summers also endorsed the deregulation of financial derivatives, saying at the time that the big banks were “eminently capable of protecting themselves from fraud and counterparty insolvencies.” Those same derivatives played a central role in the financial crisis, leading them to be dubbed as “financial weapons of mass destruction” by Warren Buffett. While president of Harvard, Summers approved the endowment’s investment in interest-rate swaps, a form of derivative contract. The university lost over $1 billion on the investment.
This is not Summers’ first foray advising private companies. In 2008 and 2009, he made over $5 million as a managing director at investment firm D.E. Shaw, as Peter Cohan notes. During that time, he made an additional $3 million giving speeches paid for by major investment banks including Goldman Sachs, Citigroup, Merrill Lynch, and Lehman Bros., the firm whose demise played a key role in the financial meltdown.
But Summers remains one of the most influential power-brokers in America, if not the world. There are few top politicans, bankers and global machers who would not take his call. In other words, he remains a very good ally to have.
Summers told Swisher that due to his background in academia and government, he is “not in a position to be a major investor,” at Andreessen Horowitz. Instead, his compensation will be linked to the long-term performance of the firm. Based on Andreessen Horowitz’s recent track record as an investor in Groupon, Facebook, Foursquare and Zynga, the firm’s long-term prospects look rosy indeed.