The strategy described here makes a lot more sense when talking about high risk assets like venture and crypto, and like most of these rules of thumb it must be suboptimal, but I’ve been thinking about taking this approach for future investments. Dividing assets in three separate chunks to diversify away risk, and still remain exposed to the original theses, seems like a good idea.
By far, the most interesting aspect of this podcast was around the 1hr mark on why mega-corp moving into your niche business is not necessarily a problem, followed by a fascinating discussion of M&A vs buybacks. I had never thought about M&A in that way, but it is interesting to hear the public markets side of the coin after reading so many positive comments about acquisitions from people like Elad Gil and Marc Andreesen about the early startup stage M&A.
A quick read that might even interest the skeptics. In essence, Gil sees potential in the store of value story, the payments story, the securitization story, and the digital goods story. Strangely he subdivides SoV into investment and offshore, but I see those two as the same. I’m personally most excited in securitization/smart contracts, which he calls money wrapped in code.
At the early stage, startup valuations are mostly about signaling. If you’ve raised N million dollars then you can tell people that you were able to do so. If you’ve invested in a company valued at N you’re able to tell your LPs that you got great terms on that company’s last round. If you’re an employee and your company just raised N you can tell that to the recruiter who’s trying to poach you. But in the end, for any number N, most companies that raise N end up dying. We should focus on it less. N is much more about market conditions than it is about a particular startup’s potential.
Every business decision is at its core an exchange of time for money and vice versa. This is not just the case of a founder picking a VC, or investors picking startups, but also of employees deciding where to work, and average Joe thinking of where to put their savings.
This is definitely targeted at someone, but I can’t figure out who. Over the years I’ve realized that VCs, are not really gatekeepers, and they follow the same patterns of competition as everyone else. This post by Walk is an example of that dynamic. I like the idea of the VC portfolio page as a lagging indicator of what the VC wants to invest in.
The realization that things are the way they are because of path dependence has become more and more prescient in my life lately. This anecdote is a good example of someone side stepping inertia.
My friend Leon got me hooked on O’Shaughnessy’s podcast. This one is full of interesting ideas about how to value online assets such as accounts on Airbnb or Instagram, and how one could potentially set up an incentive system to transfer the cashflows of these accounts without corrupting the quality of the underlying service being provided by the creator. See also the episode with Chris Dixon on the future of tech.
A great response to Sam Altman’s Post. I don’t buy that SF is not an open minded place.
I realize that in a way this is an ad for USV, but it is also a good explanation of how the VC business works, and its cyclical nature. I wish Fred had expanded more on how the new paradigm of cryptographic tokens and decentralized applications will change their model. I guess that’s the secret sauce, and we’ll have to wait and see.
I can’t remember where I read (heard?) this argument, but I think the real issue is not so much that there is no upcoming technical revolution, but that the behemots have learned to disrupt themselves. The FAANG companies are pouring resources into areas that undermine their cash cows. Google is investing in one-shot answer voice assistants that can’t show ads. Apple is developing hardware like the Watch and the AirPods, whose goal is to distance us from our iPhones. Whatever can’t be done in-house in a reasonable timeline is solved by acquiring or copying. This hampers bottom up Clay Christensen style disruption for sure, but I am by no means as bearish as Jon Evans is in his piece. Technology never ceases to amaze us, and the paradigms keep changing. More on this topic, by Farhad Manjoo here.
We all fall prey to cargo cults: following our biases and finding patterns where there might be none, mimicking the inessentials and hoping we get the same results. Think hard about why you do things, and trim as necessary.