Summer announced its arrival in New York City with a hot and steamy weekend. Yet while temperatures go up, markets across the board and around the globe are going down. Several good articles and letters were published this week. Read on.
- Good Reads: Sensible Investing
- Good Reads: Start Up Stuff
- All-In Summit Debrief
- Weekly Song: Expectations
Good Reads: Sensible Investing
Remember the picture of the Luna tattoo from last week? Here is a letter from Mike Novogratz, whose shoulder was pictured, with reflections on the crypto and macro market. Here's the main takeaway:
Passive Flows and Wheelbarrows. Here. Super short piece from Albert Bridge Capital making the point that markets have increased their correlation of movement - making an increased opportunity for stock picking when differentiation resumes. They also used the term Alphalanche, which you know I loved.
Lux Capital Q1 2022 Letter to LPs. Annoyingly pasted in a Twitter thread from Josh Wolfe here. Among the many things Josh says, one area we consistently agree upon is that 'chips on shoulders put chips in pockets.' The reason we love founders with CHIPS on their SHOULDERS they’ve oft endured unenviable adversity and sometimes they need just one more ingredient —beyond merely BELIEVING in themselves —they need others to BELIEVE too.
He also highlights the right opportunities going forward:
I also agree with: GREAT RESIGNATION (voluntary) will become GREAT RESTRUCTURING (involuntary). For many CEOs sacrificing PEOPLE will come before sacrificing VALUATION
- De novo company creation (relatively high ownership, low dollars, well-buttressed balance sheets well-protected from macro for several years)
- Special situations (spinouts, divestitures, recaps)
- Consolidations (existing Lux cos w/cash to buy others)
Late Stage Prisoners Dilemma by Read Margins here. Best analysis I've read about the latest in hedge-fund crossover investing.
Key parts of the strategy:
Let’s now look at the game theory of all this. The most intriguing part of these HFC-backed companies is almost no one in the group has a vested interest in seeing the valuations come down. It’s this amazing tightrope where, as long as the startup can avoid an emergency funding round, the valuation can remain inflated. The HFCs and VCs want to avoid a markdown. The LPs (people who put money into the HFCs and VCs) aren’t clamoring for markdowns. Startups would rather not get marked down.
In almost no scenario should those inflated private valuations hold. Even in the best-case scenario, a startup follows the suddenly-in-vogue pivot to generating cash, but that means they’ll have to slash growth. Those gigantic valuations were modeled on assumptions of strong growth and become dead in the water. But if startups don’t do this, they’ll need to go out and raise more, inevitably repricing to a down round. Given the state of the economy, public market comparables, waning consumer demand, and a million other negative factors, it’s clear companies should be revisiting those valuations.
The biggest question right now is what could trigger these revaluations?
Good Reads: Start Up Stuff
The Three-Body Problem: Finding the New Stable Points in Venture Capital by Frank Rotman. Ppt here.
William Edwards Deming once famously said, “It is not necessary to change. Survival isn’t mandatory.” These words are profound, humbling, and important to internalize. Societies change. Economies change. Beliefs change. Industries change. Everything changes. But there’s nothing that forces any individual participant in an ecosystem to change except the desire to survive and thrive. The Three-Body Problem is an attempt to put a framework around the changes that are occurring in the startup ecosystem, the LP community, and how VC firms need to strategically reorient themselves if they want to survive.
Excellent ppt from a successful fintech VC. It will be presented at LendIt USA 2022 in New York City on May 26, and I hope there is a video :)
TL/DR - He says there are four stable points in the future of VC that offer a comparative advantage - Scale; Non-consensus Alpha; Late-stage Generalist; and Solo capitalist.
People don't find DAOs, DAOs Find Them. Rehashed Podcast here with Jon Hillis, who is the founder of Creator Cabins.
For navigating the downturn, here is advise that you'd actually want to consider:
"Cities are basically economies built around the dominant technology of the era. We believe that in this century the dominant technology is the internet and blockchains, so we want to build cities that are designed around those."
Jonathan Hillis is consistently one of the best thinker AND operator of DAOs in the field.
- Craft Ventures: Operating during a downturn. Video here from David Sacks and Craft.
- Things You Won't Regret. Advice for start up founders that is actually good by Dan Teran here. This is an excellent piece.
Good Reads: All-In Debrief
I wrote a full blog on Five Reflections From The All-In Summit here.
So, how was the event? It exceeded all my expectations. It felt like bringing together a curious, open-minded, diverse group for debate, reflection, and good times.
The 'Besties' label might make some cringe, but the fact that the hosts are genuine friends allows for vehement disagreements while maintaining a commitment to seeing the humanity in the person. The dialogue and variety of opinions on the show only work because they are honest and assume good faith. The tone of each episode is set by the self-deprecating humor that opens the show with descriptions of each host that are simultaneously flattering and a dig.
What made the All-In Summit special?
The remarkable moments were the unscripted and unplanned serendipity. I expected run-of-the-mill rehearsed speakers; that's normally what happens at conferences. I should have known better - what All-In was always all about was being honest, raw, and off the cuff. So, although a lot was unexpected, there were consistent themes.
What were the five enduring themes of the conference?
Read more here.
- Addressing and moving beyond personal attacks to curiosity
- Promoting a more pragmatic centrist view, rejecting the incentive-fueled narratives of the mainstream media
- Thoughtfully debating sensitive political issues with 'controversial' figures
- Focusing on the three most important parts of a gathering: people, people, people.
- Learning about the future directly from the people building it
- Parting words (bonus): I have your back
Weekly Song: Expectations
Music Video here.
This is a song about a girl who doesn't fit into high school. It's fun. It's relatable (in the way that no one feels like they fit into high school). And, it also featured heavily in the movie Juno.
"Expectations" by Belle and Sebastian
And the Head said that you always
Were a queer one from the start
For Careers, you say you want to be
Remembered for your art
Your obsessions get you known
Throughout the school for being strange
Making life-size models of the Velvet Underground in clay
Hey, you've been used
Are you calm? Settle down
Write a song, I'll sing along
Soon you will know that you are sane
You're on top of the world again
Thanks for reading, friends. Please always be in touch.