Almost a decade ago, Ann Miura-Ko and I met with the Yale Endowment team. We were about to present Floodgate. It was early morning. Dark skies with heavy rain and winds greeted us. Then the power went out.
Dave Swensen, Yale’s legendary Chief Investment Officer, came early and by himself. As Ann and I were lighting candles, he walked in the lobby in an unassuming way. Then the full team arrived, right on schedule.
In our meeting, Swensen asked a surprising question. “Some of these investments will likely go public. Which ones will you hold after the IPO?”
Fast Money and Slow Money
Since Dave Swensen became the Chief Investment Officer at Yale in 1985, their endowment has grown from $1.3 Billion to $24 Billion. His long-term collaboration with Dean Takahashi has been a great success story. Dave has been generous about sharing his ideas in two books, Pioneering Portfolio Management, and Unconventional Success. Dave and the Yale team are one of my favorite examples of “Slow Money” investors.
“Fast Money” investors treat the market like it is a voting machine, a pulse of the current times. They try to out-predict it in the short term. They believe they know something material before others. They are quickly rewarded when everyone catches up and overreacts to new information. Liquidity is paramount to fast money investors because they need to get into and out of a stock or asset quickly.
“Slow Money” investors treat the market like it is a weighing machine. They try to make money by owning a part of a great business that will appreciate faster than the broader market over a very long time. Liquidity matters less to such investors because they might hold for decades.
Liquidity can be more of a “bug” than a “feature.”
Dave Swensen took Slow Money investing a step further, showing that a lack of liquidity is often an advantage.
This perspective is unconventional. Most will pay a premium for liquidity. If I own a liquid asset, I have the option to buy and sell at any time I choose, and that is worth something. If I own an illiquid asset (say a share of a private tech startup or a piece of real estate or a stake in a private equity firm), I have fewer options to sell in the short term. If I change my mind about what I bought, I might not be able to sell it for a long time. Alternatively, if I increase my conviction, I may not be able to double down easily or at all. Who would argue against the value of having more freedom rather than less freedom?
Swensen’s contrarian insight was that anyone could buy stocks and other immediately liquid assets, making the market for such assets more competitive and efficient. Liquidity also introduces emotional temptations to trade when doing nothing would be best. “Slow Money” takes advantage of market inefficiency by buying and holding assets that are underpriced and less in demand now, but will be extremely valuable in the very distant future. Because the Yale Endowment operates on a very long-term time horizon, their investment team’s patience builds a structural competitive advantage.
The longer you plan to keep the asset; the less advantage liquidity offers. Being right and patient is what matters.
Fast and Slow Money Founders
Fast Money and Slow Money applies to founders as well.
When fundraising, “Fast Money” founders focus on raising the most money they can at the highest price that they can, with the least governance possible, and the most attractive vesting schedule that can be negotiated. They might also try to exploit market timing to sell their businesses for a “quick flip.” In the case of crypto, they can leverage immediate liquidity to make fast money with just a whitepaper.
“Slow Money” founders believe long-term greatness requires years and even decades of commitment to building a great team, culture, business model, ecosystem of partners, and an increasing competitive moat. That’s why you will observe that the Slow Money founders pay extra attention to recruiting, proper vesting, working with long-term investors, careful management of the amount of money raised, as well as the valuation through time. They want to create a product or service that is used by hundreds of millions or billions of people, and that takes many years. They optimize for long-term success.
However, Slow Money does not mean slow movement. Founders building startups of any type need to move with utmost urgency: The key is to execute with high speed in the service of long-term greatness.
Fast Money Fish Stories
I have met many “fast money” crypto investors who have done quite well by buying low and selling high, often within a matter of months or even weeks, and sometimes even days. Others have succeeded by shorting crypto assets that are not delivering on their potential or are teetering on the edge of massive overvaluation. I enjoy watching my friends do well in their trades and hearing about their quick wins.
There are a lot of get-rich-quick founder stories as well. Some have taken advantage of the liquidity of tokens, the lack of vesting schedules, and the frothy speculative crypto investing landscape.
These tales remind me of “fish stories” from my childhood in Oklahoma. People would fish in hot lakes all summer long. However, you only heard the stories about the biggest catches, and as time went on even those stories became increasingly exaggerated. For each Fast Money quick win on a trade or an exit, you don’t hear the many stories of the losses and the failures.
The virtues of fast money
Does this mean I think fast money is always “bad” and slow money is always “good”? Not necessarily.
Fast money and technology breakthroughs have had a symbiotic relationship for hundreds of years. Whether it was the 19th Century railroad mania, the radio mania of the early 1920s, or the internet bubble in the late 1990s, fast money makes it possible to fund new breakthroughs at a very low cost of capital. On the one hand, many crypto networks offer their tokens at extremely high prices relative to most startups that haven’t achieved product/market fit. But on the other hand, this lets builders experiment with new ideas very rapidly without the burden of substantial capital barriers to entry.
I have also learned many first principles ideas from the best crypto hedge fund managers. Many are wickedly smart and insightful, especially when the discussion is about core ideas rather than whether individual tokens will appreciate in the near-term. Founders of significant crypto projects should listen to them.
Thinking fast and slow
If you believe in crypto for real, you should be asking which assets and communities will matter most in ten years and beyond. And, which crypto prime movers will have the staying power of Bill Gates, Larry Page, or Jeff Bezos?
If you are not asking these questions, it’s OK to be a fast money player; But you should be clear about what you explicitly know in the short term that others do not. The speculators have many weapons in this unregulated market. If you are not positive you know something ahead of others, you are probably cannon fodder for the latest mania. Charitable donations to future innovations are always welcome, but not profitable.
Building to last
Crypto projects remind me of a high wire circus act. It’s like running a zero-to-one startup and a public company in parallel. The uncertainties are enormous. Unlike traditional startups, the business model of tokens and communities vs. equity and companies is mostly a work in progress. Will business networks combine equity-based entities with token-based entities? How specifically will tokens create prosperity in the future the way stock has in the past? Will token-based businesses thrive at all in the long run, or will Bitcoin be the only meaningful story?
Given the uncertainties and volatility, smart crypto founders should seek input from a combination of fast money and slow money. Fast money investors can provide insights on shifting market developments, the mechanics of money velocity, token vesting, and other immediate opportunities and threats. Slow money investors can help with the various aspects of long-term value creation including recruiting, operational help, category design, go-to-market, and other issues of business building. They can also protect founders from short-term traders and focus on ideas that create tangible value and abundance rather than speculative returns.
The inevitability of slow money
Consider the five wealthiest people in the world today:
It’s like the Tortoise and the Hare. Fast Money gets the positive attention and headlines in the beginning, but being patient and right drives the biggest outcomes.
Mark my words: Slow Money founders, builders, and investors will be the biggest winners in crypto. Some will say “it’s different this time,” either because crypto networks are not centrally owned or because of the community aspects of how crypto networks get built and governed. But when the dust settles, my bet is that the people who create value in a focused way for the longest time will rise above the rest.
Special thanks to Dave Swensen and Matt Mendelsohn from Yale as well as others kind enough to review and provide feedback on this post: Morgan Beller, Chris Dixon, Arianna Simpson, Alok Vasudev, Vinny Lingham, Ryan Selkis, Tushar Jain, and Mike Dudas.