Things I believe to be true, 2018
I too have some unqualified musings to share on Medium dot com! Brent Beshore said don’t write a book until you’re over 50 and you probably shouldn’t give advice on this website until you are at least 100. But at the same time, I believe in transparency, and I admire the unpolished, workman-like approach the Fred Wilsons of the world take to publishing. And so here I am, shouting snarkily into the void, about some things I believe are true of technology, investing and life at the end of 2018.
Capital concentration is accelerating, has dubious social impact, and is particularly acute in cities
Capital is centralizing in an increasingly small number of people, organizations and geographies. Globalization, driven by both physical transport/supply chain and IT/internet technology is accelerating winner take all dynamics in many markets. Capital will always protect itself; the rich get richer. The more capital you have to deploy, the lower a multiple you have to seek — you’re incentivized to act like an incumbent and protect your bread. I really hope the internet can deliver on its original promise of having the opposite effect on our societies and economies. But, in the mean time, there are a host of crazy and awful things happening in the White House, our prisons, our real estate markets, our banks, our cities, etc. Bowl restaurants are hollowing out cities like big box retail did in the suburbs. In 2014, I showed up in Brooklyn late to the cultural party and heard all the artists had already moved to Detroit. In the interim between the present and the finish line of the apocalyptic race between socioeconomic inequality and global warming to destroy the world, I wonder if anything creative and culturally significant will be able to originate in the U.S.’s biggest city-states anymore.
Don’t do business with people until you understand how they get paid. Customers of venture capital (and some investors themselves) are weirdly bad at this?
Venture capital is in a really confused state. The marketing myth that has been cultivated around it has been so effective I think there are a lot of experienced investors who have forgotten it’s a myth, and a lot of young investors who don’t realize it’s a myth. It feels like we need a pragmatic reset of how we refer to different assets and investment vehicles for modern standards of risk and portfolio construction. It boils down to risk profile (amount and type), holding period, capital requirements. Most VC’s don’t seem to know where they sit on the venture capital to traditional private equity spectrum. There are a lot of software investments that carry little to no tech risk. People are quietly building non-PE chop shop franchises here (Tiny, Constellation, etc). I’d recommend every entrepreneur involved in the capital markets study asset classes adjacent to venture and think about how LP’s pick investments and expect returns.
Not enough people in tech read Matt Levine
Think like a kid, work like a grown up
The entrepreneurs and investors I admire most are all first-principles driven. I think a large part of life is about learning how to operate and execute in games with increasingly high stakes while holding onto your core personal views and values. Creativity and imagination and identity are laundered out of you as you’re socialized into the modern business environment — you let those things go and lean into de-risked execution conformity to combat impostor syndrome. This is a good way to climb the ladder to medium-heights within the status quo.
If you want to be great, or at least have some moderate alpha or edge, you need a white knuckled grip on whatever vision and gut feeling comprises your personal compass. Fight like hell to prevent those principles from becoming over-complicated or obscured by the language of hedging. Show up, do the work, but ask real questions and don’t check your real self at the door of your office.
Feedback is a “backhand” for 99% of people I meet
Feedback. Man, people suck at giving and receiving feedback. Ray Dalio seems like an extraordinarily smart and unemotional individual who has potentially committed a classic mistake of hubris that smart, unemotional people make: underrating how the experience of feelings impacts other people. Just because you are a robot and believe it’s irrational doesn’t make it less true. Take time to give and solicit great feedback. Invest the time and perseverance to track it down, design interfaces to make it easy to give, and call your fucking customers. Almost everyone I know, including myself, could see dramatic returns from doubling down on investment here, in all areas of life.
Invest in your people and your community over literally everything. Don’t do this opportunistically or with an eye on short term returns. It always comes back around.
Everything is a value play, you’re just overpaying (except bets on secular technology trends)
In private equity (including venture!), everything is a value play. You have to believe whatever you’re paying is fundamentally underpriced because of something special you know about the company and the world. Also, underpriced is defined by your investment strategy — capital deployment requirements, return timeline, risk, visibility, liquidity, etc. Be disciplined and do your diligence. Even if it’s so early you are going to invoke the VC fifth amendment and say “we invest in people” — diligence the people! Call references, develop a strong point of view on what other observable data points demonstrate the unique type of character you want to bet on. Or just admit you’re acting on gut because its (sometimes) faster/you or your LP’s are lazy/you believe that’s what the venture business is all about (fair).
Unless you are betting on a fundamental technology shift. Something that is secular, not cyclical, and you have deep technical conviction will change the world so dramatically that everything else is out the window. And in that case, the only kind of diligence that matters is if the tech is real. In that scenario, call it out as such, make sure you are patient enough, and get ready to probably replace (or aggressively supplement) the management team, sooner or later.
Tech as a lifestyle brand peaked pre-Trump, and its still hard to wrap our heads around that fad’s magnitude and impact
For awhile there, “tech,” as a nebulous, software-ish, founder-myth-driven, Allbirds-wearing, tweet-then-podcast-driven, industry-cum-religion, probably best summarized as Justin Timberlake’s Sean Parker performance in The Social Network (“We lived on farms, then we lived in cities, and now we’re going to live on the internet!”) was the strongest lifestyle brand in the US of A and a damn strong one abroad (although they maintained a healthy skepticism in much of Western Europe and a workmanlike focus in China). It was so strong it made the majority of my generation, a group that was coming of professional age in the biggest recession since the 1930’s, is crushed with student debt, almost elected Howard Dean and Bernie Sanders and did elect Barack Obama, attended No Blood for Oil protests, believes broadly in climate change and social equality, and is supercharged with social media tools that allow us to “choose experiences over things” and express our identity through alignment with obscure brands (and GIFs), actually believe that some of the biggest companies in the world could be… good? Different? Altruistic?
They’re the biggest companies in the world! Of course they are involved in every range of activity from theft and perjury to charity and advocacy, and, mostly, trying to increase earnings or grow revenue. We take it for granted that right now, somewhere in the world, directly or indirectly, companies like Exxon and Coca-Cola and P&G are probably killing people. We should expect the same from our internet overlords. If you want to have a conversation about the socially and legally useful maximum size and age of a company, or if public equities should be less liquid, I’d love to. But don’t act shocked next time Facebook or Google don’t text you back. They’ve been sleeping around for years, and if you still want to hang out with them, you should have appropriate expectations.
Please can we have the correction now please
It’s going to be professionally good for everything and everyone I believe in in technology and finance. Sure, it’s going to hurt for folks who got too far out in front of their skis in the Ten Year Bull Market, but the good ones will improve and keep moving and double down on their values. It’s hard for people to focus on building creative, valuable things with a unique point of view when there’s this much noise in the room. End the party, put the headphones on, identify the transactional tourists, sit with Buffet on the beach and check out some pale butts writhing in the tidal flats, and get back to doing whatever it is you believe in… not what Crypto Twitter or Fintwit or your Linkedin feed believes.
People undervalue edge strength in their own social graph
Wow, Max, that’s an obnoxiously obtuse way to make a simple point! It has never been easier to have a broad, shallow network. There have always been hucksters who optimize for that approach, but modern digital tools have given them superpowers. Those focused on short term returns over long term value (read: most people) are actually getting constant positive feedback (locally optimized). And so it’s easy to sacrifice depth for breadth. Dunbar’s Number/Law is really more of a function, and after a certain point, you are dliuting every existing edge as you connect to more people. Modern social tools (despite the ridicule, SoLoMo did actually kind of take over modern society) abstract away fundamentally important parts of being a social being — catching up live, quality “small talk,” understanding how to date off the internet, asking for recommendations, having a point of view on art and culture.
Create long periods of unstructured time with your people, be a good dining companion, dance at diver bars, take people to the theater or sports games or Chinatown, be present. Always leave the door open for new people, but invest in edge strength.
No flowers without rain. But we are all incredibly lucky to be here, even in these late capitalism broken planet end times, and even more so if you are one of the “we” who has time to read something on Medium dot com. Thank you for being here. How can I help?