The Coolest Things I Learned in 2019

Over the past half year, I have had the luxury of being able to read a lot to better understand market trends and improve myself as an investor. During that time, I have tried to chart the coolest things I have learned on notes. The information below is some of the bits of information that made me raise my eyebrows this past year.

The average American marriage is eight years, while the average relationship with our banks is twice as long.

At the beginning of 2019, there were 44 e-scooter bills introduced in 26 states. This was the first instance I have observed of public policy moving to regulate startups before or quickly after they roll out.

There’s an ironic rule in biology where species tend to get bigger over time because big bodies dominate smaller competitors, but those same big bodies increase the odds of extinction because they turn you into a slow, lumbering, giant that can’t hide and needs massive amounts of food. The T-Rex is gone. The cockroach survived.

Real estate is the largest asset class in the world but has not seen any major renovation since the REIT creation in 1980.

The 401k is 39 years old; the Roth IRA is 20 years old.

S&P 500 did not include financial stocks until 1976. Today the financial sector makes up 16% of the S&P.

JPMorgan Chase has more tech workers than Facebook and Twitter combined (50,000 of 165,000 total staff).

The cure to overconfidence is to remind yourself that you have experienced roughly .0000001% of the world.

Secondary effects of AWS and the diminishing costs to start a business: younger founders, technical backgrounds as opposed to MBAs, urbanization as younger people prefer to live in cities.

The human brain accounts for 2–3% of total body weight but consumes 20% of body’s energy when the body is at rest.

Everyone’s life is a reflection of the experiences they have had and the people they have met — both of which are driven by chance.

22% of people listen to a podcast weekly, up from 17% last year.

The average tenure of S&P 500 companies used to be 33 years, and that number is quickly diminishing.

The average worker spends 2.5 hours per day finding info or recreating institutional knowledge.

Founders are at a significant disadvantage versus VCs when negotiating first term sheet (least experienced during first round of raising; VCs capitalize by seeing multiple term sheets per month; standard term sheet includes decades of combined knowledge from hundreds of VC firms; VCs have the luxury of taking their time when investing capital; founders must deliver and make provisions to keep company alive).

Only 5% of restaurant business $800B in annual sales is delivered.

Capital has become commoditized for VCs → must differentiate through different means → staff up to become more interconnected within the venture space and make more meaningful connections for portfolio companies → management fees limit the amount of partners in a firm → new structure to accommodate this change?

10 Ways to Damage Your Startup (Marc Andreessen):

1. only hiring without focusing on firing
2. selling too much of your personal stock quickly
3. diluting the cap table via stock grants to early employees
4. maximizing valuation of each round
5. letting later-stage investors suck you into terrible deal terms in the growth stage
6. going public too soon
7. pouring money into a glamorous new HQ (Edifice Complex)
8. assuming cash is always available at higher and higher valuations
9. confusing the conference circuit / party scene with actual work
10. refusing to take HR seriously

As consumers, we virtually never resist any technology that promises to make our life better or easier, regardless of its effect.

Today customer acquisition is harder than ever — more than half of US smartphone users download zero new apps per month.

If a SaaS company grows at 20% or less annually, it has a 92% chance of failure; it is common for startups to double or triple in size YoY until they hit $5mm ARR.

Median annual churn for private SaaS companies with under $10mm in revenue is 20%.

44% of SaaS companies offer a free trial.

A diversified portfolio will derive most of its long-term returns from a minority of companies. Those companies derive most of their value from a minority of products, and those products were the brainchild of a minority of employees, who were educated at a minority of schools, on and on.

Top 20 Reasons Startups Fail:

1. no market need (43%)
2. ran out of cash (29%)
3. not the right team (23%)
4. competition (19%)
5. pricing / cost issues (18%)
6. user unfriendly product / high churn (17%)
7. product without a business model (17%)
8. poor sales / marketing (14%)
9. ignore customers / feedback (14%)
10. product mistimed (13%)
11. lose focus (13%)
12. disharmony among team / investors (13%)
13. pivot gone bad (10%)
14. lack passion (9%)
15. failed geographic expansion (9%)
16. no financing / investor interest (8%)
17. legal challenges (8%)
18. didn’t use / have network (8%)
19. burn out (8%)
20. failure to pivot (7%)

The IPO process isn’t computerized. How does the stock market start every day? There is a computer system that matches buyers of stock with sellers of stock. They each specify the amount and the price at which they are willing to buy or sell. And at the open, or quickly after, the current market price of that stock is established by algorithms. In a classic IPO, this process is done by hand which creates lots of inefficiency. And, typically all of the IPO is allocated amongst a group of 10 large institutional investors, which reinforces this inefficiency.

The role of the IPO is changing. It used to be that the only way to raise $100 million was through an IPO. the private capital markets were not large enough to support these kinds of round sizes. In the last 15 years, the private capital markets have become much larger and it’s a common occurrence to read about $100M or $500M financings or even billion-dollar financings.So the role of the IPO must change. It’s no longer about raising capital. It instead it is about providing liquidity to investors and employees.

Non-obvious fundraising lessons on pitching:

1. don’t say sentences without numbers in them
2. pitching should be a full body experience
3. diagrams communicate 10x more
4. jump to the screen and point
5. send company brief ahead of time
6. get there 15 minutes early
7. sit in the front of the room
8. don’t talk about your passion; show it
9. look the part
10. bring a pen and take notes
11. only bring your best presenters
12. make a deck specific to each VC
13. spend 1/3 of the time presenting; save the rest for questions
14. the goal is learning, not closing
15. know when you’re improving and when you’re not
16. understand VC psychology

Private markets are going to continue to capture the returns in many sectors, and thus it will be attractive for LPs to be invested in a larger subset of tier 1, tier 2, and maybe even tier 3 VC firms from a returns perspective. This will be even more evident as we potentially enter tumultuous public market performance that shows lower yield over the next decade than the prior decade+ bull-run we’ve had.

With Google’s $2.1B acquisition of FitBit, FAMGA cos (Facebook, Apple, Microsoft, Google, and Amazon) have now made 27 billion-dollar acquisitions over the last 20 years.

“In 2020, we anticipate continued entrepreneurial activity and investor enthusiasm around the infrastructure and middleware layers within the fintech ecosystem that are enabling further rebundling and a rapid convergence of product themes and business models across the consumer fintech landscape. Many players now look like potential challenger bank models more akin to what we have seen unfold in Europe the past few years. Within consumer fintech, we at Bessemer are more focused on demographically-specific product offerings that tap into underserved themes, whether that be the financial problems facing the aging population in the US or new models to serve the underbanked or underserved population of consumers and small businesses.”

-Charles Birnbaum

One of the key findings in the study was compelling data that venture funds <$250MM performed significantly better than venture funds >$250MM — Based on the report, 83% of large funds ($250MM+) exhibited a return multiple of less than 1.5X, while only 54% of sub-$250MM came in at a multiple of 1.5X or lower (clearly a huge delta, although perhaps a bit of “we suck less”).

“Success in VC is probably about 10% picking and 90% about sourcing the right deals and having entrepreneurs choose your firm.”

-Chris Dixon

If you’re in a market that previously ate up a lot of investor dollars, investors have longer memories of failures than new entrepreneurs; when you’re describing the future, most of them are remembering the past.

Reasons why technical diligence is a waste at the seed stage:

• Early versions of a product are often prototypes that are intentionally meant to be rewritten or heavily refactored in the near future.
• Because getting a product in the hands of users is a top priority, even great engineers will intentionally take shortcuts and accumulate technical debt in order to launch sooner.
• The ability to scale with success is important, but designing products for high scalability from Day 1 is usually a mistake. (“Premature optimization is the root of all evil.” — Donald Knuth)
• “CTO” is an ambiguous title at small companies. A CTO might be a great coder who is a mediocre manager, or a great manager who is a mediocre coder, or simply a founding engineer who assumes the CTO title to make the founding team appear more well-rounded. Because CTOs often evolve in very different directions after a company hits 5–10 engineers, it’s not clear what bar they should be held to. Is it better to have someone who’s good at building prototypes quickly? Someone who is a slow prototyper but great at releasing robust software? Someone who may not be a great coder, but who is great at recruiting and managing engineers? It’s hard to pigeonhole different types of CTOs into a standardized tech diligence process.

In today’s world of SaaS tools, APIs, and cloud infrastructure, most startups do not have significant levels of technical risk. Only 5% of postmortems referenced a lack of technical ability/execution.

B2B buyers perform on average 12 searches online before engaging with a business.

Only about 14% of the 18 million bitcoins outstanding are actively traded. About 9.1 million bitcoins (51% of those outstanding) have not changed hands in the past six months.

Venture capital has largely resisted the quantification that has revolutionized modern finance. In lieu of mathematical modeling, venture capitalists tend to subscribe to pieces of folk wisdom around their investing activities. How, when, and in what a VC invests all tend to have only the thinnest veneer of theoretical or empirical justification.

(ratio of designer:engineer at select firms)

The top 1% of mobile apps account for 80% of downloads.