Tag: Finance

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Startups

Day 190 and Neutrality

One of the more influential pieces of art on my worldview is the science fiction comedy Men in Black. Yes you read that right. My philosophy is underpinned by a speech by Tommy Lee Jones.

1500 years ago everybody knew the Earth was the center of the Universe. 500 years ago everybody knew the Earth was flat and 15 minutes ago you knew people were alone on this planet. Imagine what you’ll know tomorrow

I don’t really know shit. I know enough to know I don’t know shit. My mother had a favorite bumper sticker “ask your teenager while they still know everything” which at the time as a teen I found a bit insulting and now as an adult think was quite astute. The more I know the less I know for sure.

Because I’ve slowly come to realize that knowing can be a crap shoot I keep odd company. Arguably bad company. I follow some truly outrageous people on Twitter. I follow hard right partisans and tankie left wing socialists. I follow folks with deep convictions on the irredeemable evils of technology and the most ebullient techno-optimists. It’s hard to talk me into not keeping an eye on all view points. Sure I think some folks are dead wrong but how do I know I’m not one of them?

Not knowing things for certain as saved my life. Medicine has a tendency to interpret data as absolute. Biometric markers and test results can for some doctors have as much authority as a papal decree. Anyone who has been told “well your test results are normal” while still feeling like absolute shit will know how frustrating this can be. Plenty of data points look absolutely normal before a system cascades into failure.

We don’t know as much as we need to believe we know. Our craving for certainty as humans is a significant weakness. The venture capitalist who insists that some metric will determine a crucial outcome is a favorite trope of mine. As if favorable CAC/LTV ratio functions as a warding spell or an attractive margin structure offers protection against a changing consumer preferences. Knowledge isn’t magic. Superstition can just as easily apply to P&Ls as poltergeists.

I find it best to remind myself to take a neutral when approaching entrepreneurs. Maybe I don’t know. Maybe everything I’ve ever known was particular to my circumstances, bias, education quirks or just plain randomness. Maybe one small insight will shift the grounds underneath me and reveal entirely new frameworks for interpreting reality. The unknown unknowns have a habit of springing themselves when you least expect.

It’s often tempting to throw opposing viewpoints into buckets that are easy to dismiss. Venture investors are notorious for this. We dismiss folks for any error we spot. We deride their data. We applaud ourselves for spotting cracks in their plans. Resist this tendency. We must always retain the neutrality of perspective that allows us to change our mental models. What we know to be true might be a lie. We may lack a key piece of context that would unlock a cascade of understanding that changes our entire perspective.

This is why the adage “strong beliefs weakly held” can be so key to success. Changing our minds is a strength. It’s hard to admit to ourselves we’ve gotten something wrong especially if we sunk a lot of time, money and reputation into it. But would you rather be right or successful? Feeling superior can be a delight but not if it gets in the way of what we want in life.

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Finance Startups

Day 181 and Thesis Trends

As I was putting down scratch notes for Chaotic.Capital’s thesis yesterday on the types of businesses we like I thought I’d do a bit more stream of consciousness writing to discuss some of the mega-trends that I see driving returns over the next decade.

Embedded Functionality

We think more and more businesses will be born of the embedded functionality inside protocol layers or data sets. Many protocols have functionality embedded across different layers of utility and functionality. For instance, the new consumer bank is an API at heart. The protocol layer is the API and the embedded functionality is the financial services layers enabled through the protocol or application layer. Need another example. Retail sales data and demand trends give rise to fashion retailers. Think of StitchFix, the clothing brand is the embedded functionality of its aggregate trend, recommendation and demand data set.


Unbundling Trust

Trust based networks rule businesses like insurance, retail banking, law and financing. But what if trust was unbundled from institutional nexuses of power. What if we built trust from value creation instead of value extraction. DeFi wants to build permission-less trust based on a protocol. Its entirely possible we bundle trust back into the wisdom of crowds and markets. Wall Street Bets is an aggregate source of unbundled trust. Figuring out what layers can be stripped away for more efficiency and what layers we need for safety and peace of mind are unsolved problems.


Data Ingestion Is Value Creation. The more capacity we have for data collection the more demand we will have for data ingestion and processing. While we can say sure businesses rely on the protocol and data and that unbundles trust, that’s not the full picture. We will need people who make sense of the chaos for the muggles. Ordered systems give the impression of serendipity for their users (an introduction on a social network, a recommendation for a loan, an outfit customized for you) but the work required to intake and order the data to create value for users is a big hairy problem. And there is a lot money to be made in those. Centralization may come at this layer especially in user experience.

Flexible Asset Weighting.

We are also interested in businesses that know where they stand with capital needs for their business. If you are executional business you need a thin layer of assets to succeed. To quote Roy Bahat “hot swap” startups are executional businesses. A slim horizontal physical layer to take advantage of low financing costs means return on equity is greater for these asset light businesses. If it’s deep innovation then you can be asset heavy. We like those just fine too. But knowing where you stand and anchoring your business case on your asset weighting can give you an edge. That lets you be capabilities based and find opportunities, particularly as debt as is in a commoditization cycle.


All of this is to say we are thinking across a number of system level problems to unearth startups that will give flexibility to individuals, organizations, industries and hopefully the entire economy. Incumbents won’t see who is coming to beat them because they won’t recognize the new predators. They prioritize value systems that at won’t remain true as systemic chaos erodes inefficient businesses and institutions.

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Finance Startups

Day 180 and Thesis

As I see more pitches and work with more entrepreneurs I am finding it helpful to have my thoughts codified on paper. That way if you are interested in working with me you have a chance to vet me. Knowing what I want to see in a deal and what just isn’t a fit saves entrepreneurs time. So I’m going to doodle a bit on what I do and don’t like.

Chaotic.Capital has 4 key investment areas. But they are really just different levels of working with an uncertain future: at the individual level, the organization level, the systems level and the planetary level.

  • Personal Flexibility is critical when it’s harder to make long term lifestyle decisions (housing, health, children) – how do we allow people to make those decisions without anchoring themselves to place or time horizons that limit optionality. Businesses like marketplaces, preparedness, personal safety, service & product exchanges, health tech, longevity, and alternative credentials.
  • Organizational Agility is a differentiator for businesses in rapidly changing landscapes, so we invest in software and tooling that provides leverage for small teams to have a bigger impact or bigger teams to act more discretely and independently. Businesses like software as a service, cloud infrastructure, collaboration & coordination software, DAOS (decentralized autonomous organizations), automation software, and memetic and organizational aids.
  • Systemic Arbitrage opportunities are even greater in chaos. Working through systems level chaos helps individual and organizations protect against cascade and systemic collapse risk, mitigate political chaos, regulatory uncertainty, memetic crowd and mob behaviors, or medical chaos, just to name a few. Businesses like intelligence, decentralized finance tooling and exchanges, cryptocurrencies, bots & analytics.
  • Climate or planetary risk is an existential risk that is already fucking with our world – we like companies mitigate the chaos of climate change while profiting on the risk. Businesses like mobility, insurance, green tech.

What I don’t like to hear are pitches for things that are tangentially related or a forced connection. Sometimes folks will try to get us excited about a problem they’ve already solved and are scaling but we are looking for longer time horizons. There are plenty of amazing startups that have great returns but aren’t a fit for us. We really do want the crazy weird stuff that is going to take a while.

We don’t need you to know where you are going. We want to see ten or twenty year out timelines. What would life look like without school? How about a world where we didn’t pay taxes based on our geographic location. How about a world where we automate how our attention is allocated. Or a world where our financial power isn’t rooted through centralized trusted powers. We want 1000x leverage on change.

I’ll write more later this week about the types of companies I don’t want to invest in. Not because I don’t like them but because they just don’t match what this fund is meant to do.

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Aesthetics Internet Culture

Day 167 and the Naughties

I arrived in New York City in January of 2006. The aughts were an interesting time to be in New York. The recovery from 9/11 gave the city a sense of resilience but the Great Recession hadn’t reshaped the financial landscape of the country just yet.

I moved to Manhattan because I wanted to work in fashion. I didn’t have any relevant experience. I’d studied economics. But I was a blogger and that turned out to be enough to find a way in.

I met a man in the comments section of our respective fashion blogs as back then back links were an acceptable form of socializing. We both moved to the city the same week. He would become my cofounder on a fashion media startup and also my boyfriend. Yes it’s as dysfunctional as it sounds. Don’t worry we are still friends.

We’ve got a lot of fond memories of the Aughts. New media was just coming into its own. The possibility that it might change industries like fashion seemed exciting and democratic for style. No one had figured out how to grift by “influencing” yet. Which meant actual influence was still possible.

That first generation of bloggers was more influential in moving industries like culture than the commercial milieu we have now. Less lucrative certainly but the impact was significant. Good stuff actually emerged from living instead of someone imitating living.

My friend (the ex and cofounder) are considering writing a chronicle of our time. Partially it’s an exercise in nostalgia. It was a lot of fun. Maybe it’s a bit of an ego trip to think we could’ve even write some fiction that ties together the ethos and the aesthetics of that moment.

Back then we hadn’t cracked up the media industrial complex into algorithms and big automated ads dollars. A lot more got done in restaurants, bars and parties. The city itself hadn’t turned over into the complete plutocracy that dominates now. The kleptocrats needed the financial industry to implode and get bailed out for that kind of real estate takeover. Before the bailouts maybe the rest of us good maintain the delusion that we too could strike it rich. Now the distance is too great.

It was an era when Condé Nast mattered. Finance was a thing the cute guys with ambitions for money did, not yet a space that was entirely populated by Hedge Fund guys set on moving to Planet Billionaire.

And holy fuck the parties were great. Classes mingled more without the stratification that came out of the Great Recession. You could be someone even if you lived in a shitty barely heated no hot water squat loft on Bowery. It still cost $1600 but better than the 16K a month I saw it go for recently. You could get into club if you had some style. Instead of convincing people you mattered because you had a bunch of followers you had to convince someone you were cool.

I know this all sounds like bullshit old person nonsense mumbling about past good times. So if we do write about the Aughts it will take a lot better writing to make it compelling. I think it’s possible as I still retain a sense of place that I think is worth sharing. I’ve got ridiculous stories that could make for a fun read. So I’m putting the energy into the universe that I’ll capture those moments and share.

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Finance

Day 163 and Favors

Some professional arenas are driven by the favor trading of social capital.

I’ve got a gut sense that this is true on the two poles of commodity products and services. The middle ground has a lot more nuance and is thus less susceptible to favor trading, as it’s clear what drives price and value of service. With complete commodities (identical replacement value) and the non-fungible (not interchangeable or replaceable) there are not simple price or value anchors. This makes it more likely your purchase or choice will be driven by the perception of social capital. We will do favors for those with higher status or by the recommendation of those we trust.

Interchangeable commodity products trade on price, which means favors from across the ecosystem act as the grease in otherwise equivalent deals. Think suppliers of everything from lumber to textiles. If the price is the same maybe you buy from someone you like who took you out to dinner. Or you buy because that person has a good reputation in the community so you use the person your neighbor recommended. This seems intuitively true of commodity services like accounting, plumbing or roofing. Within certain bounds of quality, a 2×4 or a roofing bid should fall into the same bucket so it’s ok to pick whoever feels best. That’s why it’s susceptible to favors and social capital exchange.

On the other end, extremely differentiated non commodity products are equally prone to being tipped by favors. Think professional services like public relations that are very hard to compare. A publicist with favors to trade gets their clients the best coverage. A reporter who has a lot of sources can trade them in to get a quote for a story. Venture capital is one of the least commodified types of capital, a founder will pick one firm over another not just based on the price of a term sheet but whether others recommend them. Reputation matters a lot. Social capital is what gets a deal done, a nudge to consider someone will push you into a cap table.

Not convinced? Think about a product that exists in the middle like clothing from a brand you know but isn’t connected to you in any other way. This is the least susceptible to favor trading or the pressures of social capital.

We can intuit a dress made from quality fabrics and a recognizable brand has a set cost because the brand of the designer is not interchangeable (maybe with others in their category but Prada isn’t the same as Old Navy) and the cost of the fabric is transparent. A silk blouse can’t ever get too cheap on a one off basis. Both the brand and the fabrics set the bounds of the prices.

I didn’t really have a point in writing this other than being curious about what impacts how we pick what to purchase and what sets the bounds of our pricing. We are in a narrative cycle around inflation and work shortages which is having an impact on how willingness to to spend or hire.

So be careful if something seems too expensive but comes highly recommended. Be equally wary if something is particularly cheap even if a friend likes it. Look for the sweet spot of pricing and reputation that is based on market price beyond your in-group.

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Finance

Day 160 and Starting with Money

The best articulation of why anyone gives a shit about currencies in crypto (as opposed to just focusing on bigger structural problems of macroeconomics) is that you need foundational layers to build a new economy. You need a currency before you can have an economy. Ryan Sean Adams at Bankless gave me an aha moment with this quote. You need money.

The bankless model is simple: you hold the majority of your crypto wealth in crypto money. Specifically crypto commodity money. Today that means ETH and BTC.

Wealth is different than money. And crypto wealth should be in crypto money. Like yes, we get it, assets get tokenized. Crypto folks are wild for tokens. But that’s more of a DeFi problem. Financialization has allowed us to buy so many cool kinds of financial products that we forget that shit like derivatives were invented by normal dudes who traded soybeans for a living in the 70s.

But we needed soybeans to be traded first. There is an order of operations to setting up an economy. That means a system where folks grow soybeans and sell them, or turn them into another product like oil, or sell their labor as an accountant to the oil company that buys the soybeans. Because we don’t trade soybeans for steak. We trade it for dollars and then we buy a steak to enjoy at home with our spouse and kids. Circle of life! Circle of trade.

So first things first (I’m the realist) we to understand that understand that currency is crucial to the functioning of but also the first step in an economy expanding. We need to read up a bit on the history of money. PBS has a NOVA series that is pretty comprehensive. If you like stories Thomas Levenson’s Money for Nothing is a not-actually-tall tale about how the scientific revolution lead to a financial revolution (plus it has boats). Or learn how Kublai Khan invented paper money which seemed even crazier than a digital currency at the time.

If we start with a digital currency who knows what we can build from there. Balaji believes (and I agree) that it’s the first step in forming a digital country. But money comes first.

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Finance Startups

Day 152 and Running The Play

I’m going to put $5,000 into liquidity mining and yield farming to fuck around and, hopefully, find out.

If the last year has been about laying out the primitives of decentralized finance, this summer is going to be the Layer 2 land grab and I need to learn how to stake some claims. I don’t have a clue if it is going to work but I need to start learning how to play the game by tossing the ball around. I doubt I’m going to be whatever the equivalent of a professional player but I want to learn some muscle memory. You can’t very well buy an NFL team without having ever handled a football can you? Yes I am torturing a metaphor.

On a personal psychological note, I wanted to start with a $1,000 but then I realized the difference between losing $1,000 and $5,000 isn’t material to me (which blows my mind but such is the compounded benefit of my various privileges). However, the difference between 10xing $1,000 to $10,000 and 10xing $5,000 to $50,000 is extremely material to me. $50,000 is a a material seed stage check for a company that I may want to place a long bet on.

That is roughly the cost of my medical care for an entire year (not including drugs which roughly doubles it). That is a down payment on a parcel of land to develop over the coming decades. This is a moment to learn and leverage for the benefit of my future self and family if shit goes well. And if it doesn’t no big deal. The real money is better managed than me deciding I want to toss around a ball

My Chaos thesis says it’s time to run the play on the future more generally. It’s hard to argue that I can make good puts on a chaotic future without fully experiencing some of it myself in visceral fashion. I fully expect to lose all of it trying to liquidity mine and yield farm on my own but if I don’t well then I’ve proved something to myself about the future of capital.

I need to remind myself that this isn’t representative of how I allocate capital in a diversified portfolio to preserve my future security nor is it how I’d allocate capital even in a seed stage private venture stage portfolio. But it is a worthwhile amount to put on a 100% risk basis to learn how the fuck the future of capital allocation might work.

Honestly $5,000 is a pretty cheap tuition for a fancy credentialed college class so this seems like a good deal. I will write my way through the learnings and call it an independent study.

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Finance Startups

Day 149 and Optimizing for Outcome

I came across a thread today by Sahil Bloom on human goal setting and the mental models we manipulate. He introduced me to Goodhart’s Law

When a measure becomes a target, it ceases to be a good measure. If a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure loses its value as a measure! Goodhart’s Law is states “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” But the concept was popularized by anthropologist Marilyn Strathern. She generalized the thinking and called it Goodhart’s Law. “When a measure becomes a target, it ceases to be a good measure.”

I am fascinated by this tendency humans have of fixating on the things we think symbolize progress instead of the actual outcome. Sahil names a number of instances in which this has led to bad business outcomes. CEOs managing to short-term stock goals has been one that has long frustrated me.

Startup land is immune from this tendency either. I’ve seen product teams fixate on OKRs such that they never miss a single metric but fail to launch their product on time. Or a venture capitalist will toss out something like an ARR goal for a Series A only to have a founder chase that number for a year and still not get funded when they hit it. We think these goals are the goals in and of themselves. But really launching the product on time and closing the series A are the only thing that matters. As long as we hit our goals who cares what metrics we used?

This is of course set against the classic “what gets measured get managed” which is an apocryphal quote from business theorist Peter Drucker. It may in fact be total bullshit. It may be that measurement actually hinders management. Said rather well by Simon Caulkin

Measures set up incentives that drive people’s behaviour. And woe to the organisation when that behaviour is at odds with its purpose.

Lest you worry this is just a business problem when I was single in my twenties I made a spreadsheet of the various gentlemen I was dating. I felt like I needed a way to make the process more efficient so I starting weighting categories of characteristics that was most important to me. I like intelligent men so I started listing their college degrees. I liked men who were into quantitative thinking so I started noting if they worked in banking or academics. And well you can imagine how this took a turn for the worst. Instead of meeting smart men that likes to look at the world through numbers I met a lot of bankers that went to Harvard. I was optimizing for the wrong outcome.

Next time someone tells you that some metrics or goal is the only thing that matters stop and question if it makes sense for the long term objectives. I’m not saying bankers from Harvard aren’t smart but I’m also not saying that all smart men are bankers from Harvard. And that turns out to be a pretty crucial difference.

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Categories
Finance

Day 145 and HODL

If I like something I want to commit. I don’t get folks who get panicked at bumps in the road. Hype cycles for cryptocurrency trading have been unappealing to me. I’ve never been one to watch things like FOREX trades so why would I want to do it but with Bitcoin? Like I have fantasies about being a trader but I am absolutely not. If I believe in an opportunity I am not a short term thinker or investor. I want to see where it goes.

The real excitement to me in crypto is the potential to impact larger more broad based systems. Changes that occur over time and with significant collaboration are more interesting than any narrative blip. A libertarian monetary policy implications was obviously particularly exciting. As business person the potential to change the middle man fee structure that makes financialization and banking a scourge was equally appealing. As a technologist the possibility of building applications on an entire new protocol is enticing.

The bigger picture is the only thing that matters. Go in the right direction over time and ignore the noise. That’s why we’ve slowly moved up our allocation into Bitcoin over the years. And that’s why I’m excited for my husband Alex to be working as the new COO for Hiro.

Any angle you take on the big picture implications for building new systems is an opportunity for innovation and wealth creation. That’s why I’m HODL. HODL is a mindset. Sure it came out of a misspelling of “hold” when someone was drunk but who can’t relate to the desire to really commit to a bigger vision? Participation in the creation of something bigger is the ultimate HODL value. Hold on for dear life or just hold on. Either way you are in for the long haul.

Categories
Finance

Day 140 and Gaming The System

I’m extremely envious of people who enjoy explicit rule based games. People who find points structures exciting have a tactical advantage in our current moment. In America financialization, the trend of financial services generating wealth instead of making goods or selling services, dominates our economy. Gamers make the best traders and bankers in post industrial capitalism because they love gaming the rules.

I’ve never been the sort to scour rules looking for exploits in individual levels. I’m a gut player that wraps their head around the basic directions of a system and moves to be aligned for final bosses or big game or infinite play. I’ve never been particularly excited about quirks, loopholes or exploits. As long as I think I have a decent overview I’ll just throw myself into gameplay with an intuition of what looks like enjoyable continuous play. I don’t need to be rewarded with discrete wins I am happy to just play and build.

I’ve got friends who relish the day to day optimization stuff. They run the gamut from professional mathematicians to gamblers and full time gamers. The thing they all have in common is a love for the individual wins. They solve problems. They will rack up wins in short games but are less motivated by building towards dominance in any given system or game over time. They respond positively to the kinds of short loops that makes level play so much fun.

I’m more of a long loop than a distinct arc player. I like mental maps and models that don’t always give an immediate or measurable reward sets but rather engaging me in nested, dependent loops that yield unexpected dynamics. While I love games that have economies that have immediate yields I’m so much more turned on by ones that have distinctive world level macroeconomic game play. Nothing gets me more invested than causality you can’t see or map immediately.

But I’m envious of people that are good gamers because they have the skills and intuition for financial games. I want to be a winner at stuff like like yield farming that mimic the kind of play to win whale games. I can defend all the kinds of games I am good and how they are worth a lot too but for the moment I’ll just let my envy sit and admire the player of games.