Tag: Investing

Categories
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.

Categories
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.

Categories
Emotional Work Startups

Day 174 and Easy for You

I’m not normally the type that reads business books. I’m pretty disinterested in management techniques and organizational structures because I suck at it. And I bring up sucking at MBA style topics because as I was doomscrolling I came across an older article from the Harvard Business Review. The headline was “why do talented people not play to their strengths?” I clicked.

It begins with fairly standard case study chit chat about the NFL and I’ll admit my eyes glazed over. Why had I bothered to click when I’m so not the business school type. And then I spotted a nugget that rang so true I swear I’ve got a little tinnitus from the “ding ding ding” bell that rang in my head.

We often undervalue what we inherently do well.

I’ve written in the past about my struggle to accept things that come easy to me. I have had a self limiting belief about the necessity of struggle and it’s inherent morality. Maybe I’m rationalizing pain and hardship because emotionally I need there to be a “why” for having fought through a chronic illness. Surely suffering through and taming a spinal disease has made me a better person right? Or maybe shit just happens.

And maybe I’ve been downplaying all of the many super power and talents I have. I’ve spent so much time grieving the loss of the hard things like working long hours and always hustling that I’ve been ignoring that i can win doing things that feel easy. Because they might just be easy for me but not easy for everyone. Quoting the article.

Often our “superpowers” are things we do effortlessly, almost reflexively, like breathing. When a boss identifies these talents and asks you to do something that uses your superpower, you may think, “But that’s so easy. It’s too easy.” It may feel that your boss doesn’t trust you to take on a more challenging assignment or otherwise doesn’t value you — because you don’t value your innate talents as much as you do the skills that have been hard-won.

Working long hours were always hard for me. I fought to stay up late because I would find myself fatigued and in pain. I really valued that because it hurt me. It was hard for me. Whereas I never valued being at being ahead on news and trends, or my facility at gaining media coverage, or how easy I found it to spot when the market was going to move. I distrust the skills I can do effortlessly.

But I realize now that those are valuable skills. It makes me a good investor, especially in private markets where seeing where the market is going and alerting people to potential is very well remunerated. So next time you scoff at a compliment from somewhere on you work ask yourself if what you did is easy or just easy for you. You might be surprised to find you have a superpower you never noticed.

Categories
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.

Categories
Startups

Day 155 and Momentum

Startups don’t really operate on logic, plans or “objectives and key results” to name and shame. Founders and executive teams get really good at planning and strategies only to have it all blow up in their faces. Generating momentum in spite of startups being incredibly resistant to planning is part of the trick.

I’ve been thinking a lot about the emotions that go into that “no plan survives contact with the enemy” reality of startup life. The past two days Alex and I have been enjoying a victory lap after the 1.8B acquisition of his former startup Stack Overflow. It’s a process of mixed emotions and shared experiences with other families that lived it with us.

But one central theme is that nothing changed in our skills, planning, insight or capabilities after we got the market validation. We didn’t suddenly get better and got rewarded overnight. Our plans got exploded like everyone else in startup land, over and over and over again. Till one day it was worth a bunch of money. Now everyone involved looks like a genius. But the reality is that the momentum of startups live a life and logic unto themselves. No one set an OKR for “billions” nor did they plan out a straight line from day 1 on acquiring customers consistently. No one planned out a ten year roadmap for creating enough value or revenue for a substantial exit. No one micromanaged shit for a decade. The momentum just worked itself out eventually.

And yes I’m using the Royal We here but mostly to make a point. Startups and their teams and the entire ecosystem around them are team efforts. Together we turn nebulously ideas into sketchy plans and eventually great things. Don’t get so wrapped up into the need to manage everything so closely.

A graph showing a bell curve distribution. The two outlier “make stuff”

The momentum of making stuff can and should eventually pull you into your goals. So don’t kid yourself all your numbers or plans do shit. Be the Jedi.

Categories
Internet Culture Startups

Day 154 and Mixed Feelings

I’ve been in a hazy “did that happen place” emotionally after the news that Stack Overflow, where my husband spent 8.5 years, sold for $1.8B. Obviously it’s a lot of money to just appear into our lives. It’s not the first exit for Alex Miller or me. I’ve had 2 acquisitions for companies I have founded & he’s had an IPO for a company he was early to join. I also lived through multiple exits, financings IPOs & bankruptcies as a kid as I’m the child of a startup family. So why does this hit different?

I think part of it is that our other wins tended to come from “faster” companies. My first acquisition came within 2 years of founding. It wasn’t a lot of money but let me pay off student debt & get more stable. Alex was with Yext for a comparably shorter period and when it IPO’d he’d long ago left for Stack Overflow. And that was only a win because he was lucky enough to be able to borrow money to exercise his Yext options or it would have meant nothing. That happens a lot to early stage employees. They cannot afford to exercise and get nothing when a big exit happens. It happened to me when the company that bought mine exited to someone even bigger. I couldn’t afford to exercise. I never had the heart to calculate how much I would have made.

We’ve had secondaries over the years. Sometimes equity gets taken off the table in later stages financings and it benefits early employees. Those changed our calculus a lot when it happened to us. We put together a financial plan and a future as a family with our startup earnings. We made decisions based on whose turn it was to risk & who to run downside. Being a startup spouse means a constantly balancing act of supporting years of low salaries, long hours and stress. And while it’s not easy to be the wife of an early stage employee it’s probably even harder to be the husband of a founder. Startup families live through a lot together.

Stack Overflow was “the” company in many ways for Alex where he spent the better part of a decade and the majority of our marriage working to build the company up. He was employee 32 when he joined as chief of staff. When he left it was over 300 employees and he was the GM of the SaaS business.

When he left Stack we didn’t expect a payday beyond what salary he had earned and perhaps a bit of secondaries. He’d done good work and built amazing things but when you leave you don’t want have the emotional capacity to think about things like big acquisitions or IPOs. When Alex left Stack it was a deeply emotional process for us. A lot of therapy for both of us. Because startups aren’t just the person it is their family that consents as well to these long journeys. Remember that every executive team member or founder has a family that will live through this startup experience too.

After 8 years I knew Alex needed a change. He had given Stack his all. His absolute best. But leaving was hard. In order to leave a company where you invested your whole self (and your family’s) you have to come to terms with how you feel. We cried. We worried. But Alex made the choice. And we didn’t look back. It’s too painful in some ways. You love your startup

You keep in touch with everyone. Alex remains friends with the entire team. We share hobbies & interests and a million group texts with topics as varied as hydroponic tomatoes m, our crypto portfolios and hunting season. We stay at each other’s homes. The bond is deep in startup teams.

Given that bond it’s almost funny how when you leave your imagination on big outcomes can stop. The thing you dedicated yourself to for years is now growing and thriving without you. It never leaves you even if you need some distance.

When we got the call the number was overwhelming. The distance we had created suddenly evaporated. Alex burst into my room where I was meditating and told me the strike pierce. We did some calculations. We checked them. It couldn’t be? It was. The startup had finally delivered the check. We’d done it. Another startup made it.

I want people to know that this kind of largess is mostly random. Everyone works hard in Silicon Valley. Startups are a choice & a state of mind and those of us that chose to do it willingly go into ideas doomed to failure. Or meant for the stars. And it can feel like a crap shoot. Idiots get enormous paydays and brilliant innovators barely make enough to scrape by. The meritocracy isn’t as real as we think. This isn’t to suggest that the Stack Overflow team doesn’t deserve every penny. They do. We earned the payout. The bad years were hard. Miserable. But everyone believed in the community & the power of software developers. But also no one earns these big paydays. It’s a gift. And we are grateful for it.

Categories
Startups

Day 144 and Scars

I have significant e-commerce, direct to consumer and retail business experience. I’ve managed multi-million dollar P&Ls, worked on iconic billion dollar brands and started my own direct to consumer cosmetics line. You’d think with that experience I would be deeply bullish on my ability to pick up and coming startups in the space. But I don’t particularly want to invest in digital brands or online retail. And I think it’s scar tissue.

I’m not saying flat out“no” I won’t ever invest in a DTC business or an e-commerce startup (I have and I will again) but a little bit of knowledge can make it hard to preserve creativity and imagination. Many founders can come out of a space where they have dedicated years of their lives and simply want space away from their expertise. They know too much. They’ve seen things. The scar tissue that forms to keep you working during the long dark soul of startup pain is still tender.

When I mentioned this lingering pain others pointed me to other areas they struggled to hear pitches or invest because of experience. Rental businesses and neobanks from Maia Bittner, certain e-commerce verticals from Lee Edwards, fitness from Jason Jacobs. It’s a common phenomenon among founders.

I’ve got lots of opinions why certain kinds of businesses won’t thrive or have business models that won’t make the kind of return my own personal investing thesis demands. But the truth is that I now have enough expertise to simply know more than is good for me. Ironically this means I should spend more time as an advisor or consultant on certain kinds of businesses but it takes a special founder to coax it out of me. Because I do have valuable insights and I want to share them.

But the last thing I want to do is pass on the trauma of my own experiences. Founders deserve to have their psychological safety preserved so they can build the company of their dreams. Some painful insights from a founder that came before them might help them avoid some pitfalls, but if they take our traumas too seriously they may never find their own path. And that kind of backward looking “it will never work” or “trust me kid I’ve been around the block” attitude can really bring creativity down. So I will always share my honest experience with anyone who asks but I’m hesitant to ever let anyone take my lessons to close to heart. You very well may be the one that breaks through where no one has before.

So when someone pitches me their new retail startup or DTC brand or cosmetics concept I try to be honest that I may nit be the best fit. I’ve got scar tissue. And if a founder insists that I can help I will try. But remember not all skepticism, fear, distrust or dislike is about you. Sometimes it’s all about the trauma of having lived it before. Asking someone to live it again is the ultimate act of trust. And maybe just maybe we get to firm new scar tissue together.

Categories
Startups

Day 98 and Rejection

The other night I got suckered into the infamous Slate Star Codex comment about feminists and nerdy men. If you are already familiar with the general contours of this debate, you can skip the introductory paragraphs and go straight to my theory on the sexual dynamics of rejection in investing. I’ll caveat a lot before that. I read the above piece because I was high and while I would normally not spend an hour on angsty shit, I get tunnel vision with THC sometimes.

I’m an occasional reader of the rationalist community and often enjoy and respect their whole thing. To be honest I hadn’t ever bothered to read the feminist dunking controversies as, frankly, I took Scott Alexander at his word that this post wasn’t really representative of his work, so why would I bother? But again, weed tunnel vision. And boy golly do I regret reading it as I’m writing about it now.

I don’t want to minimize what was clearly a heartfelt and traumatic episode for everyone involved but the TLDR on the piece is basically certain kinds of women do not recognize the trauma of nerdy socially awkward men. Feminists in particular wield a cudgel over nerdy men, who it is argued in this article are victimized. There is some long winded arguments about whether this is a systemic issue. I kinda don’t care and you can judge for yourself. I myself read it as the personal trauma of one man that is being projected out as some kind of theory of power hierarchies. I’m not in the business of scratching up traffic with moralizing on woke politics. If I am, I’ll start charging for the blog.

What I did think was interesting is that we don’t like to talk about how women get rejected and how often we are in the power position to say yes or no. I do believe women to be systemically oppressed by patriarchy. I also think men are oppressed by it. And yes, women cope with sexual violence. That’s not a yes or no situation. Women in patriarchy are granted the upper hand in certain power structures. We don’t really admit this in polite discourse.

Women are the ones that get to say no. It’s a weird fucking system but somehow we have this power. I’d give it back if I could quite frankly. I don’t think it’s biological but I do think it’s true-ish. I fucking hate being the one that says yes or no to advances. I like to pursue but it’s not always an option. I don’t like that women have the power to be desired more than men do. No one talks about the female gaze because lol. Women gain power by saying no. Men gain power by saying yes. How we got here is for smarter people than me.

But I do have a theory that women generally being the ones to grant permission is honestly why pitching capital is such a bitch for women founders and male investors. Women are generally the ones who create desire and say no. Men saying no to women feels weird for both sides. I’ve maybe had one dude say no to me for sex and literally hundreds turn me down for money. It’s a head trip. It’s a personal experience, yes, but it’s also just how pitching works. People say no. Men get turned down a lot and apparently it’s traumatic as fuck for them.

Women aren’t used to it and men like to say yes to women but money can’t say yes to every company as that’s not how investing works. And yes, professionalism exists and, no, it’s never appropriate to wield power over someone’s future with sexual advances. I don’t know why that’s so hard for everyone. Like we shouldn’t be in positions where work feels like sex but maybe we should admit that women aren’t as used to being rejected and men don’t like doing the rejecting. So sometimes this gets grossly out of hand and investors say no to investing money as it’s their jobs (and it’s not personal) but still want to find a way to say yes, so inappropriate shit happens.

I think rejection is just a weird dynamic that’s lopsided with heterosexual cisgendered systems. I’d love to get rid of it. It sounds like plenty of men would too. I’ve always been under the impression that this was the goal of feminism. Clearly we aren’t there yet.

Also don’t read Scott Alexander’s blog comments when high or you too may end up writing about rejection and gender in public too.