Tag: Investing

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Finance Startups

Day 270 and The Circle of Capital

Capital has evolved a lot in my life. The dynamics have changed so much in the 30 years I’ve been ambiently around venture it’s barely the same business. And yes I mean since I was a kid. The apocryphal family history is that I was born on the poor side of Silicon Valley while my unemployed father was working on pitch deck for education software. Yeah it’s a shitty origin story but it’s mine.

Back then you sold your entire life to some dudes for half a million bucks and gave up a lot of control. It wasn’t really collaborative but it was worth it to create the future. Back then your VCs controlled a lot more than they do now for capital they deployed. Flexibility and collaboration wasn’t really considered necessary. Your VCs actually controlled when you got fired (another childhood memory was a “take your daughter to work day” where a CEO got fired), when you could raise again, if and when you could sell your company, and honestly I wouldn’t be shocked if they had some Rumplestiltskin provisions too. That’s just where the market was at the time.

As it has become clear that non-linear returns come from creative founders and new markets, the structures of capital deployment have changed a lot. Capital cares about helping operators create because creation simply has more value than it did in the past. Venture capital isn’t old dudes optimizing for control and margin anymore (even if sometimes that might be a good idea) because that’s just not what makes money anymore.

Heck it has changed a lot in just half a decade. The last time I raised venture for my own startup, we actually priced the round (no uncapped SAFEs), we had a board from day one, and we were allowed to overshoot our valuation and capital goals by a whopping 300K. I was sure we’d reached the height of founder leverage at the time. Heck I felt certain we’d raised a small fortune on favorable & flexible terms. Six years later that would be considered a charmingly small pre-seed round with very onerous terms. Time marches on! And rightly so. Markets adapt to the needs of the participants and the returns they deliver. If it wasn’t profitable it wouldn’t be so.

This is all a long winded way of saying that I am continuing the circle of life. I’ve got my own venture fund Chaotic Capital with Alex Miller and Jacob Brody. It doesn’t look anything like the funds of my childhood or even the seed stage funds of the last decade. Probably because we as founders and operators lived through the hard lessons of venture in multiple cycles and took a lot of lessons with us. Capital isn’t about control. It’s about collaboration now. Capital starts early. Capital is flexible to generate returns But we also aren’t n00bs.

Rather than spend a year raising in silence and announcing it once it’s all said and done we are building a rolling fund. That structure works for us and my general affinity for building in public. It signals founders we are building like them (even as our other constituents see it as being responsive to the demands of the market). The rolling fund is a kind of flexibility to build at the speed of the market while also understanding that the give and take of responsible deployment must also work at the pace of founders.

While we work on forming our proper fund, we’ve created an AngelList Syndicate for chaotic where we’ll be creating SPVs for our current deals (we already have our first two which feels crazy to me) as well as follow-on deals once the fund is created. If you’re an accredited investor and interested in joining our deals, head on over. Isn’t it cool how these structures morph and change over time? I guess having a couple decades of being an operator has some benefits. You’ve seen what works and hopefully have some capacity to change what needs to be changed.

Our LPs and co-investors are mostly our friends and former colleagues who have spent years working with us at companies as varied and diverse as Stack Overflow, Trello, Easypost, Triplelift, Goop, PopSugar and over 40 different angel investments. Alex Miller, Jacob Brody and I have invested over 4m over the years which seems sort of astonishing.

While we work on forming our proper fund, we’ve created an AngelList Syndicate for chaotic where we’ll be creating SPVs for our current deals (we already have our first two!) as well as follow-on deals once the fund is created. If you’re an accredited investor and interested in joining our deals, head on over.

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Internet Culture Startups

Day 236 and Founders Who Write

A heuristic I’m playing with for assessing founders is how good they are at writing.

And while this approach to vetting a founder is a practical method (everyone writes) it’s obviously limited. But I think it is nevertheless sufficient for reaching an approximation of founder capacity in a swift and asynchronous way. I like to see examples of founder writing whether it is Tweets, blog posts, technical documentation or a Notion document.

It’s my belief that we’ve overweighted salesmanship, pitching & synchronic communication methods (remember reality distortion fields) which has led to prioritizing messianic style founders. A rousing keynote speech used to be the gold standard. But this may be less relevant as teams go fully remote and more work is done asynchronously. Your capacity to document and communicate meaning at scale is crucial as a founder.

The canonical example of a founder who telegraphed competence and meaning through writing was Joel Spolsky. The Joel on Software blog established him as ur technical writer and gave us documentation culture which blossomed in Stack Overflow.

A more recent example for me is Devin Finzer who I discovered through his technical writing. Long before OpenSea was a clear winner in the NFT space, Devin’s writing caught my attention as his crisp clear articulation on the basics non-fungible tokens was legible to everyone.

My guess is this heuristic of focusing on writing instead of showmanship will improve overall diversity of founders & companies in a portfolio as less bias creeps into asynchronous documentation whereas mirroring & social cues easily tilt pitching in favor of certain classes of people

I’m also keen on folks who like messaging culture. Being able to hop in and out of conversations is crucial to team building & scaling. Those that are happy to DM & chat to build rapport in distributed fashion more easily will succeed at building relationships in a remote first world.

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Emotional Work Startups

Day 230 and Punishment

I wish I understood why we feel the need to punish ourselves sometimes. What is it about human nature that makes us abuse ourselves? Oh we deserve it. It apparently has a social purpose as well according to Psychology Today

Self-punishment tends to serve a dual purpose as it not only relieves internal feelings of guilt but impacts how others perceive us as well.

I’ve been feeling guilty. This month is the two year anniversary of me selling my last company Stowaway to a private equity firm and pursuing a medical leave to diagnose and treat my spinal condition ankylosing spondylitis. It was a happy ending, at least mostly, with the company being put into better hands than mine. But I still felt guilty.

I felt bad I didn’t live up the expectations of our biggest dreams. I felt guilty I didn’t 100x the capital for my venture investors. I felt guilty that my colleagues had dedicated so much to me and I had failed to deliver on the outcome we had dreamed of in our early days.

So punishing myself seemed like the right thing to do. I deserved to be sick. I deserve to be in pain. I deserved for the whole world to read about my experience and my failures. I deserved to be shown in public as a weak sick woman. It sounds so abusive when I write it out. Like I thought I deserved to be tortured. But maybe that’s exactly what I felt.

I am trying to unearth why I have the self limiting belief that punishment is what I deserve. As it’s more than just the circumstance of selling a startup and not seeing the results I wanted. It’s got to be deeper than the rationalizations I’ve given.

I’ve practice family systems therapy. The basic premise is that our childhood informs how we react as adults. And by healing the rough patch’s or even traumas of those times we can live the life we choose. For me I felt abandoned as a child. I wanted my father in particular to be emotionally available. But it just wasn’t to be. But I held on to the idea that I must have deserved to be abandoned. But of course it had nothing to do with what I did or did not deserve. It wasn’t about me at all.

Now I remember that I am a capable, brilliant and above all reliable person who needs to accept what I can be and not be bound by what I learned in failure. Finding that and turning it into your superpower is where the real success comes from.

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Finance

Day 225 & Explaining DAOs to Moms

My mother is a sharp woman. She’s interested in economics but if you asked her to explain securities law she’d probably shrug. Not her expertise. She did survive our family bankruptcy during the tech IPO implosion she’s got a slight intuition of securities law in the context of consumer protection but that’s about it.

So I was impressed that she was able to sum up the recent infrastructure bill’s attempt to make crypto foot the bill very neatly.

“So they are trying to convince us that people who program computers to run math problems are actually bankers?”

That’s…actually not too far off. She seemed to grok that this was a misunderstanding of the basic technology, who builds it and it’s purpose. She was glad the amendment didn’t pass. Clearly people who build computer applications are not the same as the guy at Charles Schwab who looks after her retirement account.

We were discussing it, as I was trying to explaining PR DAO and why I wanted to help organize an activist group of folks whose purpose was execute public relations campaigns to tell stories about crypto. I explained to her that rather than having a bunch of executives who make decisions we would write a set of rules that automatically determine how we make decisions. Those rules would let all members of the organization vote on how we wanted to deploy our assets and pursue our agenda. She liked the tag line “rules not rulers” a lot. She’s pretty into freedom. A smart contract was pretty intuitive to my mom.

Where she got confused was the governance tokens. Not how they worked. Again it was intuitive to her that depending on what you contributed and how invested you were in the organization that you would a different say in what got done. Maybe each token represents one vote. Maybe some people have more votes because they are more invested. Presumably we figure that out in our smart contract. What she didn’t get was why the government thinks a voting mechanism is a security.

“So the government treats the way your group organizes decision making as if those little voting symbols were stock in IBM? That’s fucking stupid”

Now granted my mother probably can’t explain what a security is (she’s got the basic idea that they are like a type of money and Boomers like to own stocks). She gets why they are regulated the way they are in a general sense. She’s lost money on badly governed companies. So sure it’s fine that the government has some rules for that sort of thing.

But even to a lay person like my mom it seems pretty clear that something meant to represent ownership in a money making enterprise and something meant to help organize voting and decision making are separate ideas. She seemed to think maybe they ought to distinguish between the two ideas. Because you know the last time we came up with clever ideas like the corporation the whole world changed. Evolving them again to be autonomous could make for the same level of change. If my mom got that in a half an hour phone call seems like maybe the professionals at the SEC could work it out too.

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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.

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.

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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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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.