The World After Capital

I’ve been reading Albert Wenger’s blog for around a decade, so I was excited to read his book The World After Capital. The premise is rather bold: we are exiting the Industrial Age in which the key scarcity was capital and entering a new epoch, one Albert calls the Knowledge Age, in which the key scarcity is attention. In previous transitions (i.e. Forager > Agrarian > Industrial) things were not smooth (e.g. lots of violence, death, tumult, etc.), and Albert proposes that our transition to the Knowledge Age need not follow suit. In order to do so we must invest in three types of freedoms for everyone: economic, informational, and psychological.

If you’re interested in reading the book you can do so here. Albert shared it on GitBook which is the first time I’ve used the service. He also tweeted the TLDR version if you want to quickly get a sense for the major themes.

There were a lot of things that stood out to me. For one, Albert is rather audacious in his proclamations and I like that. This is a book about how to exit the Industrial Age by following a high-level roadmap for how we should evolve as a global society – that’s an undertaking that requires a certain level of confidence and a broad set of knowledge to do well. Several topics that I suggest digging into:

  • We are terrible at allocating our attention. We need to do a better job at this, but the Industrial Age Job Loop will be difficult to escape.
  • The Knowledge Loop is an extraordinarily powerful concept. It should inspire everyone to share more. This has given me immense appreciation for the blogs I’ve read that have impacted the course of my entrepreneurial career like Albert’s, Fred Wilson’s (USV in general), and Chris Dixon.
  • If you’re a fan of UBI, Albert goes to great lengths to demonstrate how this is the cornerstone of economic freedom. I’d have liked to see him talk about other concepts here, too, such as the federal job guarantee espoused by MMT advocates.
  • Albert’s words on Privacy as something that is “fundamentally incompatible with technological progress” will likely push you way out of your comfort zone. That’s good.

For me personally, one of the big takeaways is how venture capital can be an entrepreneurial tool for systemic change. While reading the book you’ll notice that there are plenty of references made to portfolio companies. At first glance, it may seem like a plug and that perhaps some of the themes are shaped around the USV portfolio. However, if you’ve followed the history of USV and the knowledge the partners at the firm have disseminated, you’ll know that the inverse is true: the portfolio follows the themes and theses. To me, this is such a powerful concept.

As an entrepreneur, I’ve spent my entire professional career focusing on solving one problem at a time. It’s a lot of fun and unbelievably rewarding when you get to help people. One thing you have is control: ultimately, you are responsible for success and/or failure. As a VC you relinquish that control to the entrepreneur, but if you are thoughtful enough you are able to support many different problem-solving threads that can tie together to create thematic change across the world, perhaps even by strengthening economic, informational, and psychological freedom as the catalyst to a peaceful transition to a new era. This is not to say this is what VC is broadly – I think 99% of firms and investors are not this and simply focus on investing in good businesses/entrepreneurs in their areas of expertise to generate returns – but it is what it can be, and that can be world-changing. 

90% Of the Way to Mars

The first conversation I hosted with Keith Rabois and Frank Rotman received such positive feedback that we decided to do a back-to-back follow-on (see what I did there?).

Frank and Keith cover a lot of ground in this one, and there are plenty of topics that I think are particularly relevant to anyone who participates in the VC / entrepreneur ecosystem. I continue to learn from these two and have already found myself referencing their knowledge in my day-to-day conversations.

Give it a listen if you want to know what they think about:

  • How the future of the VC industry will play out
  • Banks entering the M&A landscape and the implications for investors and entrepreneurs
  • How investors reference for their portfolio companies that are “middle of the pack” during diligence
  • Why “Oh Shit!” board meetings are becoming more commonplace
  • The unbundling of capital and advice and how to win as a VC
  • And a lot more!

While the last conversation stuck to one theme (i.e. the valuation environment and its driving factors), we weaved around a lot of different areas that I think most investors and entrepreneurs will appreciate.

80% Of the Way to Mars

Several weeks ago I stumbled on an exchange on Twitter between Keith Rabois and Frank Rotman.

We did the podcast and you can listen here.

For the better part of the past decade, I’ve thought the valuations of startups have been astronomically high and divorced from reality and fundamentals. I’ve come around to the fact that it is what it is and there are a lot of reasons why this is the case (i.e. the distribution of outcomes has meaningfully changed with many more large winners today than a decade ago, we are still in the early innings of the unstoppable secular trend of technology changing every industry, there’s tons of capital – lots of dumb money – sloshing around in private markets, and blah blah blah…).

When I saw Keith and Frank talk about how they and their firms were adapting to this, I was intrigued. They’re two of the smartest investors and people I know. I’ve worked with Frank for many years (he was a Fundera board member) and I’ve known Keith since he joined Khosla Ventures where his partner, David Weiden, backed my previous two companies GroupMe and Fundera. I wanted to hear their thoughts in more detail and thought others would likely enjoy learning from them, too.

I don’t have a podcast, but maybe I will one day. It’s fun to learn from exceptional people, it’s one of the things that brings me great joy in life. One of the hardest things about doing interviews like this is to get out of the way and talk as little as possible. I have great respect for people who are able to do this. I hope you get as much out of this interview as I did.

Every company is a shit show

One of the things I continually find myself saying to friends, founders, and colleagues is that every single company is a shit show.* Founders, execs, and employees like to think that there’s a better way of doing things and point to other companies as if they’ve discovered the holy grail on how to smoothly operate. It’s a grass is always greener mentality. Sometimes it’s good because it forces us to aspire to continually improve. Other times it’s bad because it gives us things to complain about that really aren’t a big deal at the end of the day.

But the fact of the matter is that once you get under the hood, every company is a shit show in its own unique way, and often times in non-unique ways (there’s a very broad spectrum here on the chaos scale). Nobody has “nailed it” and everyone is making things up. The sooner you come to accept that the sooner you realize imperfection is a good thing and riding the ups and downs and dealing with the idiosyncrasies and inherent dysfunctions of companies is just the way it goes. And depending on how companies handle this, it’s the difference between having a joyous amount of fun along the way and having a losing culture.

If you run into founders who think this isn’t true of their company, they’re probably lying to themselves or sociopaths. And if you run into employees who think everything is fabulous, they’ve likely drank the Kool Aid or aren’t privy to just how messed up things really are.

Every company is a shit show and I wouldn’t have it any other way. Or else that would probably be…boring.

*Except for the company I’m currently employed by – that one is perfect.

The Consumer Credit Protocol

Early this year I did a deep dive into crypto. During my exploration, I started to jot down some ideas that I thought were interesting. One of the things I really like about crypto is that it provides an exciting new lens to rethink the way we do things on the internet, especially in financial services. I also like that every participant in crypto networks has access to the same set of information. So in the spirit of open-sourcing everything, here’s a first half-baked idea for how credit risk experts can band together to transform the world of consumer credit.

The underwriting processes utilized to assess and price risk for consumer loans are unnecessarily fragmented and opaque. Across the globe, consumers apply for credit at financial institutions without any understanding of how those creditors make a determination as to whether they will approve a loan, or how a loan is priced and termed. Different nations and institutions have a variety of disparate mechanisms and data sources that are used to make underwriting decisions. These range from FICO scores to assessing cash flow from a bank account and using assets like homes, land, vehicles, and livestock as collateral. Underwriting is opaque, fragmented, and inefficient. Tens of thousands of institutions are solving the same problem in similar ways, with little to no effort focused on collaborating to create a more efficient market that empowers more consumers. 

Blockchain infrastructure enables a paradigm shift: instead of underwriting – the “proprietary” rules that power consumer lending – being controlled by siloed financial institutions that capture the majority of the value in this trillion dollar market, a free and transparent underwriting protocol that powers consumer lending at a global scale can be freely used by lenders, borrowers, and application developers, eliminating the need for centralized, gatekeeping financial institutions.

There are several different constituents that are required to create a globally decentralized and scaled consumer lending ecosystem: credit risk experts (underwriters), investors (lenders), borrowers (consumers), and application developers (distributors). 

Professional credit risk experts and data scientists are the key to developing, maintaining, and evolving underwriting protocols that adapt to the ever changing global financial system. Currently, credit risk experts reside inside siloed institutions like online lenders, banks and credit card issuers. Many work on similar things, but don’t benefit from shared learnings, data or collaboration. They must all independently develop and test their models by trusting others in their institution to attract lending capital and borrowers in order to put them to the test. A better alternative is for all credit risk experts to band together to create a global set of underwriting systems that can cater to every consumer in the world regardless of geography or demographics (e.g. pseudonymous and crypto-only). Participating in open-source underwriting at global scale is the most effective way to create a transparent and efficient market that connects borrowers and lenders.

For investors seeking yield today, they must trust the mysterious underwriting methodologies of financial institutions if they want exposure to the consumer loans asset class. Large institutional investors can conduct diligence on these processes before making an investment, but this requires a cumbersome and bespoke process and information that only represents a snapshot of a particular moment in time. A better solution for institutional investors seeking exposure to this trillion dollar market is to have constant unfettered access to a completely transparent set of underwriting policies whose rules are set by smart contracts on a blockchain. This solves the problem of having to trust the underwriting criteria provided by a single centralized financial institution. A set of global underwriting policies hosted in a smart contract also enables institutional investors to access global scale through one protocol instead of having to identify many different institutions spanning multiple geographies. 

For consumers looking for a loan (e.g. to refinance credit card debt, to finance a large transaction, etc.) it can be difficult to find a lender that will say yes, and to confidently know they are getting a good deal. Most lenders give consumers little choice in regards to their options. If they will lend, there are few toggles for the consumer to adjust interest rate, amount, or the term of the loan. Consumers do not know what lenders are specifically looking for in order for them to say “Yes” – whether it’s their FICO score, annual income, assets they own, or otherwise. Furthermore, they don’t know how a loan is priced, or what data points will lead to a larger or cheaper loan. It makes no sense that a consumer can’t understand exactly why or why not they can get a loan, especially after they are denied by a financial institution. This lack of transparency forces consumers into bad products. This should be a process that empowers consumers, both economically and educationally, not one that leaves them disenfranchised from the financial system. 

For application developers who want to embed lending as a service offering, they can simply use the Protocol to offer credit to their customers. Whether it’s buy now pay later solutions, mortgage offerings, or the desire to use lending to strengthen their value proposition, they can now participate in a market without having to become experts themselves. Established financial institutions and lenders won’t need to exist in this new world as their offerings become commoditized and democratized by the Protocol, and the value they capture is transferred to all network participants: underwriters, lenders, borrowers, and distributors. 

Many lenders specialize in one specific type of underwriting (e.g. prime consumer loans, subprime auto-loans, etc.). Smart contracts enable us to build a system where the protocol can host infinite types of global underwriting models ranging from merchant financing to mortgages and buy now pay later, updated and maintained by leading experts from across the globe. Oracles enable these models to use off-chain data and on-chain data to cater to different types of borrowers and lenders. The combinations are seemingly infinite, and all models are transparent by default to all parties. 

The most critical element is getting a critical mass of credit risk experts to contribute to the protocol across the globe. To mitigate this risk, the optimal structure for this Protocol is a DAO, where top contributors are rewarded with tokens for their efforts in creating, maintaining, and evolving the various underwriting structures within the protocol. This must be a community-governed protocol. The “leading expert” is a global community/network of leading credit risk and data science specialists. Token distribution should account for all constituents in the protocol: underwriting contributors, borrowers, lenders, distribution partners, and the core maintenance team and its investors.

There are a lot of holes in this. How is recourse for defaults managed? How is it possible to operate across the global patchwork of byzantine financial regulations? There’s plenty wrong with this idea, but there’s also probably a kernel or two in here that’s right enough to make something work in the world of consumer credit. Here’s hoping that happens one day in the not too distant future.

Thank you Morgan Beller and Greg Rosen for helping me navigate the world of crypto, and Frank Rotman and David Snitkof for your feedback.