Ride It to the Sky

When we first started Fundera we described it as a “marketplace for small business loans.” It took me several years to understand that what we were building was not a marketplace per se, but really a brokerage. Over time I developed an appreciation for the nuances of what makes an internet marketplace a marketplace. Frequently, we confuse business models that are really online brokerages or lead generation sites with the term marketplace. While the distinction is somewhat subjective, I believe there are several defining characteristics of each, and the type of business model one has matters because there is a hierarchy of inherent value.

Lead generation is the easiest model to distinguish. If a site relies on selling leads (i.e. CPL) or being paid for driving high-intent traffic that buys something (cost per acquisition, or CPA) to make money, then its business model is lead generation. There are many different types of lead generation sites, and they can be quite lucrative businesses, particularly in markets where paying customers (i.e. the businesses that buy leads) do not have performance marketing as one of their core competencies. Lending Tree is an example of a company that is excellent at leveraging the CPL business model. They have many different forms on their website across a variety of different financial verticals (e.g. mortgages, personal loans, insurance, etc.). These forms collect basic contact and demographic information about consumers interested in those products. That information is then sold to providers of those products through an exchange auction that matches buyers with leads based on customer profiles and willingness to bid on those respective profiles. In some CPL models a lead is sold to multiple bidders, and in others exclusively to one bidder (usually for a higher amount). This model can produce lucrative results for the lead generator, but sometimes sub par experiences for consumers if their information is sold to too many buyers.

The CPA model relies on a visitor taking an action, expressing explicit interest in a particular seller’s product, and then completing the purchase themselves. Another financial services example here is Credit Karma whose model is surfacing relevant financial products like credit cards to consumers based on their credit scores. If a consumer likes and wants the card and applies for it and is approved, Credit Karma is paid a fee for finding that customer for the credit card issuer. Usually these fees are much higher than a CPL fee because they are only paid once a transaction has been completed and the provider has found a new customer. At Fundera, we employed this model when we expanded into financial products beyond SMB loans. Customers would come to our site when they were researching small business credit cards or checking accounts, and we would recommend these products through content-first experiences via affiliate links. If a reader liked an option enough to click on it and buy it, then we were paid a CPA fee.

Most lead generation businesses rely on models where they buy low and sell high. If a business finds a vertical where consumers have difficulty identifying the right product, lead generators can aggregate supply to help consumers make easier decisions. We see this in financial services and travel a lot. The downside of lead generation businesses is that they can be a race to the bottom if they’re in a crowded and competitive market. The barriers to entry are essentially aggregating supply (i.e. buyers of leads or businesses willing to pay for new customers) so there is little in the way of defensibility. The other downside is that they are very transactional businesses, and the lead generator very infrequently has a relationship with a customer. This means that for a shopper, it’s usually a one-and-done experience. This requires the lead generator to be on a perpetual treadmill of buying and selling traffic, constantly searching for new arbitrages to scale. Another important distinction for lead generation businesses is that the final purchase and transaction takes place off-site. While there may be marketplace-like experiences where visitors can search and browse for things to buy, ultimately they are directed somewhere else to get the thing they need to purchase.

The best lead generation companies usually have some combination of a distinguished and highly trusted brand and a proprietary channel or value proposition they use to acquire customers that competitors cannot replicate. These companies typically have staying power and defensibility, are highly differentiated, and immensely more valuable than competitors.

Marketplace businesses are fundamentally different than lead generation businesses in several different ways. First, the end-to-end customer experience and transaction takes place within the marketplace. This is an important distinction because the customer associates the entirety of the purchasing experience with the marketplace, and ultimately the relationship is between the marketplace and the buyer. While similar to lead generation companies in that sellers of product will pay marketplaces fees for helping them to acquire new customers, marketplaces have other ways of monetizing by adding in additional services to enhance the customer experience for buyers and sellers (e.g. payments, insurance and guarantees on purchases, buy now pay later options, marketing tools for sellers, etc.). Layering on these services is only possible because the entire experience takes place on-platform.

Some of the most valuable and iconic businesses in the world are internet marketplaces. One of the key defining characteristics of a defensible marketplace is the uniqueness of supply. Uniqueness can mean several different things. It can mean reliability like Uber has with near consistent ubiquity across cities around the globe. It can mean vastness of options like Amazon. Or it can mean finding things that are truly distinct to that marketplace like esoteric vacation homes on Airbnb or crafty and quirky gifts on Etsy. The uniqueness and differentiation of supply is one of the things that ultimately attracts demand and creates network effects and defensibility. Over time copycats emerge that try to compete for the same supply so marketplaces are forced to innovate on creating delightful experiences for buyers and sellers, expanding product offerings and services for marketplace participants, and expanding into adjacent markets to bundle offerings for buyers in order to increase LTV (lifetime value) so it can afford to outspend competitors on CAC (customer acquisition costs). Airbnb is an excellent example of a marketplace flawlessly employing these strategies as incumbents and new startups began to copy its business model. Searching for vacation rentals on the site is a genuinely delightful experience, renters are provided with incredible insurance and cancellation policies along with trip planning tools, homeowners are given incredible levels of customer support and services to maximize bookings and revenue (e.g. professional photography for listings), and the marketplace now provides add-on experiences ranging from luxury enhancements to affordable and fun tours around your airbnb.

The differences between lead generation businesses and marketplaces are vast, and to fill that void there is the brokerage model. The brokerage model is what we employed at Fundera. There are several distinctions between brokerages and marketplaces, but a key one is automation versus people-intensive. Marketplaces are fully automated. You can complete a purchase as a buyer without ever speaking with a person. Everything is magically taken care of for you by software. But in instances where buying something is a very intensive process, a human intermediary is usually needed to help facilitate the transaction. Getting a small business loan is a good example. Whereas I can simply find a vacation rental on airbnb or a neat piece of art on Etsy and instantly buy it with my credit card, I can’t simply buy a small business loan. I have to apply for one by providing a lot of information about myself, my business, and documentation ranging from bank statements to tax returns and more. Then I have to decide between a variety of complex products and offers with differing terms that I’m eligible for. In instances like this where there is a high amount of friction to make a purchase, people are often needed to help complete the process.

There are many other products where a brokerage model is required to facilitate a transaction such as online insurance and mortgage agencies. Usually we find these in complex financial products that have some type of regulatory or compliance component. These transactions simply do not work without a person helping a customer along, there is just too much friction. This isn’t a bad thing per se. There are actually a lot of good things about it. Brokerages are able to manage almost the entirety of the end to end customer experience, and as a result they can form a relationship with the customer. Usually, if they’re customer-friendly and mission driven, brokerages can earn the trust of a customer through this experience such that the customer continues to return to them for recurring needs like getting another loan, refinancing, or getting another adjacent product. These high-trust relationships usual mean that brokerages can achieve strong LTVs. Also, since the purchasing process is more complex the associated brokerage fees can be lucrative, and have terms where the brokerage is paid in perpetuity whenever a policy or loan is renewed. These can be phenomenal and defensible businesses, particularly when the brokerage builds a brand and a large customer base it can continuously service over time. A synonymous term to brokerage that describes these models is Customer Origination, wherein the business is effectively originating a new customer, that is completely and entirely onboarding them into a brand new product, on behalf of a seller.

The downside of a brokerage business versus a marketplace is that humans are required to facilitate transactions. Nobody has to be in the office, at their desk, or on the phone for a marketplace to hum. It does so 24/7 all on its own. But a brokerage needs people to power it, and therefore cannot scale as quickly and as much as a marketplace (of course there are other limitations to scale like TAM). Also, brokerages usually do not have unique supply like a defensible marketplace. The products brokerages sell usually feel like commodities: money, insurance policies, interest in real estate, etc. This is not necessarily a bad thing, it’s just the way it is.

Ultimately, all of these models connect buyers and sellers and are viewed as customer acquisition channels by their paying customers, but different attributes of marketplaces, lead generation businesses, and brokerages ultimately determine how good of a business they are. This is by no means an exhaustive list of attributes, it’s just my first-pass at a visualization of them:

If you had three businesses that all sold the exact same thing, did the same amount of revenue and EBITDA, but employed these three different business models, the marketplace would be most valuable, then the brokerage, then the lead generation model. That said, it is very possible to build absolutely phenomenal, large and profitable internet businesses using all of these models. Many companies have already done so and will continue to do so. But distinctions matter when evaluating opportunities and thinking about how to enter a market and what to build and invest in next. Marketplaces, brokerages, and lead generation models all have their place in the world of internet businesses, and frequently the lines blur between them. They’re constantly evolving and in many instances it can be inaccurate to pigeonhole a company into just one bracket. But being realistic and objective about what type of business you have as an entrepreneur and investor provides an excellent frame of reference for how you can think about strategically growing and evolving over time.

Over the past several years I have been trying to better understand the challenges of the climate crisis and how financial capital and entrepreneurship can play a role in helping. I’m particularly interested in problems that can be solved with software. When I began my journey, my biggest takeaway was that so much of the innovation required was out of my wheelhouse: hardware (e.g. lithium battery production), deep tech (e.g. atmospheric carbon sequestration), and policy coordination and government investment at a global level (e.g. the recent Inflation Reduction Act). Carbon will undoubtedly be a trillion dollar market, so one of my early idea was to create a marketplace for buying and selling carbon credits. Many entrepreneurs have this idea and while I believe the concept will work and that there is room for many players, it’s still ripe with challenges (i.e. objectively assessing the quality of carbon offsets and universal acceptance for what is considered good and bad).

I continued to research ideas and grew increasingly flustered by just how vast the problem space is. I needed a framework for assembling my thoughts so I could structure the component parts of the solution set and figure out where my interests and expertise could best be focused. Recently, I read How the World Really Works by Vaclav Smil and found it to be enormously helpful in creating a simple and structural framework for myself. The book is great and much more accessible than his other work which is rather academic (but still quite good). His opening chapters are a must read for anyone interested in better understanding the challenges we face in the climate crisis where Vaclav objectively analyzes the current state of affairs while articulating real constraints we face. Most importantly it provided me a new (albeit obvious) lens for approaching the problem. Instead of asking, “How do we solve the climate crisis?” I now ask myself, “How do we wean ourselves off fossil fuels and usher in an energy transition unlike anything in human history, and how can I organize that transition into its component parts to methodically tackle the core issues?”

For me, the first step is truly understanding the importance of fossil fuels. While they have quite the bad reputation, fossil fuels have been net-good for civilization thus far (assuming we find a way to solve for avoiding climate disaster, which I am optimistic we will). They have paved the road to the modern world, literally and figuratively, and made possible human civilization’s growth from 2.5 billion people in 1950 to roughly 8 billion today. Fossil carbon has fueled the transportation industry, powered electricity for cities, enabled the mass production of food, and energized the production of the four material pillars of modern civilization: steel, ammonia, cement and plastics. Everything we touch and consume, from food, clothing, shelter, and tools, has been shaped by fossil fuels. Coupled with human ingenuity, they are the ultimate and most tangible catalyst for civilizational development, which over the course of history has trended towards tremendous progress and exponential improvement in quality of life.

The widespread utilization of fossil fuels and entrenchment in everything we do comes at a cost. They fill the atmosphere with CO2, which if left unchecked will ultimately lead to global catastrophe. Calls for net-zero emissions by 2050 require an energy transition from fossil fuels to something less harmful that is historically unprecedented in both pace and scale. To put things in context, annual global demand for fossil carbon is above 10 billion tons a year. That’s five times more than the recent annual harvest of all staple grains feeding humanity, and more than twice the total mass of water drunk annually by the world’s 8 billion inhabitants. They supply roughly 80 percent of the global primary energy demand. And the cherry on top: a majority of the world, roughly 5 billion people who live outside of affluent countries, have yet to reap the benefits of fossil carbon to the extent the developed world has.

In assessing the problem at hand, I think it’s important to understand constraints – they help to focus efforts and solutions and are a forcing function for ingenuity. Objectively, in tackling the climate crisis and accelerating an unprecedented civilizational energy transition, we need to understand the following:

• At 2020 level of production, coal reserves would last for 120 years
• At 2020 level of production, oil and gas reserves would last for 50 years
• There is consensus that we must limit global warming to 1.5 degrees Celsius by 2050 to avoid severe global catastrophe

Simply put, at some point in the next 100 years civilization will run out of coal, and in the upcoming decades we will run out of oil and gas. Also, we need to wean ourselves off of fossil carbons in order to avert what is potentially the end of modern civilization as we know it (i.e. a climate that is uninhabitable by humans). And even if the climate crisis is not as bad as we know it will be and already is, we still need to find a new source of energy because we will run out of the fossil fuels and natural gas we currently use to power our world. In order for human civilization to survive, the transition must happen.

Today we use fossil fuels, and as a byproduct emit CO2 into the atmosphere which is the primary culprit of global warming, to power civilization: generating energy to power things (i.e. electricity, heat, transportation) accounts for nearly half of emissions; feeding the world (growing food is quite energy intensive) accounts for roughly a quarter of emissions; and making things (i.e. concrete and steel to create physical infrastructure, plastics, and ammonia for nitrogenous fertilizer) accounts for roughly 20% of carbon emissions.

Human civilization is quite large so it’s no surprise that the surface area that has enabled its growth over the past century is quite extensive. This presents myriad problems that need solving in the upcoming decades, which depending on your point of view can either feel extraordinarily daunting or exciting. To further add complexity, most of the solutions will need to interoperate with one another in order to realize the results we need (e.g. if we believe vertical farming will help drive down carbon emissions because it provides better land utilization and lowers transportation costs as food can be grown in or close to densely populated cities, those vertical farms will require energy and infrastructure that will need to be provided by renewables or low-emission technologies). There are many dependencies in the equation, not to mention widespread government coordination, subsidies and mobilization which feels impossible in today’s political climate. And lastly, a majority of the global population lives in developing nations which have not benefitted from or deployed fossil fuels the same way affluent countries like the US, Europe, or China have. It’s unreasonable to expect them to not pursue a higher quality of life the way developed nations have achieved by prohibiting them from using fossil carbons, so investment in solutions need to be globally accessible such that reductions in emissions by affluent nations aren’t usurped by increases in emissions from developing ones.

There are many problem areas I think are fascinating and need to be solved in parallel with one another. My first pass at a framework organizes these into several different easy to understand categories:

• Generating energy to power things
• Feeding the world
• Making physical things
• Getting carbon out of the atmosphere
• Adapting to a less hospitable climate
• Developing effective state policies and coordination
• Influencing the world with a new mindset

I’m still very early in breaking down these categories – surface level at best, and that may even be generous – and I do not address carbon removal and policy in this post. The thing I’m paying most attention to is where I think my skills are best focused – that is to ask the question, where can software and financial capital play a role in helping to solve the problems?

Generating Energy to Power Things

I think about powering things in two ways: 1) there is the energy required to electrify cities and homes and provide heating and cooling, and 2) energy required to transport things. Regarding the former, the most obvious solution to reducing fossil fuel consumption here is investing in renewables – wind, water and solar – and deepening investment in nuclear fission which is a highly viable and effective alternative to fossil carbon (and of course, continuing to explore the Holy Grail of nuclear fusion). However, a complete transition requires two things that do not exist today: 1) mass-scale, long-term electricity storage, and 2) extensive grids to transmit electricity across time zones. These are technical developments that require large scale coordination and state-level investment (especially for long-distance transmission). They need to happen in order for cities and their inhabitants to transition to clean energy. Places that don’t receive ample sun, wind, or are not located in close proximity to water for hydropower rely on renewable energy generated from elsewhere. That energy needs to be transferred in order to create and support a viable grid. And even for cities and geographies that have these natural power sources in abundance, they still need ways to store that energy (i.e. batteries) in instances of downtime (of which there are plenty, like a cloudy and windless day). One can imagine a future state where all this infrastructure is developed, but we still need fossil carbon reserves in case of emergency.

While massive batteries and grid infrastructure is not my forte, I am particularly interested in energy markets and how we can most effectively route and distribute energy. Software companies like David Energy can help us better understand and manage energy usage, leading to actionable insights and cost savings through more efficient markets.

As for using energy to power transportation, electric vehicles are our logical (near-term) end state and the investment and transition is well underway. There are still limitations though: battery storage and lithium production and ubiquitous and efficient charging being the two primary ones. Another evolution of transportation is investing in and electrifying municipal micro-mobility in congested cities (i.e. bikes, small cars, scooters, etc.). This is a movement I find quite exciting and I’ve been learning more about it following Horace Dediu on Twitter. I am very intrigued by opportunities to better manage and utilize networks of electric vehicles and charging stations and have always thought there could be a neat crypto application powering a Helium-like network for EV charging stations. As an aside, one important and thematic caveat to all of this is that all of the materials required to make this transition to electrifying personal transportation require burning fossil fuels for production. We take for granted just how pervasive their use is.

Transportation encapsulates so much more than moving us individually from one place to another. Long-distance movement and shipping are totally different beasts than hopping in a Tesla and driving across town. Today, it’s nearly impossible to rely on electricity and batteries to power long-haul trucks, massive cargo ships, and airplanes. All of these modes of long-distance transportation rely on fossil fuel to work, and that will likely be the case until the groundswell movement of electrifying personal transportation scales and evolves to power heavier machinery. My general and uneducated instinct is that we focus on renewables including nuclear for powering cities and homes, electrify personal transportation, then solve for long-haul transport by applying whatever we learn from the former two to the latter.

Feeding the World

We need food to survive. Over the past 70 years, the world population has grown from 2.5 billion people to over 8 billion. That growth required a lot of ingenuity when it came to producing enough of it, particularly when a majority of the global population consolidated in megacities that are far removed from where food is produced. Our sustenance is often created hundreds or thousands of miles away from major metropolises, and then transported to cities. Agriculture is a fossil carbon intensive business with many different attributes: industrial food processing requires land deforestation, managing farms (machinery, soil, etc.), manufacturing fertilizers, and then transporting the final products to consumers. These innovations have supported both the growth in global population and our transition to a city-based civilization.

There are several things that stand out to me with regards to limiting fossil-fuel consumption when it comes to feeding the world. The first one is the shameful fact that in a world where a meaningful percentage of the population is malnourished, we waste an unfathomable amount of food. We produce well more than we actually need. In affluent populations the world loses almost half of all root crops, fruits, and vegetables, a third of all fish, 30% of cereals, and 20% of meat and dairy products. Roughly one-third of the overall food supply goes to waste, and by some studies, 70% of that wasted food is perfectly edible. This is pure insanity. Solutions to this don’t require technological innovation, they require behavior changes amongst consumers, and businesses that can find ways to turn this disaster into opportunity like Misfits Market which started by selling produce that most groceries won’t stock (because they look funny and would otherwise be discarded) directly to consumers at a discount. This is an area that is ripe for new models to incentivize desired behaviors.

The second area of investment here should be in vertical farming. In order to minimize agricultural fossil fuel consumption, moving produce production closer to the end-consumer will drive down emissions from transportation. Instead of NYC residents eating tomatoes grown in Spain, what if they were grown in a vertical farm in Newark? There are a lot of companies innovating here like Bowery Farming, many of which are also solving the second-order problem of deforestation and the emissions that come from manufacturing and powering heavy agricultural machinery.

Another place we can help to reduce emissions attributed to food production is by minimizing crops’ reliance on nitrogen heavy fertilizers. Producing ammonia for fertilizer is a major source of carbon emissions. Plants require it in fertilizer to grow healthily and reliably, and it also enables fields to harvest multiple crops throughout multiple seasonal cycles. Without it, it would be impossible to feed close to half of the world’s population! An interesting solution here is genetically modifying plants to improve their efficiency of nitrogen uptake. This is an area where CRISPR may come in handy. There are already plenty of studies underway to do this, as well as others to genetically modify plants to increase their capacity for atmospheric carbon removal.

Making Physical Things

We are surrounded by stuff. Electronics, household appliances, buildings, roads, plumbing, etc. Stuff is everywhere. And almost all of it relies on fossil fuels in order to exist. There are four key ingredients to make this stuff: cement, steel, plastics, and ammonia. Together, these indispensable materials are responsible for 25% of all CO2 emissions, and there are currently no commercially available and readily deployable mass-scale alternatives to replace them.

Plastics, cement and steel are materials we interact with every day. They are also the materials that power our transition to renewable energy. Wind turbines, solar cells, dams, and electric vehicles are made of them. It’s a virtuous cycle. We need to find a way to eliminate the use of fossil fuels from the production of ammonia, plastics, cement, and steel, but we will need to produce a lot of these materials in order to develop the infrastructure to support renewable energy. On top of that, the modernizing world will need access to these materials in the upcoming decades in massive quantities in order to improve their quality of life.

The primary thing I’m interested in here is finding ways to make sure these things don’t go to waste. That means recycling these materials so they can continuously be reused instead of having to constantly produce them anew. Fortunately, this is already happening, just not at the scale we need it to. Primary steelmaking produces twice as much as recycled steelmaking every year, but we haven’t made much of a dent with concrete. Concrete also suffers from wear and tear, and only has a multi-decade lifespan which is not good. We need to improve our ability to recycle and reuse it, while exploring other materials for physical structures. Making sure things don’t go to waste also means producing only what we need and ensuring excess production is utilized. This is an area where enterprise-focused marketplaces and networks can emerge ensuring abundance is distributed amongst consumers, businesses, and nation states alike.

Adapting

The surface area of fossil fuel usage is vast. My suspicion is that a net-zero world will not happen by 2050. Things will go wrong between now and then. The world is a volatile place, and this type of energy transition is unprecedented, especially because so many things need to go right: international state-level coordination, government subsidies, technological innovation from incumbent companies who are willing to temporarily cannibalize their own businesses, funding for and innovation by startups worldwide, changes in consumer and enterprise behavior and large-scale incentives to drive that behavior change that go well beyond a moral call to action.

This isn’t to be despondent. I do think civilization will rise to the challenge, but we need to be prepared for disaster to strike because it already is. Global heat waves, prolonged droughts, and increased flooding and storms are just the tip of the proverbial melting iceberg. We need to invest in technologies and programs that help humanity adapt to the changes caused by the climate crisis. This runs the gamut from software based solutions to infrastructure development to state and global policy. If we think the refugee crisis is daunting today, it will only exacerbate as large-swaths of geography currently inhabited by billions of the most in-need populations become uninhabitable.

These problems are massive and need to be tackled in parallel with our efforts to reduce emissions and usher in the next energy transition. It’s hard to do many things exceptionally well simultaneously, but we don’t have a choice in this scenario. I’m particularly interested in solutions that help people adapt to the changing environment. Most of the population in Europe does not have air conditioning and suffered through devastating heatwaves this month. How do we solve this? How do people living in areas prone to flooding and wildfire survive? How do we think about water preservation and distribution during prolonged droughts? While we solve for eliminating emissions, we need to survive long enough to do so successfully.

If we accept that we need a Plan B (and Plan C) in the instance we aren’t able to realize a global emissionless energy transition in the next three decades, another part of adapting is removing CO2 from the atmosphere. Fortunately, we know there is a market for these services. Companies are willing to pay real sums of money to initiatives that offset their emissions. There are a wide variety of initiatives under way to sequester carbon, ranging from genetically modifying plants to enhance carbon consumption to loading beaches up with carbon-removing sand and using machines to capture carbon from the air and bury it deep underground in rocks.

Mindset

Fear is not a good motivator when we look at risk on a long-scale time horizon. And for human beings multiple years is a relatively long time scale. People still smoke even though they know that it causes cancer and will kill them over time. People drink knowing it will destroy their livers and lives over an extended period of time. And people will do things that send CO2 into the atmosphere even if they know it will cause the collapse of human civilization over an extended period of time. Things that happen many years in the future seem less scary to imminent threats that impact us right now. And we live in a world where there is no scarcity of things, real or conjured by the media, that scare us today. Fear does not work as a motivational force to usher in the required energy transition.

Moral imperative also does not work. In Kim Stanley Robinson’s book Ministry for the Future, one of my all-time favorites, an international organization is set up to legally represent the interests of species, humans and others, that will be born into the future (hence Ministry for the Future). It’s a fascinating concept, but likely not one that would garner much traction today because human beings don’t really care all that much about unborn generations and their respective qualities of life, even if it is the right thing to do. People care much more about their own current quality of life, being able to support and shelter a family, or even understand where their next meal will come from. We are selfish and we will always be our top priority in our hierarchy of needs. Collectively speaking, doing the right thing for the long-term will never take precedence over looking out for ourselves today.

People want a better quality of life for themselves, their families, and their communities. And generally speaking, they want it somewhere between less than they currently pay for it and free. And that is the mindset we need to embrace when embarking on this energy transition. This is not about self-sacrifice in the name of the common good. It’s not about uprooting our lives for a better tomorrow. It’s about being able to do a lot more of what we like and need to do, powered by a lot less. It’s about energy abundance to power a better tomorrow, in a way that will ultimately save people money and improve their quality of life. There’s a lot of great literature about this concept. This Cleo Abram’s video inspired by Matthew Yglesia’s writing, Derek Thompson’s Abundance Agenda, Ezra Klein’s Supply-Side Progressivism, and Noah Smith’s synthesis of these ideas are highly recommended for inspiration.

Our collective mindset needs to be inspiring, not dire. We are creating a future where everyone’s life is better. Boundless renewable energy will unlock human civilization’s potential to accomplish unfathomably awesome things. Now this all sounds like subjective hyperbole, but here are some practical examples: Would you rather pay more or less to power your car or mode of transportation? Do you want to pay more or less for nutritious food? Do you want your place of residence to have heat and air-conditioning and cheap electricity? Do you want to be able to do more with every dollar you spend? The answers to these questions should be obvious and easy for any rational actor, and this is what more energy to power our lives will accomplish.

The energy transition is something that clearly excites me. It will be one of if not the most important things that happens within my lifetime, and I hope to play a small role in it by continuing to invest in and support entrepreneurs that are building solutions in the space, backing politicians who take action seriously and think rationally and practically about the matter, and perhaps even building something one day. The more I dig in, the broader the surface area grows and the deeper it seems to sink, too. I’ll continue to sharpen my thinking on the matter while looking for areas where I think I can be a little bit helpful: mainly investing in companies that are helping to solve for the key thematic areas I’ve outlined and will continue to refine, and supporting organizations and political actors that help drive policies to create the subsidies and incentives to motivate large-scale infrastructure investment, development, and innovation.

Several months ago Jordan Cooper introduced me to two entrepreneurs, Ben and Spencer, the co-founders of Ahoy. When I first spoke with them, I was instantly enamored by their vision. The thing that stood out to me is that they were exploring a practical use case for crypto that bridges the digital and analog world while making the internet fun.

Ahoy enables anyone to create a Bounty, which you can think of like a GoFundMe for something that you want to see happen in the real world. People anywhere can create a financial incentive for someone or something to take a desired action. Want your favorite band to collaborate with your favorite visual artist? You can create a Bounty that incentivizes them to do so, and the money raised can either be distributed directly to the artists (i.e. the “fulfillers”) or to a charity or cause of your choice. The Bounty is only paid once the fulfillers complete the action in the real world and all of the contributors (or “stakers”) vote on whether or not the fulfillers completed the bounty. It’s a democratic process end to end.

One of the things that I think will be particularly interesting is using Bounties as a tool to incentivize political action. Today, many politicians are bought by corporations and special interest groups via Super PACs. This all happens behind the scenes and in secret. Bounties can be a tool to enable the public to influence politicians. Imagine a world where millions of individuals contribute to a Bounty that pays a Mitch McConnell Super PAC if and only if he gets Congress to pass a defined set of common-sense gun reform legislation? The concept of buying votes feels very icky. I’m sure there is legal complexity to this and this particular example is definitely contentious, but if this type of behavior happens in private, why not bring it out into the open and let everyone participate in the system? Incentives drive behavior, and Ahoy is an experiment to let the public coordinate around the specific incentives it can deliberately create to drive the actions it wants to see. I’m following a project called DAOPAC that is exploring this idea within politics.

But there are so many more potential examples of Bounties that span the spectrum of super serious to super fun. You can probably dream up several things you’d like to see happen in the real world right now where money can incentive it to happen. The open-ended nature of a Bounty will unlock creative projects that I can’t even begin to fathom today, and I find that so incredibly exciting. It’s a tool that provides a blank canvas for online communities to create real-world outcomes. You can follow along here as people create more of them.

But why the blockchain? Ultimately, to most participants the Blockchain shouldn’t matter. In fact, it should and will be almost entirely abstracted away from the customer experience. Today, you can only fund a bounty with SOL and you must use your Phantom wallet (or a SOL wallet) to participate. That’s obviously a massive barrier for the average individual to contribute, so the team plans to enable normal fiat rails as well so anyone can contribute with their credit card or bank account. What crypto enables for Ahoy is two things that are important: 1) every Bounty is effectively a crypto-enabled escrow that programmatically releases or withholds funds based on the collective votes of stakers, and 2) it meaningfully reduces network extraction fees such that fulfillers can receive as close to the full Bounty amount as possible and each staker’s contribution is measured in full (as a counter-example, GoFundMe takes 2.9% of a transaction and also $0.30 for every individual donor). This is important because when a staker contributes $1, the entirety of that $1 is committed to the Bounty and received by the fulfiller. Micro-contributions become possible which means large-scale participation is viable and effective.

I’ve written before that most of what is happening in the crypto world is unimportant and counter-productive to fulfilling its promise. Ahoy is an experiment that, if it fulfills its potential, takes us a meaningful step in the right direction. It selectively uses crypto-infrastructure to deliver a superior user experience to non-crypto users across the world, while creating a tool that otherwise would not have previously existed. I’m quite excited to see where this goes.

I am one of the luckiest people I know. I was born in the United States, my parents were doctors and I grew up upper middle class. I was raised in a household that was filled with love. My parents always supported and encouraged me to explore my interests. I went to private school until high school, and they paid my way through college. I was afforded opportunities to make mistakes, learn from them, and in many instances make the same mistakes again. I have a remarkably loving and supportive wife and two children who provide me with enough motivation and joy to last many lifetimes. 

Professionally speaking, I’ve started two companies which both had successful exits. This would have never happened had I not been gifted the opportunity to enter the tech startup world after college at tumblr. Which only happened because of the dumb luck I was born into. 

While I worked hard along the way, I don’t think I’m more deserving of this luck than others. Over the course of my career I’ve met countless people with incredible talent. They’re much smarter and more driven than I am. And the obstacles they’ve overcome to get where they are are unlike anything I’ve encountered or will encounter in my lifetime. They were not born into the same luck that I was. 

One of the things I’ve been thinking about lately is what the world would look like if all the talented and brilliant people in the world were afforded the same opportunities I was. It’s easy to take for granted the things that differentiate our upbringing in developed countries: we have education systems, healthcare, food, live above the poverty line, and aren’t fearful for our lives on a daily basis. While it’s far from perfect and there’s much room for improvement, for the most part we have security psychologically, physically, and economically. Tragically, a majority of the world experiences the opposite of this. 

But imagine if everyone had access to a similar set of positive circumstances. Imagine how much potential would be unleashed amongst new entrepreneurs, scientists, academics, builders, etc. Our rate of progress across virtually every vector would accelerate exponentially. If you’re reading this, the fortunate truth is that there are countless people out there that are smarter and more talented than us. But they do not have the opportunity to flourish the same way you and I do. But that can change, and it can happen within our lifetime.

I just started reading The Network State and on the first page Balaji reminded me of this once again: 

…all those people from the middle of nowhere, passed over by the establishment, with crazy-but-correct ideas, who could do great things if only given the opportunity.

What if they weren’t passed over by the establishment? What if those crazy-but-correct ideas were given the chance to flourish? The world would look a lot different. The world can look a lot different. And I’m increasingly convinced that this is one of the most profoundly impactful ways to make it so.

I just wrapped up Ezra Klein‘s book Why We’re Polarized. I highly recommend reading it, especially if you’re interested in why the political climate is so dysfunctionally stupefying today. I’m a big fan of Ezra. His podcast is the only one I really listen to somewhat consistently, and I think he does an exceptionally good job explaining things in a very digestible way. I generally agree with his worldview and I’m usually interested in the things he has to say.

The gist of the book is that politics has really become defined by our identities, and as a result it has led to a state of polarization that threatens the future of our democracy. I’m not going to spend time digging into the problems he very convincingly discusses. If you’re interested, Bill Gates has a good review of the book and here is another one from the The New Yorker.

It is worth noting that I am not a political pundit, nor am I an expert in politics. But I do have strong opinions and believe that national politics is a critical and defining instrument for making continued progress as a country and civilization.

I firmly believe that we are facing a crisis of legitimacy in the US government. The past two Republican presidents lost the popular vote. Mitch McConnell blocked Barack Obama from appointing a Supreme Court Justice because it was an election year, then proceeded to ram through three Supreme Court Justices under the Trump presidency, one of whom assumed her seat weeks before the 2020 election. Justice Thomas’s wife participated in the January 6 insurrection, he has refused to recuse himself from relevant issues, and is leading the Court to overturn established law that has come to define progress in our country (most recently with Roe and with near certainty more to come). The House is gerrymandered to oblivion, it is exceedingly difficult to vote in many states, and by 2050 roughly seventy Senate seats will represent 30% of the country’s population. Furthermore, the filibuster makes it impossible for legislators to do their jobs and too easy for a minority to completely obstruct any legislative agenda.

Today, we effectively have tyranny of the minority and for lack of better words, that is fucked up. It is not democracy. It makes me furious, it stifles progress, and it makes me to feel as if the current state of the government is a sham. Ezra notes that Republicans shouldn’t want this because you don’t want a majority of the country rising in revolt and disobeying the rule of law. But it’s impossible to believe in the rule of law when a minority imposes it upon a majority. A crisis of legitimacy is bad for everyone. The erosion of democracy is bad for everyone. And the most frustrating thing is it’s really difficult for me to believe that most elected Republican politicians actually care. I sometimes think there is a reasonable chance we are careening towards a Handmaid’s Tale type of dystopia. I would have considered myself crazy to publicly say that a year ago, but polarization in national politics and the way we operate as if national politics is an all-out war has convinced me otherwise. I’d give it a 50% chance that democracy survives.

Now I am optimistic that we get it together and continue our long history of making progress, but I am also realistic. If you were to ask me if there were “glory days” that exemplify the best of times, I’d still point to today. As Ezra says: “The era that we often hold up as the golden age of American democracy was far less democratic, far less liberal, far less decent than Today…And the institutions of American politics today are a vast improvement on the regimes that ruled well within living memory. If we can do a bit better tomorrow, we will be doing much, much better than we have ever done before.”

So how do we make tomorrow better than today and ensure this grand experiment of the US government continues to make progress? Ezra highlights a handful of solutions that I vehemently support. First and foremost, he recommends doing away with the electoral college. This is an obvious move that is a long time in the making. My favorite piece of literature on the topic is Let the People Pick the President by Jesse Wegman. One of the common misconceptions is that in order to do this it requires an impossible-to-achieve Constitutional amendment. It doesn’t. Under the National Interstate Popular Vote Compact states can agree to throw their electoral votes to whichever presidential candidate wins the popular vote. It can be entirely controlled by state legislatures and advocates for democracy should be spending considerable more time and money trying to achieve this. Republicans may lament that they’d never win the presidency but that’s just not true. Two of the most popular governors in the country are in blue states (Maryland and Massachusetts). They’d just have to run on policies that more people supported. It’s been done before and will happen again.

The second solution is to “combine multimember districts with ranked-choice voting. Under this system, states would break into electoral zones represented by multiple members of Congress.” Ranked-choice voting is a tool that needs to be more broadly utilized. It gives a voice to more people and enables candidates who actually represent different interests and identities the opportunity to thrive. If there’s one political thing I think Andrew Yang is doing well it is advocating for this change. It’s also the reason Lisa Murkowski, arguably the least polarizing Republican in the Senate, is able to retain her seat and more effectively represent her constituents in Alaska. Ranked-choice voting increases the likelihood that national politics actually has proportional representation, and can ultimately foster a much needed multiparty democracy.

Improving the functionality of the Senate comes down to the obvious and commonsense move of eliminating the filibuster (here’s a more in depth case for it), and giving Washington, DC, and Puerto Rico congressional representation which is long past due. Rules should also be rewritten to make it easier for the minority party to bring full bills to the floor. The Senate is arguably the most dysfunctional legislative body. The fact that a minority of the members can filibuster virtually every piece of legislation is preposterous. Elected officials should be able to enact the agenda for which they were elected to office. If it’s unpopular, then they will be voted out of office and another party can enact their agenda. This is the way a well-functioning government should work. I also believe we need term limits for Senate members. Too much time is spent focused on consolidating and retaining power as opposed to serving the interests of constituents. If a President can only serve two terms, then members of the most important legislative body should be limited to two terms as well.

With regards to democratizing politics, we also need to make it easier to vote with tools like automatic voter registration and universal vote-by-mail systems. As Ezra notes, “Too much of American politics is decided by efforts to restrict who votes or, as in gerrymandering, to manipulate the weight those votes hold.” Suppressing votes is diametrically and ideologically opposed to Republicans’ love of free markets. Voting should be easy, not hard. That would encourage healthy competition.

Last but not least, the Supreme Court needs reform. Democrats who object to this notion should be booted from office and replaced with officials who do. One solution Ezra recommends is to expand the court to fifteen justices: each party gets to appoint five, and then the ten partisan justices must unanimously appoint the remaining five. Until all fifteen are agreed upon, the Court wouldn’t be able to hear cases. Also institute term limits here. Lifetime appointments are absolutely ludicrous.

All of these solutions are primarily focused on national politics (which is what the book focuses on), and don’t touch on local politics which are also critically important. I would like to see more time, effort, and money spent on these issues. I’d also like to see members of both parties unite around them, or at least every Democrat support them. They are worth fighting for and in concert with one another they very well may be the antidote the United States so direly needs to course correct the path we are on and steer us towards a future that is continuously defined by forward progress and experimentation.