A Kiss is Just a Kiss, a Sigh is Just a Sigh

When I was little my dad used to sing the Dooley Wilson song As Time Goes By. It starts:

You must remember this

A kiss is just a kiss

A sigh is just a sigh

The fundamental things apply

As time goes by

I am not an overwhelmingly sophisticated financial investor, nor am I an expert market prognosticator. I like things that are simple and easy to understand. The past decade of technology investing and valuations has not been simple or easy to understand. But it looks like that is changing now.

As software began to eat the world, many companies made the proclamation that they were software companies. Companies sell things. The type of company you are largely comes down to what you sell and provide to customers. For instance, software companies sell software. As technology became more pervasive, companies and the market largely confused other types of companies for software businesses. But software eating the world means that many industries will be inexorably transformed by technology – they will create more efficiency, move faster, have better margins, etc. – not that they themselves will become the software industry itself.

One of the things that confused me over the recent bull run was companies and investors valuing things that were not software companies like software. Insurtech is one example. Insurance companies sell insurance policies. The promise of insurtech is that companies can use technology to generate better underwriting and risk systems that create more efficiency and better user experiences in the delivery and management of the policies they sell. But at the end of the day, the core thing insurtech does is sell insurance. And at the end of the day they should and likely will be valued like their insurance counterparts in the public markets. And if they don’t have better margins and a superior customer experience, then the promise is unfulfilled.

You can extend this to many other industries that have been inflated by the illusion of being tech companies. In a segment of fintech, online lenders sell money. They’re in the business of providing people loans. They will be valued like other companies whose core business is selling money. Same goes for companies that sell physical things. If your core business is selling shoes or mattresses, you will be valued like other companies that sell shoes and mattresses. You are likely not a software company (unless they are digital shoes and mattresses!), but hopefully you use technology to deliver a superior product and service to customers, and have a significantly better margin profile. If you do not, the narrative is fiction.

I think what we are seeing and will continue to see is the market come to this realization. Not everything is a tech company, and if tech is the thing that differentiates your business from competitors in your industry, then it better actually manifest in the business. This is not to say that exceptional companies and businesses won’t be built and aren’t already built in tech-enabled industries. They are and will continue to be. But it is to say that it’s important to internalize the new market dynamics which are finally becoming more simple and easy to understand.

At the end of the day, a kiss is but a kiss, a sigh is but a sigh, and the fundamental things apply as time goes by.

Technological Revolutions in the Exponential Age

Earlier this year I finally read Carlota Perez’s Technological Revolutions and Financial Capital. It had been on my shelf for over a decade. It’s a masterpiece. It’s super academic, but so insightful. I understand why people are obsessed with her work and underlined nearly half the book. (Here’s a book summary if you have not read it.)

While reading it I kept asking myself, “Where are we in the Information Age?” and “What comes next?” The Information Age is weird. We’ve experienced multiple crashes and frenzies, software and computers have come so far and changed so much of our lives, yet software is still eating the world. In some ways it feels like we are approaching the end of the Information Age (I think this is mainly because so much mainstream and visible innovation in software these days feels boring and on the margin), but it also feels like we are just at the beginning. We have yet to see what AI and crypto will do to the society, and those are just the obvious contenders for the next stages of this epoch. Ben Thompson wrote a nice piece about this, and Perez herself has shared her opinions, too.

As to the question of what comes next, obvious contenders are Climate/Energy – the implications of limitless energy by unlocking nuclear fission and fusion are vast – and Life Sciences – genetic engineering will change the world and humanity many times over. Both of these areas seem nascent, but are on the precipice of boundless innovation because cataclysmic events accelerate the pace of progress. The climate crisis is catalyzing investment in clean tech and energy creation and distribution, and the global pandemic has shown the world the importance of mRNA and all of the biological science that goes along with it.

A final thought I had was how the Exponential Age impacts Perez’s theories of technological revolutions. It seemed intuitive to me that because technological innovation is rapidly accelerating then the time periods for Perez’s technological revolutions to take place would shrink, but that has not been the case. In fact, it feels as if it may have the opposite effect. The Information Age is still going and showing no signs of coming to an end. Perhaps because technological change compounds and creates the conditions for even more innovation – and we haven’t even seen the impact AI will have on this cycle. Perhaps the Exponential Age won’t lead to an acceleration of individual technological revolutions, but simultaneously overlapping ones. It’s not inconceivable that we see an overlap of the Information Age, Energy Age, and Life Science Age within this century. The technologies that propel each of these revolutions are all interconnected. Needless to say, if you look at things a certain way then future is always exciting.

Be An Open Book

One of the values we had at Fundera was “Be An Open Book.” I used to tell people during new hire orientation that I loved this value because I am a lazy person. As a company, the spirit of being an open book is giving people access to vital information about how the business is performing. It’s important to do this for a variety of reason: employees want it, it provides context as to how the company is doing, and with that context people can begin to make independent and well-informed decisions about how to help us grow. If more people are making better decisions, then leaders get to make less of them (especially the smaller ones). Hence, I can continue being lazy.

The value manifests in a variety of ways. We would share company financials during Town Halls (our monthly company All Hands). We would circulate sanitized board presentations after every board meeting (sanitized because there are some discretional and personal things that not everyone needs to know). We’d discuss our unit economics in depth. Sharing details was embedded in the culture. Everyone inside the company had access to the nitty gritty as to how the company was doing. And if for some reason they didn’t have it at their fingertips, they could always ask.

I have found that people who join early stage ventures oftentimes do so to learn as much as possible. A great way to accelerate learning is to share information on what’s important to the company so people can track it and see how inputs effect outputs. They also want to have some sense of autonomy and feel like they can contribute beyond being told what to do or the confines of a specific role. Being an open book helps steepen the learning curve while improving the way people can contribute.

Being an open book also helps people make critical career decisions. They know when things are good and can get excited about growth trajectory. They also know when things are bad and they can either buckle down and dig through the muck (this is why it’s important to hire people who believe in your mission) or they can jump ship and find a more stable environment. Shitty surprises suck for employees. It’s a huge disappointment to wake up one morning and be told your company burned through all its cash and now has to shut down. It’s an even bigger disappointment to be caught totally off guard by this, or to learn about it from the press. Don’t create environments where this can happen to the people that bet a chunk of their career on you.

I will never understand early to mid-stage companies that don’t share pertinent financial information with their employees. Pending certain situations where it’s legally impossible or inadvisable, leaders shoot themselves in the foot by hiding this information. It’s not good for the company, it inhibits people from making great decisions because they don’t have appropriate context, and it’s not fair to employees.

Make life easy, treat people like adults, be an open book.

The Code Breaker

One of the most exciting things I read recently was Walter Isaacson’s The Code Breaker. I knew very little about the life sciences and gene editing and I thought the book was an excellent primer on the topic. As the S-curve of the proliferation of the Information Age begins to flatten we will enter a new era driven by innovation in the life sciences. This is because we now have the ability to eradicate genetic diseases from the human race. Permanently. The implications are vast, but the biggest takeaway is that life as we know it is about to change forever. We can now determine what genes we have. It’s the stuff of science fiction. A generational breakthrough in human ingenuity with the potential to be both liberating and cataclysmic.

One of the things I loved about the book was the prevailing sentiment amongst scientists, especially Jennifer Doudna, that curiosity is a good in and of itself: “When you do curiosity-driven research, you never know what it may someday lead to…something that’s basic can later have wide consequences.” It’s remarkably similar to software in the sense that some of the most important innovations came to fruition simply because somebody was curious about something. And those inventions become accidental building blocks for some new previously unfathomable innovation. The scientists in the book are not motivated by money, or even glory (although they are fiercely competitive when it comes to acknowledgement for their contributions), but “the chance to unlock the mysteries of nature and use those discoveries to make the world a better place.”

Another element that stood out is that the life sciences, particularly gene editing, is becoming increasingly similar to software development. Molecules are becoming the new microchips. We now have tools that scientists say operate just like word processors because of how easy they are to use. The implications of having word processor-like interfaces to edit DNA are mind boggling. The technologies have progressed so much in the past two decades that biohackers can now conduct experiments from the comfort of their own homes.

It’s not a question of if we will use gene editing in the future. It’s already happening. Isaacson goes through all of the moral and philosophical implications of being able to edit DNA. It’s incredible that we can eradicate diseases that cause millions of people to suffer terribly. It’s also terrifying that people can self-select superficial physical attributes. It doesn’t take much stretch of the imagination to understand the inherent dangers here. That said, I believe that if we have the ability to eliminate genetic disorders that cause nothing but pain and death then we should. We should help people because we can. And as Isaacson’s subjects so deftly illustrate, we absolutely can do this.

Optimizing for Luck

In January I gave a talk at DeFi Alliance about how to optimize for luck as an entrepreneur. I believe that luck determines anywhere between 25-90% of your success, depending on the industry (e.g. in consumer it’s definitely on the higher end of the spectrum).

I think of luck as seemingly arbitrary things that happen to you along the course of your life. In my experience, there’s definitely a way to increase the likelihood that these arbitrary things occur more frequently in your favor. The primary way to do this is to increase your surface area. As an entrepreneur just starting out, think of yourself and your life as a two-dimensional shape. There’s a lot you don’t know: people, information, how to do things, etc. You don’t have a ton of surface area. By increasing your surface area and transforming into a three-dimensional object, you exponentially increase the chances of becoming lucky.

These are some of the things I’ve found helpful to increase your surface area:

Share your work. I was lucky to break into tech. I graduated in 2009 in one of the worst job markets in recent history, right during the Great Recession. As an undergrad, I was the Publisher of a student-run guidebook to NYC that was distributed to incoming students across most NYC colleges. I carried copies of the book with me wherever I went. I gave one copy to one of my best friends from high school, who happened to share it with his uncle at a family reunion who happened to be John Maloney, the President of tumblr. John reached out and offered me a job doing the stuff he didn’t want or have the time to do. My other alternative was doing Teach for America in middle-of-nowhere Louisiana. While it would have been a noble endeavor indeed, my life would have likely looked a lot different. I got lucky because I relentlessly shared my work.

Partner with good humans. A good way to increase surface area is to partner with people that are great humans. What’s more than one three-dimensional object? Two of them! Solo founders live a tough life. By having more people deeply invested in your success with aligned incentives, your surface area grows. Partnering with Steve over the years has massively increased my luck.

Share your ideas. Ideas are the things that happen before you do the work. Sharing them is a great way to know where to invest your time and energy. When I was at tumblr I was going to leave to pursue an idea called rec.io. It was a recommendation engine to “find and share recs with people you know and trust.” It’s a shitty idea. Tons of people have tried it, and I got enough feedback on it to dissuade me from pursuing it. I was lucky because I would have wasted my most valuable asset had I not shared it – time.

Groop.ly was what we called GroupMe before it was GroupMe. Steve and I shared that idea before going all in. We got tons of positive feedback, quickly built a prototype in a night, and it took off immediately.

Network shamelessly. The bigger your network the more people you can share your ideas and your work with, the broader your surface area grows. We built GroupMe at a hackathon at TechCrunch Disrupt. We ran around the conference demoing the app to anyone who had ears and wasn’t totally freaked out by us. Two of those people, Charlie O’Donnell at First Round and Ron Conway at SV Angel, became our first investors and helped put together a syndicate for us.

Find your advocates. Having strong relationships with your mentors and previous bosses can go a long way. John Maloney, my boss from tumblr, told me to pursue GroupMe and that he would write a check for it. He also made the introduction to Andy Weissman who gave us our first term sheet. Kevin Ryan was the CEO of Gilt Groupe (where Steve worked) and pushed us to pursue GroupMe and take an investment from Gilt. Both of our mentors supported us and created a safety net for us to take a risk. We were lucky we had people who cared about our success and were there to help.

Pay it forward. I’ve invested in five different companies founded by previous employees of Fundera and GroupMe. I’ve helped them raise capital, hire people, and acted as a sounding board as they navigated their way from zero to one. One of them recently sold his company for more than what both my companies were acquired for combined! Doing good things for people always comes around. Help your peers and help your employees. If you pay it forward your surface area will grow: people will naturally tell their friends about you and then they will also want to work with you.

Get Alpha. One of the ways we survived at Fundera was by making sure the best brains in the industry were focused on helping us and on our board. One of our board members, David Weiden, was on the board of GroupMe. Two others, Frank Rotman and Scott Feldman, were on the board of Credit Karma. They were able to help me understand how to be successful by sharing intel on market comps, potential partners, other investors who were active in our space, etc. The knowledge and help of the best people in your industry is another vector to expand your surface area.

Always be recruiting. The same way you want to recruit great investors, advisors, and mentors, it’s even more important to recruit great colleagues. Recruiting never stops. You always need to be doing it. The only way you will be successful is if you have terrific people working on a focused problem together. Many of the best people I’ve worked with over my career I’ve spent anywhere between 6 to 48 months recruiting. Surrounding yourself with exceptional people massively expands your surface area. Their luck is your luck when you’re on the same team.

Know your exits. It’s critical to know who may buy you one day. Things don’t always go as planned. Actually, things normally don’t go as planned. No matter how many things you do to expand your surface area, you can and will still get unlucky. Forming relationships with execs at the companies that could be strategic acquirers can give you optionality when the time comes to sell. More importantly, it also increases the likelihood that someone will come and knock on your door and try to acquire you (which is usually always better than deciding to hire a banker and sell your company). Both GroupMe and Fundera were acquired by companies where I had direct relationships with the execs that had been nurtured for a long time.

Don’t be an asshole. This is the one “don’t” in the group. It’s self-explanatory. Assholes expand the surface area for bad things to happen to them. The climate for entrepreneurs has been incredible for the past 5-10 years. It has been remarkably founder-friendly. Unfortunately, that’s produced a lot of people that are super cocky and have nothing to back it up: there’s little traction, utility, value, or previous experience. Do not confuse being good with being in the hottest market at the frothiest time in tech history. Be humble. Karma is real.

Be a good person. When you care about other people, help other people, act with integrity, humility, and pay it forward, you increase the likelihood you win. Being a good person can actually be a selfish endeavor and that’s okay. In my experience, I’ve continuously seen wonderful things happen to great people. Life is not a zero-sum game, nor is success. The more people in your orbit that win, the more likely it is that you will, too. A rising tide lifts all ships so be a force for that tide to rise and you will, too.

There are plenty more things people can do to expand surface area, but this is a good start and the things I know from my own limited set of experiences. I hope you can put it to good use!