Marvin’s Best Weekly Reads October 8th, 2023
"Courage is being scared to death, but saddling up anyway." ― John Wayne.
"If you are a business that yields customer advantages because of localized economies of scale, make sure you dominate every market you are in, don’t dilute yourself across too many. Getting density is ALL THAT MATTERS.
If you are a business that yields resource advantages because of platform dynamics, make sure you make your platform the most accommodating to 3rd party developers. Being the “go to” platform is ALL THAT MATTERS
If you are a business that yields customer advantages because you are the system of record, make sure you lock customer data in wherever possible. Owning as much customer data as possible is ALL THAT MATTERS"
https://medium.com/@EqualVentures/companies-build-capabilities-before-they-build-moats-d331bb167a2b
2. Love this.
"By adamantly (if politely) rejecting the advances of venture capitalists, Holz has bucked the tide among artificial intelligence startups, the top tier of which has raised more than $17 billion in fresh capital in recent years, according to The Information’s Generative AI database. Holz has also succeeded in making Midjourney a source of intense intrigue in VC land, where the company’s profitability and astronomical growth have enticed investors.
The company, which charges users between $10 and $120 for a monthly subscription to its image generator, is on pace to surpass $200 million in revenue this year, according to people close to the company. Details about Midjourney’s financials have not been previously reported.
Although a large chunk of the revenue goes right back into purchasing the pricey AI chips required to train and run Midjourney’s machine-learning models, the company has been profitable since early on, according to several people close to the company. Holz’s ability to rake in hundreds of millions in revenue in under two years and with only about 40 employees puts him in a rare class of entrepreneur. “To put it charitably, he doesn’t need VC in his life,” said Michael Stewart, a partner at Microsoft’s venture fund, M12.
In weekly office hours with customers, Holz, known for his distinctive curly red hair and philosophical manner, has admitted to feeling “bitter” about the VC-backed path he took with Leap Motion and to finding the current cash-hungry batch of AI founders uninspiring.
His goal is to remain a bootstrapped company that stands the test of time—“kind of like Craigslist,” Holz told The Information in a rare interview. He wants Midjourney to be "this weird thing that no one knows how to compete with that just sort of stands alone.”
3. This is a masterclass in Venture capital from 3 masters. Worth watching.
https://www.youtube.com/watch?v=j9xouls5eX0&t=3049s
4. "Only $1 in every $5 spent shopping lives online. And from customer acquisition through to fulfillment, the commerce landscape remains full of friction and in need of digitization. It’s still the Wild West in commerce. In the long run, this week’s blockbuster IPOs in Klaviyo and Instacart will still look like early winners; there’s still massive value up for the taking."
https://digitalnative.substack.com/p/the-wild-west-of-e-commerce
5. "President Powell is confused by the strong consumer and isn’t looking at how the purchase is made. With debt. Humans are not rationale they are emotional.
Steve from accounting who make $100,000 a year can’t go to his wife and cut spending. He is more likely to keep borrowing. The human ego is far too strong.
“They will bail me out like the pandemic” -unfortunately, they will be wrong.
As they default, unemployment rates go higher than they should have. Banks are forced to freeze lending. (unless you’re a reader of this website and are planning for 25% down when the music stops!)
Investing Conclusion: The rule of thumb is to sell all equities on the “last raise”. This is complicated since the Fed might hold flat for a couple of meetings in a row so the last stable reading is “the last raise”. As usual, the goal isn’t to try and hit grand slams or home runs all you have to do it watch the inversions and have your finger on the de-risk/sell button if it gets close to parity (say the inversion gets to -0.5%). Alternatively, you can hit a single (what we’re doing) and effectively exit the stock market with a minimal amount invested.
The second and most important part? The bond market is saying money printer go on (with a catch).
The only way you would get 4.5% on the 10-year bond is if inflation remains relatively high. Since we know the unemployment rate can’t drop to 2% (it’s already in the 3% range), the market is saying the Fed will print money.
They will keep rates high and print money for the unemployed via: 1) helicopter money, 2) UBI, 3) higher benefits or 4) some other direct cash/food payments."
https://bowtiedbull.io/p/president-powell-oil-impact-to-cpi
6. "After reading endless articles about Germany’s malaise, my considered opinion is that it boils down to three big mistakes: trusting its economic health to Russia and China, a naive degrowth-focused environmentalism, and a reluctance to embrace change and progress. On all three counts, the country seems not to recognize the magnitude of the challenge. Instead they seem to be just muddling along, dreamily expecting the economy of the mid-2010s to somehow magically return.
Germany needs to stop messing around and get serious about fixing its economic model. The fate of Europe rests on its shoulders.
What Germany needs now is to become a serious country again. It needs to restart every nuclear plant that can still be restarted, even as it accelerates the building of renewables. It needs to cut off any remaining tech transfers to China.
It needs to increase spending on the military and rebuild its defense-industrial base. It needs to focus on giving software companies a safe and profitable haven to grow and develop, and encourage more rapid digitization. It needs to quash NIMBYism and allow more building."
https://www.noahpinion.blog/p/germany-needs-to-stop-messing-around
7. "Dalio highlights five major forces that will shape our future. “They are 1) the unsustainable level of government debt growth, 2) the great internal conflicts over wealth and values differences that are causing high levels of populism of the right and the left that threatens to cause bad international conflict that will be a type of civil war, 3) the international great power conflicts most importantly between the United States and China that is in the brink of some type of international war, 4) disruptive acts of nature in the form of droughts, floods and/or pandemics, and 5) technology changes, most importantly AI related and its consequences.”
To me, one of the macro trends that powers resiliency, local wealth creation and counters populism is the rise in entrepreneurship. This manifests itself in various forms, be it the creator economy, the gig economy or the general aspiration to become entrepreneurs present in younger generations. As another Forbes article wrote, 48% of Gen-Zers have numerous side hustles and 62% indicate they have started, or intend to start, their own business.
This is also an opportunity for fintechs in powering small businesses and new business creation. For example, my former portfolio company ZenBusiness serves as a single pane of glass for services businesses, in the same way Shopify has powered ecommerce. A range of horizontal platforms are emerging to power this shift."
https://99tech.alexlazarow.com/p/3-lessons-ray-dalio-founder-of-the
8. "AI vastly empowers a regular person because we can all now create businesses, websites, content, characters, apps, art, storylines, research and more without needing to pay a Silicon Valley coder hundreds of thousands of dollars anymore. Yes, some people will lose their jobs to AI, but AI also empowers them to create and pursue new forms of work.
But, even as AI enriches new forms of income for many, AI is also profoundly reorganizing the way we interface with reality itself. It may be causing crashes - plane crashes, train crashes, perceptual crashes, and, eventually, market crashes.
Extending our cognition and offloading the cognitive load of decision-making thanks to AI expands our capacity to get things done. But it is also distancing us from reality and the skill of wrangling with reality. I’d rather wrangle with a real horse than with the sensuous skin of a digital horse.
But now I see that I’ll need to do both simultaneously. If a digital building is a nervous being, so are all digital creatures. It’s the gap between the real and the unreal that intrigues me. It’s the spaces between the zeros and the ones that the future now resides in."
https://drpippa.substack.com/p/ai-what-has-not-been-said
9. Lots of good ideas from Codie Sanchez. Micro PE + Personal Media Company is the way.
https://www.youtube.com/watch?v=lGdgKDdJ3MI&t=920s
10. "It is impossible to responsibly, or even imaginatively, report that dollarization would save Argentina. First of all, there is an unimaginably-large backstop of dollars the country would need to hold and resist spending, which feels like a country-level Stanford marshmallow experiment any administration in recent memory would have failed.
Second, the unit of account is not the problem, as no matter how the spending is tallied, it outruns and dwarfs the fundamentals of the Argentine economy. Third, the loss of control over core central bank functions may seem like a needed straitjacket for policymakers, but long-term it means domestic monetary policymaking capacity may erode even further.
The lack of clarity about government monetary policy moving forward, the lack of constraints imposed by the IMF, the temptation of taking recourse loans from the Chinese, and the institutional inability to implement binding capital controls combine in Argentina for an exciting election cycle, a strange on-the-ground experience, and an uncertain future."
https://www.noahpinion.blog/p/argentinas-macroeconomic-situation
11. "Over and over again, Musk defies the odds and builds something incredible. It is not hyperbole to say that he single-handedly ignited a second space age and accelerated the electric car revolution by at least a decade. This history of success means there is at least a chance he can do the same with brain implants, social media, tunneling, and AI. The guy is relentless—sleeping on factory floors, working 100-hour weeks. He simply doesn’t quit.
If he succeeds in just 75% of his ambition, he could be one of the most important people in human history. However, that success results in huge costs to him personally, to his employees, and to society at large.
He compels us to dream big yet retain moral autonomy. We need not fully embrace or reject him. Perhaps the best takeaway from studying his life isn’t in the acceptance or condemnation of it. Maybe it should be an inspiration to be better and build something better."
https://every.to/napkin-math/oh-no-i-kinda-want-to-work-for-elon
12. "Now that rates are higher, and the Fed is signaling a commitment to long-term higher rates, this generation of consumers and investors will have to recalibrate. The irony of the situation is that boomers were slow to acclimate to low interest rates because it was foreign to their lived experience, but now millennials are likely going to be the ones who are slow to acclimate to high interest rates.
There is no specific cure to the problem. The pain will continue until young people realize the world has changed and they now live in a new regime. Their investment decisions now have to account for 5% interest rates. Their car and mortgage payments are going to be higher than they anticipated.
But that is the price for living today. It may not seem fair, but the worst mistake would be sitting around complaining rather than living life. Time is the most finite resource we get. Letting the central bank steal it from you because they made capital expensive sounds like a bad plan."
https://pomp.substack.com/p/high-interest-rates-usher-in-new
13. "Inside the abandoned building in central Taiwan, there are are only paper targets, and the weapons used are low-powered airguns that fire small pellets.
This is the resistance, the civil defenders should Taiwan's army be overwhelmed in the face of attack by China, which wants to reunite the mainland with the self-governing island.
"We won't surrender," says one of the masked men. "Anyone who invades will face us, and we'll use whatever we can to resist."
https://www.cbc.ca/news/world/taiwan-china-civil-defenders-1.6971920
14. I like eating alone. I travel a lot by myself for business and used to it now. Actually can be enjoyable.
https://www.bosshunting.com.au/lifestyle/eat/dining-alone/
15. This is a quick explainer on what is happening with Armenia and Azerbaijan.
https://www.youtube.com/watch?v=aPx9kdanWNk
16. "Gatorade, BodyArmor, and Powerade dominate the market, and the only real challenger has been Prime, which owns about 6% of the market and was built on the back of two of the world’s largest YouTube personalities (Logan Paul and KSI).
So, if you are going to challenge those brands, you need some advantage. BodyArmor had it with Kobe Bryant and Mike Repole, and Prime has it with Logan Paul and KSI. But simply paying athletes cash to promote your brand on social media isn’t enough.
You need a good-tasting product. It has to be healthy. And most importantly, you need an unfair advantage — celebrity ownership, distribution, connections, secret formula, etc. — that competitors can’t match.
BioSteel didn’t have any of that, and that’s ultimately why the company failed."
https://huddleup.substack.com/p/patrick-mahomes-backed-sports-drink
17. "Now, with our goals a bit more clearly stated, it’s time to address, with coherence and persistence, our leaders. This includes both our politicians, and our virtue-signaling CCP puppets (mere speculation, of course). Our line of questioning for both should look something like this: do you believe this planet belongs to human beings? Do you believe your purpose, in addressing the issue of climate, is to produce the best possible climate for the greatest number of Americans?
And, finally, how do you plan on decreasing the amount of carbon in the atmosphere, increasing our arable land, and “changing the world”? Actually, I mean. As in, please pull out some diagrams and charts and a little laser pointer or whatever and physically show me the path to your intended impact.
Because here’s an inconvenient truth: if the fate of humanity hinges on a carbon neutral watch we are absolutely, totally, irredeemably screwed."
https://www.piratewires.com/p/an-inconvenient-truth
18. This is long overdue.
"That’s the phrase that an executive at private equity-owned financial firm U.S. Anesthesia Partners (USAP) used after acquiring yet another Texas anesthesiology practice, with the intent of hiking prices on Texas patients. And “Cha-ching!” was the right way to put it, since the excess profits amounted to tens, or even hundreds of millions of dollars, in just one medical specialty, in just one state.
But the new quote should be ‘uh oh.’ Because today, the Federal Trade Commission, led by Chair Lina Khan, filed suit against USAP for monopolization, as well as its owner, New York City-based private equity firm Welsh Carson, which from its offices on Park Avenue engineered the entire strategy of gouging patients in Texas.
It’s an important suit, for reasons I’ll go into, and it also reflects a more aggressive antitrust enforcement regime, and skepticism of private equity in health care.
In every area of health care - hospitals, pharmaceutical distribution, ambulances, emergency physician services, insurance - there has been massive consolidation, which increases prices and lowers the amount of care delivered.
Private equity, a financial model focused on ruthless extraction, came into health care in a big way after the financial crisis of 2008, and it super-sized this trend. PE funds look specifically for areas where they can acquire pricing power, and then they squeeze."
https://www.thebignewsletter.com/p/cha-ching-lina-khan-attacks-private
19. Lots of great thoughts and wisdom. How to both be happy and operate with excellence in your life.
https://www.youtube.com/watch?v=3d4AkAaF_Mw&t=2042s
20. "So what could a venture firm focused on frontier technologies possibly see in Angel Studios, a media company whose productions include a TV series about the life of Jesus Christ and a libertarian-themed children’s cartoonwith episodes like “The Itsy Bitsy Victim Mentality”?
While a Gigafund spokesperson said Oskoui and Nosek were impressed by the Harmons’ “highly disruptive vision of a uniquely democratic media publishing house,” another answer can be found in their political and social interests over the past decade. These ties shed light on the unlikely connections between the present-day culture wars stoked by Musk and others in Silicon Valley, and the race to unleash technologies that they believe will ultimately benefit humankind."
https://www.theinformation.com/articles/the-elon-musk-investors-with-dreams-of-a-new-social-order
21. "For the majority of companies that limped across the finish line of 2023, the 2024 fundraising climate may not be forgiving if burn rates remain too high or revenue growth too sluggish. But for many, strong execution under adversity in 2023, reduced burn rates, and overall better execution learned through bitter experience will combine to create the conditions that will enable fundraising and sales.
This is the darkest of nights, but next year may see the dawn break. It will not be roses and unicorns, but we are likely to return to a much more functional market in which customers are willing to buy and investors are willing to price risk."
https://medium.com/@gdibner/2023-the-crucible-year-a24e6d7acc7c
22. "I think solopreneurship is incredible way to find a niche and build something that people love. But I fundamentally believe for the majority of solopreneurs, they should hire themselves out of their roles or build teams.
Yes, less profit but more scalable business and better for your mental health."
https://latecheckout.substack.com/p/im-feeling-spicy-today
23. "Worryingly though if Russia has captured key Western interests, they likely remain captive, and active. Are we doing anything to expose and root these out to stop their continuing influence on at least the public narrative? Not really.
And are the same mistakes possible when it comes to China - absolutely.
Western business interests are similarly invested up to the hilt, and appear active in lobbying to remain engaged and invested. Are they asking the right questions, are they able to table the right questions to the right people? Unlikely. Can they “be in the know”? Also unlikely. I hope for their own sakes that they have set stop losses and could still exit if need be.
Interestingly, I now see those very same “Fortress China” economic policy settings as we saw in Russia from 2015 onwards - deleveraging, building FX buffers, running much tighter fiscal and monetary policies, sacrificing growth for a stronger balance sheet to defend against future tensions with the West. The warning signs are there."
https://timothyash.substack.com/p/why-did-the-west-get-russia-so-wrong
24. "That’s the danger of the mediocre success. The point of startup experimentation isn't the success itself; it’s the learning that comes with clear-cut success or failure. You don't really care about the sales revenue generated by your first two reps; you care about whether this is a strategy you can scale to dozens and then hundreds of reps, or whether you need to use a completely different strategy. It’s all about the learning. And mediocre successes don’t give you any learning.
Making it worse is that we’re all heavily socialized to aim for mediocre success. Schools, universities, large organizations — they don’t want big swings and big misses; they want safety and consistency. A steady 7 is better than 10s interspersed with 0s. This might work well in structured, predictable environments, but in startup-land it’s anathema."
https://pivotal.substack.com/p/the-worst-outcome-is-a-mediocre-success
25. "It’s clear to me that every being will register joy and tragedy, and the ratio is 90% a function of when and where you’re born and the chemistry you inherit. Seneca believed religion was regarded by the poor as true, the wise as false, and the powerful as useful.
As someone who has been all of those things, however, I find the absence of religion and opportunities to congregate with strangers leaves a void. I’m getting older, wanting to serve in the agency of others, to be part of something bigger, and register comfort. I’m left wanting."
https://www.profgalloway.com/losing-my-religion/
26. "So yes, it’s not just that the Fed came out this week to intimate that they’ll keep rates higher for longer that’s prompting the reevaluation by debt investors. It’s something else. Investors are realizing that this isn’t quite the world we’ve been used to all along. Some things may have actually changed, so much debt has been issued that now needs to be refinanced, and so many things cost so much more. All of these things need to be priced in now.
It all starts with interest rates, and if rates are going higher and gravity is getting stronger. . . well asset prices may just need to come down to match.
Nothing is given and everything is earned . . . even for our government."
https://openinsights.substack.com/p/a-whole-generation-of-investors-have
27. "People tell founders not to take the “no” personally, but that’s hard, especially considering how much founders pour themselves into their companies. You can both feel the pain of the “no” and still move past it. Sometimes, a “no” is the end, and sometimes, it’s the start of something more interesting."
https://chudson.substack.com/p/sometimes-no-is-the-beginning-not
28. "Contribution margin tells you how much you can spend on acquiring a customer while still growing profitably. From a DTC perspective, you can also do this exercise using lifetime value if you want to push the envelope of growth if you have plenty of runway with cash to wait 3-12 months to be profitable."
https://bowtiedbull.io/p/contribution-margins-with-bowtiedopossum
29. Nick Huber is a wise man. Worth a listen here.
https://www.youtube.com/watch?v=xvmDjOradP4&t=296s
30. Jason has one of the most unique perspectives on SaaS. Anyone involved in the business should listen to this.
https://www.youtube.com/watch?v=9NqB19-5sog
31. This is very good. VC is hard. Your best investments almost always look weird or were written off at some point in time.
https://www.youtube.com/watch?v=bPiumq0Vmso
32. Learning from the best in Micro-Private equity
https://www.youtube.com/watch?v=OkwHwl5mDVA
33. This man is a hypocrite and a cancer on San Francisco. He is emblematic of the disastrous progressives wreaking havoc in the city.
"Above all, though, Dean Preston is a man of profound, puzzling contradictions. He’s a democratic socialist who believes “the solution to the failures of capitalism is not more capitalism,” but he is also a multimillionaire who, according to public disclosure forms, owns between $100,000 and $1 million of stock in each of Apple, Cisco, IBM, and Microsoft, and owns at least three homes worth over $1 million. He has repeatedly insisted that he “[doesn’t] own rental property,” and is “not a landlord and [has] never been one,” but his wife is part of a family LLC that owns and operates several luxury apartment buildings from which Preston presumably benefits financially.
He brands himself “one of California’s leading affordable housing advocates,” but his voting record shows he has opposed tens of thousands of units of affordable housing (many more than he’s supported), often at the behest of local landlords. In many ways, he is a typical “champagne socialist” — a wealthy individual who supports policies at odds with his luxury lifestyle. Politicians and activists like Preston often prompt head-scratching. Why would someone vocally support political positions in clear tension with their personal lifestyle?"
https://www.piratewires.com/p/dean-preston-san-franciscos-millionnaire
34. "Dual threat CEOs aren’t going to be commonplace, but I do think they’re needed in the startup community. Entrepreneurs that are building businesses are going to find great investment opportunities in the normal course of action, and by being a dual threat CEO, they’re able to deploy capital in a way that is a win-win for both them, the startup community, and the funding providers."
https://davidcummings.org/2023/09/23/dual-threat-ceos-that-build-and-invest/
35. Live it up. Such great stuff here with the guys and Andrew Wilkinson of Tiny.
https://www.youtube.com/watch?v=HChb0C5pQDs&t=1s
36. I always learn from Mike Maples Jr. on the art of VC investing.