Weekend Reading #78

This is the seventy-eighth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 25th July 2020. To receive a copy each week directly into your inbox, sign up here.

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What we're thinking.

"A fact that will alarm many people but is nonetheless true: startup valuations are bets by professionals that the actual value of the company is significantly higher."

A blindingly obvious but profound point from the great Paul Graham, and one that most business owners and founders have to consider at some point as they try to reach greatness. You believe your business is worth far more than the valuation you’re raising at, but you’re not sure if you can achieve greatness without raising.

It’s a point that needs to be considered by investors in private startups and scaleups, too. They’re gambling, putting capital into a proposition that they believe will be worth significantly more than what they pay for it today. Bets like these don’t usually pay off, and the lack of data and track record only makes the odds harder to frame.

Great investments in young companies likely happen when these two opinions find a common ground, settling somewhere between the founder’s worries about raising at a valuation that they know deep down is cheap and the investor’s concern that this is a proposition where the odds are stacked (often dangerously) against. If a founder can meet an investor somewhere around that point, greatness may happen.

Elsewhere, the DeFi phenomenon, which we have written about before, surges onwards. This week saw the extraordinary rise of a new project called yEarn.finance (token YFI). The platform routes liquidity to search for the optimal yield across a number of other DeFi platforms. It's essentially a smart yield aggregator. It's barely a week old and already has a total value locked inside of nearly $500m (as at time of writing, and that doesn't include the underlying protocols’ TVL), and has zoomed to the top 5. What’s almost as amazing is how the total value locked in DeFi has now surpassed $3.5 billion. When we first mentioned this emerging phenomenon in February, it was just touching $1 billion. It’s more than tripled in the past 5 months. The fascinating thing about this space is the speed of development, as it’s all just code. If a superior piece of code is written it can be enacted immediately as is the case with YFI. Many argue that this is a bubble given the extent of the rally in many of these tokens this year, but it is easily forgotten that these are essentially VC-type liquid instruments looking for product-market fit. The early stage means there is sizeable risk, but the upside is way beyond the imagination of any traditional equity investor. We are not talking about 10 baggers, we are talking about 1,000 baggers.

What we're reading.

Tik Tok has announced something really interesting this week introducing what it calls the Tik Tok Creator fund. This fund starting at $200m is earmarked for finding the next superstars from their platform. It's incredible how these (mostly) young start explode via the power of these platforms. There is no greater recent example than the success of David Dobrik, a youtube star who has recently migrated to Tik Tok. It's worth reading Blake Robbins’ piece written a couple of months ago in which he unpacks exactly who David Dobrik is and how he rose to fame.

Ever heard of the term “zoonotic spillover”? No, we hadn’t either until the last 6 months when we learned that it means the transmission of a pathogen from an animal, a vertebrate, to a human, much as we saw in the origin of COVID-19.

Alarmingly, these events are happening all the time in distant rural communities but they seldom make headlines. It’s only on very rare occasions, when environmental conditions are just right, that they spark a violent wildfire which spreads exponentially, the type of which we’ve seen throughout the world over the last 6 months. The idea that zoonotic spillover events are more widespread than we ever hear about is not just a theory but a fact, and variants that are being discovered of the COVID-19 are a case in point. This piece from The Telegraph isn’t a reassuring read but it’s important to learn how these events may shape our future and how we can better prepare for them.

A cool blog we read this week focused on entropy, the thought that our existence should be understood as ever-increasing chaos. And, like the universe that’s slowly unravelling around us, markets, be they private or public, are getting messier and more chaotic, too. The sooner we understand that the better, as chaos means opportunities.

This excellent post from the Not Boring blog is anything but boring and packed with insights for business owners and investors alike. It explains how Entropy Theory connects so many of the other business theories that are en vogue nowadays, including Aggregation Theory, Disruption Theory and Creative Destruction. Everything links back to chaos or unbundling, if you like, and unbundling means big opportunities for agile, dynamic companies who are able to harness uncertainty. As Not Boring writes:

"Ever-increasing entropy gives work verve. We’re not just bundling and unbundling, but unleashing energy, organizing it, and then unleashing new energy on the next thing."

In fact, chaos and unbundling aren’t good or bad. They are just a universal fact and so understanding them and looking to apply some of the rules from this blog post can help us all to seize on the opportunities that they present.

If you’ve finished everything on your reading wish list in lockdown and short of something to read then look no further than the original Bonds. We’ve all seen the films but an embarrassingly small number of us will have ever gone back to the original Ian Fleming books. As you can imagine, they’re a rip-roaring read. Our recommendation? Begin at the beginning and open a copy of Casino Royale, the first of Fleming’s Bond novels. Published in 1953, its success paved the way for a further eleven Bond novels. Some of the themes may be a little dated, but the fast story and style that Fleming imbues make it a book packed with a sense of adventure and a certain timeslessness. As the essayist, Umberto Eco, described in his 1979 examination of the Bond books, Fleming’s writing has:

"A rhythm, a polish, a certain sensuous feeling for words. That is not to say that Fleming is an artist, yet he writes with art.”

With the release of Bond #25, No Time to Die, delayed, stave off your Bond-shaped blues by tucking into some Bond in book form. Casino Royale, then Live and Let Die and you’ll be through the entire series before your martini reaches room temperature.

The best piece of advice we can give about advice listicles is that they should be avoided. The internet is awash with them and most of them are little more than hogwash. However, the life and adventures of WIRED founder, Kevin Kelly, has been an exception to so many rules that his recent post, 68 Bits of Unsolicited Advice, is well worth a read. All of us can learn a little something from the experience of this once-in-a-generation polymath.

What we're watching.

Earlier this week we watched the Liverpool team and enigmatic manager, Jurgen Klopp, lift the league trophy for the first time since 1990. The ceremony was cleverly orchestrated with lighting and effects so that the viewers (nevermind the players and management) didn’t focus so much on the empty stands. The most poignant moment was when manager Klopp did his victory lap while following a camera around smiling and waving. One can only imagine how bizarre that must have felt to be staring into the lens and only being able to imagine the reactions of all the adoring fans back home as opposed to seeing and hearing them in full sensory mode.

This monumental success story built over just the past 5 years is yet more evidence of what team unity does. When every player is part of a group consciousness the larger body can go on to achieve great things. Of course there is an abundance of individual talent (and the great manager himself) but it is the group that brings the real success. We take great inspiration from the Liverpool story. It is not much different in business. We work hard for each other and in time, it's an accumulation of small things every day while we build that result in victory later on.

What we're listening to.

In this excellent episode of the a16z podcast, champion climber Alex Honnold, he of Free Solo fame, discusses how technology and training have pushed the limits of what’s possible in both climbing and sports, as well as discussing what it takes to push your own limits in any endeavour, whether building a company, reaching a new peak, or maintaining peak performance while ageing.

This episode is well worth a listen if you’re trying to do anything where there is risk involved. And that means it’s useful for anyone trying to do anything.

Edward PlayfairJuly 27, 2020