Weekend Reading #169
Photo by Lluvia Morales on Unsplash
This is the hundred-and-sixty-ninth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 21st May 2022.
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What we're thinking.
There’s no way to sugar coat the fact that markets look absolutely terrible right now. Volatility is back in a way that many don’t even remember, exacerbated by a shortage of liquidity in the market. GS estimates coming around point to liquidity in the S&P 500 e-minis (arguably the most traded, most liquid index futures in the world) sitting at the 1st percentile of recorded data, with only $2.97m of liquidity on the screens to trade at a touch – that's not liquid at all. No surprise then that intraday moves are sharp and violent. It would seem like the market is set on re-educating traders on their habits, tempting dip buyers with bursts up only to then decimate those buy tickets a day later.
While all of that carnage continues in the public markets, another bad habit born of the past decade of monetary excess that seems to now be under fire is the halo surrounding startup founders, and these founders’ assumption that as long as they have a cool idea that is innovative and creative, the money will come.
The powers that be at Y Combinator circulated this email around to all of their investee founders, forwarded on to us by one of our brokers, and it’s definitely something for all of us to think about and integrate into our plans, not only as founders ourselves but also in the context of how this narrative can reflexively propagate in the market an become self-fulfilling. The “real” market, as some would call it, is getting marked down as much as the “paper” markets of stocks, bonds and crypto. Winter is indeed coming, and it’s not only in crypto.
Greetings YC Founders,
During this week we’ve done office hours with a large number of YC companies. They reached out to ask whether they should change their plans around spending, runway, hiring, and funding rounds based on the current state of public markets. Here are some thoughts to consider when making your plans:
"No one can predict how bad the economy will get, but things don't look good."
"Cut costs and extend your runway within the next 30 days. The safe move is to plan for the worst. Your goal should be to get to Default Alive" [a startup company that is on track to make it to profitability with its current resources].
"If you don't have runway to reach Default Alive and your existing shareholders are willing to give you more money (even on the same terms as previous rounds), you should strongly consider taking it."
"Regardless of your ability to fundraise, it's your responsibility to ensure your company will survive if it cannot raise for the next 24 months."
"Understand poor public market performance of tech companies significantly impacts VC investing. LPs will expect more investment discipline."
"This slowdown will have disproportionate impact on international companies, asset heavy companies, low margin companies, hardtech and other companies with high burn, long time to revenue."
"For those of you who started your business in the last 5 years, your fundraising experience was likely not normal and future fundraises will be much more difficult."
"If you are post Series-A and pre-product market fit, don't expect another round to happen until you have obviously hit product market fit."
"If your plan is to raise in the next 6-12 months, you might be raising at the peak of the downturn. Remember your chances of success are extremely low even if your company is doing well. We recommend you change your plan."
"Remember, many of your competitors will not plan well, they will maintain high burn and only figure this out when they try to raise at their next round. You can often pick up significant market share in a downturn by just staying alive."
What we're reading.
Bruno Macaes’s latest piece is really interesting. He is someone who has been on top of the developments the crypto space for some time and in this post, he writes about crypto utopianism, the Terra crash and crypto as a burgeoning Platonism political movement. More relevantly he thinks that Terra could be a watershed moment for crypto in that it galvanises the political movement to get stronger. DC
Robin Sharma is one of those modern productivity gurus who garners decidedly mixed reviews. He’s a man who is well documented in his writing as having made a lot of money in the world of corporate law before famously selling his Ferrari to become a monk. His first book, The Monk Who Sold his Ferrari, tells that story. I recently read one of his more recent books, The 5 am Club which, in a roundabout and quite lengthy way, tells the reader why the way to succeed in life, be it in your work, your happiness, your physical health, is to get out of bed before the sun rises each day and prepare for the day in those hours when everyone else continues to hide under the duvet. The usual caveats and moans from those of us who have young children aside, I loved this book. It was quirkily written, and, of course, the premise isn’t ground-breaking (getting up earlier makes the day longer, hence you can fit more into it, of course, it does) but the way Sharma explains the benefits and also provides a structure to that first hour of the day – the Golden Hour – was an invigorating read. For a couple of reasons, I’ve yet to put his recommendation into action, but in the coming weeks I will. It’ll be interesting to see if getting up at that previously unthinkable time truly changes my life, as Sharma promises it will! Whether it does isn’t important, as most improvements we make in life are incremental and barely noticeable, but the thought of having exercise, a bit of planning, and some personal admin completed by the time my daughter wakes up is an enticing one. Time to buy an alarm clock. EJP
What we're watching.
Ozark is a show that’s been on Netflix for quite some time, with the final ever episodes dropping just this week. Having followed the show since its inception, I was keen to see how it all ends and whether, as many shows do it would deteriorate as more episodes are churned out. Although luckily enough, this didn’t seem to be the case. Despite a rather slow start to the final episodes, tension quickly builds, and you can never be truly sure which way things will go. For those that haven’t come across it, the fictional show directed by and starring Jason Bateman follows the lives of a Chicago family who moves to rural Missouri in order to pursue a life of money laundering on behalf of a Mexican drug cartel. In my opinion, it is arguably one of the best shows on Netflix and this is something to which I’ve claimed since Season 1 and are still happy to say now as Season 4 draws to a close. If you haven’t seen it already, I would highly recommend it. HS
The blooming field of psychedelics research has caught my attention over the past few years and this week I sat down to watch a lecture given by Professor David Nutt, the Edmond J. Safra Professor of Neuropsychopharmacology and director of the Neuropsychopharmacology Unit in the Division of Brain Sciences at Imperial College London. Nutt is a colourful chap who has not always agreed with his peers, a recipe for some excellent insights! The lecture I watched is absolutely fascinating because it involves an empirical study which seeks to show the effects of psilocybin on the brain. It uses actual brain imaging to draw its conclusions. Despite it now being clear after many studies that psilocybin dramatically helps with the treatment of depression, the actual mechanics of how it affects the brain are still rather unclear. This is a problem in getting approval from regulators for any potential new drugs because one of the key factors is the understanding of exactly how a drug impacts the body on its way to achieving its outcome. The study, entitled “Increased global integration in the brain after psilocybin therapy for depression” goes a long way to showing the detailed effects on the brain. In order to focus on whatever task is at hand at any moment, our brains shut down large parts of themselves in the name of efficiency and economy (like a computer allocates CPU). What the study shows is that psilocybin actually switches off this “blocking effect” of the brain and allows different parts of the brain to freely interact with each other. This increases exponentially the brain’s interconnectedness. This image (which comes from a 2014 study) illustrates it better than anything.
If you have any curiosity in you about how our brains work and maybe even accessing different states of consciousness, then this lecture is phenomenal. DC
What we're listening to.
Four of my favourite thinkers in one podcast talking about risk, bias and decision making was a tantalising prospect and I was not disappointed. Josh Wolfe, Annie Duke, Michael Mauboussin and Daniel Kahneman all get together on this Lux Securities pod and they have a great time chatting about a host of different things. Great fodder for the mind while having a nice long run – especially the part about how hard it is to change one’s mind once a decision has been made using some really cool examples. The utilisation of a premortem is also something that we do already in our fund management investment process so clearly this crowd is worth listening to!
I also listened to Elon Musk dialling in to the All-In Conference this week in which he speaks candidly about Twitter, Tesla, politics and many other things. The problem I find with Elon is not that he isn’t a genius (he is), but rather that I don’t really know if what comes out of his mouth is genuine. I find myself agreeing with him more and more on many things and I think he wants to do good like he says he does in tackling some of humanity’s biggest problems. It’s just all those pesky things that get in the way of it that are a problem – the law, accounting practice etc. When you are saving the world, these things are sometimes just a hindrance right.
Next up was a Bankless pod with Sandeep Nailwal and Mihailo Bjelic, co-founders of Polygon, one of the scaling solutions being built on top of the Ethereum blockchain. In it they discuss their deal with Instagram, in which Instagram will use Polygon to enable NFTs to be introduced to its platform and its zillions of users. The episode also covers their thoughts on the state of the industry, their future plans and many other things. In a period where price numba go down, it seems like important milestones like this are being brushed under the carpet! Not by us!
Closing off the highlights of my listening week was a Blockcrunch pod featuring Kevin Zhou of Galois Capital. He was one of the few who predicted the collapse of Terra. It was out of character for him to be so vocal about it as he is not one of the loudmouths of crypto Twitter, so we gave extra gravitas to his warnings in line with our own thinking in the run up to the collapse that unfolded. In this episode he talks about Terra, his thinking before, his thoughts now and much more. DC