Month: May 2023

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#unfiltered #78 The Gravitational Force of Accumulated Knowledge

apple, gravity, newton

You can’t always be the fastest or the brightest or the most talented. For the most part, anything that can be measured with a metric, or put on a business card or a baseball card — anything with an absolute ranking — is not something you can always control. You can be the fastest 100-meter dasher in the world today. But tomorrow, there will always be someone who’s faster. Today, you can be the youngest founder who’s raised venture capital. But tomorrow, someone will outdo you. Today, you can sell the most Girl Scout cookies. But tomorrow, someone will outsell you. The Guinness World Records is proof of that. You get the point. Because you’ll be in fashion one day, and out the next.

But if there’s anything I learned from hanging around the dragons and phoenixes — all pen names for perpetually and persistently world-class individuals, it’s that there’s gravity in being a voracious consumer of content. In being a voracious curator of what one feeds their brain. Information diet or fitness as one of my friends calls it. Being the most knowledgeable — or the pursuit thereof — has a longer shelf life and a half life than all other phenotypical isotopes. Or my fancy schmancy way of saying, all the other titles one can earn in their short lives.

It also happens to be closest pursuit where one unit of input roughly equals one unit if not more of output. For instance, to be the fastest sprinter, one extra hour of practice doesn’t consistently yield one second off your personal best. But if you’re regulating your content intake algorithm, for instance reading books, and not doomscrolling on TikTok, one extra page read is more often one more unit of knowledge you can apply in the future. Or if you’re asking good questions, one more coffee chat yields you another year or two saved of mistakes you could have made in your craft. As such, one should spend time reading, listening, watching and asking.

I spent the past weekend tuning into one of my favorite talks by Bill Gurley. (I knowww……. It really took me this long to actually write this essay.) In it, he shared that one should always “strive to know more than everyone else about your particular craft.” He goes on, “That can be in a subgroup. What do I mean by that?

“Let’s say you love E-sports. Let’s just say you’ve decided multiplayer gaming E-sports, like, this is it for you. You grew up gaming, “I love it.” All right? Within the first six months of being in this program you should be the most knowledgeable person at McCombs in E-sports. That’s doable. You should be able to do that. Then, by the end of your first year you should be top five of all MBA students, and, hopefully, when you exit your second year you’re number one of any MBA student out there. It doesn’t mean you’re the best E-sports person in the world, but you’ve separated yourself from everyone else that’s out there. I can’t make you the smartest or the brightest, but it’s quite doable to be the most knowledgeable. It’s possible to gather more information than somebody else, especially today.”

It so happens to be why VCs ask about your previous experience before starting the company. It’s why they look for passion. It’s why VCs ask for you to show that you have spent time in the idea maze. And it’s why the goal of a pitch meeting or any meeting with someone you hope to impress is to teach them something new. They’re all proxies for a founder’s rate of learning. The rate that one acquires knowledge is often directly proportional to the rate of iteration.

At some point later in the same talk Bill Gurley does above, he says, “Information is freely available on the internet. That’s the good news. The bad news is you have zero excuse for not being the most knowledgeable in any subject you want because it’s right there at your fingertip, and it’s free, which is excellent.”

It’s true. There’s a lot of things out there on the internet. But with anything that is known for its volume, there is much more noise than there is signal. And sometimes the best approach is to find the smartest people or most referenced and most peer reviewed sources. So while there is a world out there behind covers and a .com address, sometimes the best thing to do is ask.

Page 19 thinking

Seth Godin shared something recently I wish I had heard sooner — page 19 thinking. It was in the context of compiling an almanac — a compilation of world’s greatest thinkers about the climate crisis. When Seth and the team first started off with a blank page, they knew that “in the future there will be a page 19. [They] know that it will come from this group, but [they also knew] there [was] not anyone here who [was] qualified.” So, to resolve that dilemma, someone had to ink the first paragraph of page 19. Then, that person would ask someone else to make it better. And then, that someone else would ask another. And it would go on and on until page 19 looked like a real page 19.

What made this approach special was that ego was checked at the door, and people were empowered to co-create the best version of that work. Seth went on to share, “But once you understand that you live in a page 19 world, the pressure is on for you to put out work that can generously be criticized. Don’t ship junk, not allowed, but create the conditions for the thing you’re noodling on to become real. That doesn’t happen by you hoarding it until it’s perfect. It happens by you creating a process for it to get better.”

In the world on Twitter, the above goes by another name — build in public.

One of the greatest blessings in writing this blog is that I get to ask really smart people a lot of questions. While a lot of knowledge exists behind two cardboard slabs, or these days, in a six-letter, two-syllable word that starts with ‘K’ and ends in ‘E,’ the richest concentrations of insight exist in gray matter.

If you’re a founder or someone who’s embarking on a new project, there’s a saying I love, “If you want money, ask for advice. If you want advice, ask for money.” Ask people to pay you or to invest in you. You’re gonna get a plethora of feedback. Feedback that comes in flavors of noise and signal. But it’s up to you to figure out which is which. Nevertheless, that rate of learning, assuming you’re out asking, building, asking, and building some more, compounds.

In closing

I’m not saying you should only read books or only talk to experts. I’m saying you should do both. Be relentless in your pursuit to learn. As Kevin Kelly once said, “Being enthusiastic is worth 25 IQ points.”

Luckily, knowledge also happens to be one of the few things in life that no one can take from you.

Photo by Priscilla Du Preez on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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DGQ 17: What is your greatest strength that you are most worried about not coming across during an interview setting?

camera, interview, question

A while back, I stumbled across this question by Siqi Chen while doomscrolling through Twitter, and I couldn’t help but do a double take on it. It’s something I often worry that I miss when founders or GPs pitch me, but also when I host fireside chats. I worry in my myopia with hitting an agenda of questions, I may miss the most important part about the person sitting across from me. In any interview setting, interviewers always have a pre-destination in mind. And often it’s the onus of the interviewee to alter that flow if a dam is restricting the power of the torrent. In other words, your strength. It’s why I ask, “Are there any questions you have yet to be asked, but wish someone were to ask you?” But I like Siqi’s way of asking it a lot more.

Take ambition as a strength, for example. Really hard to tell by just looking at a resume, especially one who says they are and someone who actually is.

At the same time, there’s a beautiful line that the late Ingvar Kamprad, best known for founding IKEA, once wrote. “Making mistakes is the privilege of the active — of those who can correct their mistakes and put them right.” And that’s okay, in fact heavily encouraged for anyone who has ambitions. Because in order to achieve the extraordinary, you cannot pursue the ordinary. You have to tread where no one has treaded before. And a lagging indicator of that is the number of mistakes and scar tissue you’ve collected over the years. So, in an interview, to best illustrate your ambition, you have to talk about the lessons you’ve learned to get here. The greater the mistake, the more risk you took. And often times, the greater the ambition.

Kevin Kelly also said recently, “I’d like to give a little story of a car, and you need to have brakes on the car to steer the car. But the engine is actually the more important element, and so there are people and there are organizations, and there are methods that are going to be doing the braking, and I think they’re essential. I want brakes in the car, but I just feel that the brake can overwhelm and cause stagnation, and that we also wanted to remember to focus on making the engine even stronger, and so I emphasized the engine.”

In an interview, it’s the difference between promotion and prevention questions. As Dana Kanze once shared, ““A promotion focus is concerned with gains and emphasizes hopes, accomplishments, and advancement needs, while a prevention focus is concern with losses and emphasizes safety, responsibility, and security needs.” As such, in an interview, you want to channel your energy to being asked at least one promotion question that highlights your strength.

Conversely, as I’m writing this right after reading Chris Neumann‘s most recent post on fake FOMO, creating a fake sense of urgency is one of the best ways to ensure your greatest strength won’t come out during the interview.

Today’s just a short blogpost. Just to say I’m a fan of Siqi, one of the greatest masters of storytelling, and this question. In case, you’re looking for more Siqi content, check out here and here.

Photo by Sam McGhee on Unsplash

The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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Spilling the Tea on Deep Tech

teapot

It’s not every day one gets to sit down and experience a Chinese tea ceremony under a late afternoon Los Altos sun. Sitting across from me was a gentleman in a white tee who moonlighted as a tea connoisseur. As such, he was in the middle of passionately describing to me what was some of the best tea I’ve had to date.

“David, smell this blend three times. You’ll realize that each breath you take will smell completely different from the last.”

To my bewilderment, he was right.

As I handed the teapot back to him, he continued, “Now the first pour you always pour out. Here, we are just washing the tea leaves. But we use this opportunity to also coat the insides of your teacup with the flavors of this next tea.”

True to his word, he awakened the inner mold of my cup with the smoky liquid infused by leaves that had been aged longer than I’ve been alive. Then poured the first pour back onto the teapot with the lid on, creating a wet seal around the teapot. As a result, the leaves were washed. The aromas are concentrated in the pot. And the cup has been given time to get to know the tea.

When, finally, the teacup landed back in my hands, I could taste the unfiltered, rich, smoky, yet mellow aroma of a Wu Yi Shui Xian tea.

If I didn’t know any better, I’d never have guessed his “day” job was being an investor. Specifically, a pre-seed and seed deep tech investor.

Of course, you’re smart. Given the title of this blogpost, you didn’t come here to read about the intricacies of drinking tea. But about the intricacies of deep tech, which in the process of editing this piece, I realize deep tech happens to have the same initials as drinking tea. But that’s not only stretching it, but I digress.

The fine gentleman who sat across from me in a white tee, his name is Arkady Kulik, Co-Founding Partner of rpv, a fund dedicated to backing early-stage scientifically intensive teams. In other words, deep tech. Currently, the industry itself is highly fragmented. In Arkady’s words, “it’s like investing in IT in the 80s. But they’re all ventures that can completely reshape the landscape.”

As Arkady continued, he shared something else quite fascinating. “In software, you’re looking at a high market risk and low technological risk. In deep tech, it’s the exact opposite. We have a low market risk and high technological risk. The problem is not whether they can sell this to people, but rather whether they can build it.”

Naturally, as someone who spends little time looking into the deep tech world week to week, I had to double click on that. What followed was a conversation where I found myself wishing I could take notes faster.

Smelling the tea leaves

As a non-technical person, the biggest question for me has always been: How do you evaluate a deep tech deal?

To Arkady, it’s the entry point in price as a function of Technology Readiness Level. TRL, for short.

rpv focus, deep tech, technology readiness level, nasa
Source: rpv’s Investor Deck (and yes, Arkady gave me permission to share this)

“TRL is actually something that the team at NASA came up with. NASA has always had a lot of internal projects, and they needed some internal tool to evaluate the readiness of those projects.

“It was developed in the 1970s, but was formalized in the decade after. One through three on the TRL scale is all theory. They’re largely funded by the government through grants and such. Seven through nine on the scale is commercial, and covered by generalist VCs. Everything in between is in some form of a product development process. That’s where we come in.

Source: rpv’s Deck, citing NASA TRL levels

“To get the graph above, we take TRL levels on the X-axis and the historical round size data on the Y-axis. Then we looked at every single company, took the lowest and highest round in each vertical within deep tech, and mapped it out.”

While every firm’s “blue box” is different — and after learning about this, I do encourage every deep tech firm to go through such an exercise, rpv’s sweet spot is companies leveraging technologies TRL 3-6 whose round is shy of $1.5 million.

The first pour: Tea meets cup

After passing through the smell test, the first question Arkady tries to answer is always: Is it BS? “I look at every deck myself. No analyst. No associate.”

After Arkady looks at the deck, he then sends it to his team. “They give me one of three scores: green, yellow, or red. If it’s positive — meaning either green or yellow, I take the first meeting. We have 12 deal breakers, ranging everything from lack of ability to protect IP (it’s why we don’t do software deals) to tech, finance, or team conflicts of interest. If any of us in diligence raise a flag, we don’t continue. If not, we ask specific questions to the team.”

When meeting with the team, the question of founder resilience always comes up. Of course, every investor measures grit differently. I ask about excellence and scar tissue, but I was deeply curious as to what Arkady asks for.

“I try to gauge it from learning about founders’ past experiences (not necessarily professional ones),” he goes on, “I dig deeper on tough situations a founder has faced. Also proposing hypothetical scenarios about their fundraising or team dynamics help a lot in understanding that facet.”

Without a beat, I follow up, “For that, do you have any go-to questions?”

“Nothing formal. I try to find an experience in someone’s past that could be good grounds for showing resilience: competitive sports, PhD, previous startups, complicated and long-term projects in the corporation or something like that.

“For the hypothetical scenarios, I ask things like ‘What if you won’t gather the round?’ Or ‘What if your co-founder absolutely had to resign, what’s your action plan in the bus factor case?’

“It’s an area where you look at how they react, not just what they say. How does their body language change when they’re answering the question. It’s about the non-verbal signals. ‘Tell us an experience in the past and things didn’t go your way, and things were dragging.’ Was it when you applied to college? Or went for your PhD? Or when you were trying to go on a date with someone you liked?’

“Resilient people usually have some kind of Plan B. People who don’t have another plan and still try the same thing again and again are stubborn. We don’t seek stubbornness in entrepreneurs. We look for their ability to be honest with themselves and other people.”

The second pour: Tasting the depth

“If there are no red flags after meeting the founders, then we move into scientific due diligence. We ask everything from deep scientific questions (on isotopes or wavelengths) to the feasibility of the product — essentially a peer review on a paper by our internal, but also external scientists and advisors. The latter to get a truly unbiased opinion.

“Then we do a deeper diligence process with a scorecard of 35 items from team composition to their stage of development to their ability to protect IP to the availability of competition, each rated twice. Once by myself, and another by our advisors and venture partners. Then we average the points out for each of the 35 items and compare against our thresholds. If it’s a green light, we make an investment decision. If yellow, we follow up with the target venture’s team to see if they have a good answer to our concerns. And if not, then we say no. If red, well, we also say no. Though we have yet to give a red final score after using the scorecard since they’ve all died during the extensive due diligence process.”

In our conversation, which eventually migrated to Zoom (with some people, you just never run out of things to ask), I postulated about the variability in venture firms using scorecards. There are strong reasons why you should or shouldn’t from both sides of the aisle. Both of which have generated great returns for their LPs.

Today, many of the top tier venture firms make outlier decisions based on gut. It’s the same reason why generational or succession planning at these top firms are so hard. Once the GP leaves or retires, the next generation have a hard time making the same investment decisions as the previous generations.

On the scorecard end of the spectrum, hedge funds are, by definition, firms who employ algorithmic discipline to generate alpha. On the venture side, you have Correlation Ventures, SignalFire, just to name a few. Seven years back, Social Capital’s Capital-as-a-Service, just to name a few. The last of which seemed to have been deprecated due to the inability to scale support for a portfolio of 500 startups, rather than the inefficacy of their “scorecard.” As you might suspect, a topic I’m quite fascinated about.

“We make our decisions based on scorecards,” Arkady reaffirmed, “And if you were to look at each one we’ve done, you’ll see that it’s rare that our team sees eye to eye. We disagree a lot. It’s an individual decision and we take it. And we never try to convince the other to change their score. We trust each other to give a score we believe in. For advisors, since we have many, we take the average of all their opinions. We also ask different advisors for each item on the scorecard. Some advisors are excellent in one area, but might not be fluent in another.

“The final thing I’ll say is that when something feels off, we say no. Even if the data shows green, but we’re unsure about the validity of the data, we still pass. One of the best pieces of advice I got around hiring is if you’re not sure about a hire, pass. It’s the same with investing.”

For Arkady, that is the weapon of their choice.

In closing

Between three calls and a tea ceremony, even then, we only touched the tip of the iceberg. One I’m likely to have many more questions for Arkady and my other friends who live and breathe in this space. It’s an exciting space. To be fair, even calling it all just one space is an understatement. It’s a permutation of many that’ll be segmented when the broader investment community starts to understand them all better. Myself included.

Looking forward to it all, and appreciate you, Arkady, for all the back and forth edits, lessons, and the tea!

Photo by Content Pixie on Unsplash

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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#unfiltered #77 When People Conflate Intentions and Incentives

thinking, confused, mixup, intention, incentive

Earlier this week, I tuned into an episode that come out in late March on the 99% Invisible podcast about the panopticon effect. In all honesty, until this week, I pled ignorance to that second to last word — panopticon. Something that had been omitted from my anecdotal Meriam Webster. But maybe you’re less ignorant than I am and you’re already familiar with this term. Maybe we’re in the same boat.

Nevertheless, it turns out the panopticon was a relic of the late 1800s. It was a time, not too unlike today, when they were tackling the age-old problem of reforming prisons. Brought to life by Dutch architect Johan Metzelaar, the panopticon is a cylindrical prison, further defined by a single pillar at the center of it all — a guard tower. Unlike previous prison designs, this one was specifically designed so that the guards could keep their eye on every prisoner. Or at least that was the idea. For those in the prison to feel like they were always being watched, in hopes that would aid in the correction of their behavior.

And in that same episode, rewinding even further back in history, Roman Mars, the host of the 99% Invisible podcast, shared a fascinating piece of trivia. The Dutch were once again one of the first to introduce prisons as an alternative to torture, capital and/or corporal punishment. These houses of correction were meant to be opportunities for inmates to develop discipline and morality. Spoiler alert. It didn’t work out as expected. He mentions, “The goal of rehabilitating inmates was quickly lost. The houses of correction devolved into just convenient sources of very cheap labor.” Simply put, while the intentions for correctional facilities were good, the incentives led them astray.

When incentives lead people astray

Interestingly enough, Lux’s Bilal Zuberi, in a recent chat with his partners, Josh Wolfe and Peter Hebert, stumbled across a similar discussion.

In the thread, he brings up three examples:

  1. Nuclear was invented to harness renewable elemental power, but became a means to create weapons of mass destruction.
  2. Social media started as a means to bring people together, but devolved into a tool for gaming eyeballs and invasive ads.
  3. Vaping started as a way to help people quit smoking, but to create a sustainable business, the companies have started marketing “fun” flavors.

The battle between intentions and incentives is no less true in the past with prisons and empires and political beliefs as is in the present and future with technology, generative AI, deep tech, crypto and blockchain… The list goes on.

Intentions are usually about personal motivations, morality, ethics, and the greater good. The force that drives us forward. I truly believe that most people don’t start off wanting to take advantage of others. Incentives, on the other hand, are business motivations. They’re optimizations. A rationalization of decisions that conflict with goodwill for the sake of, well, insert your choice of blame and delegation of responsibility. Often times it is for the broader organization.

It reminds of a saying that I first heard in The Dark Knight. “You either die a hero or you live long enough to see yourself become the villain.” I can’t speak for every individual out there, neither is it my place to preach. That said, with the world progressing exponentially, selfishly speaking, I’d hate to see good people and good businesses overly optimize for the wrong reasons. And lose themselves in the journey up.

Photo by Tingey Injury Law Firm on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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