I did not get to 21 books in 2021, but ended the year on 18 books – I spent more of my time listening to podcasts (mostly about crypto). Here is a list of the books I read in chronological order along with a few notes I made while reading – a * next to the book means I particularly recommend it. Here are the links to my 2020 and 2019 book lists.
Top Pick: Range (David Epstein)
The most interesting and impactful book for me this year was Range by David Epsteinparticularly as I’m a father to a 1-year-old boy and had a few interesting takeaways that are applicable to parenting:
Encourage curiosity and explore a range of interests and activities, especially at a young age.
Creativity is the intersection of a range of experiences pattern matched to form something that only your unique set of experiences make possible.
Being a generalist does not mean having no expertise. Pick multiple areas where you have top 95% ability/skill over a single path where you are in the top 99.9%. Your life with be more antifragile.
*Tao of Charlie Munger (David Clark): Keep cash on hand and be patient – when there is a good opportunity invest big (concetrated bets). Focus on companies that you would be happy holding forever. Society puts value on being busy, but being busy is not the same as being effective and deliberate.
**Essentialism (Greg McKeown): If you don’t prioritize your time, someone else will. No one regrets doing or having less but better quality. Ask yourself, “What can I go big and then explore a range of options and commit to few?” Clear goals and roles lead to thriving teams. Routine can improve creativity because the mind is freed to focus on problem solving over what to do next.
This is New York (Miroslav Šašek): The soul of New York remains the same over the years. It will (and did) survive COVID-19 like it has many hardships over time. It made me miss New York and want to go back. I did in fact go back and now live in Brooklyn!
The 4-Hour Body (Tim Ferriss): Your body and what you consume and do is fully in your control. Training to failure and eating a low carb diet will help you lose fat and build muscle. Don’t eat or drink sugar – it’s the worst. Take a day off a week from your program.
Think Like a Rocket Scientist (Ozan Varol): Think from first principles, if something has a 2-way door the barrier to try it is much lower than something with a 1-way door. I stopped about half way through as I thought the book was quite derivative of other original titles and don’t recommend.
*Powerful (Patty McCord): Teams are groups of highly performing individuals working together on clear goals, not families. Give people permission to leave if they are no longer the right person for the role. Pay people for expected value, not what the market says as it’s often a lagging signal (Netflix famous for paying well).
*Greenlights (Matthew McConaughey): If you’re going to do something, “don’t half ass it”. Make sure you have your basics taken care of, and have a strong support network around you. I really enjoyed this book (listen to it on audio if you can) and this advice was born from his transition from a romcom actor to more “serious” roles.
Leading (Alex Ferguson & Michael Moritz): Hold team to a high standard and reward commitment and hard work over talent. Remove people from the team who are not good culture fits. Alex Ferguson is one of the most successful football (soccer) managers of all time and for some reason he came across as a pretty difficult and dogmatic person in the book but the results speak for themselves.
**Range (David Epstein): Opposite theory of requiring 10k hours (from Outliers) to master anything. Advocate for exploration when younger and then specialize later in life (e.g. Federer). Connecting diverse things is where creativity is born. High grit (not switching) can get in the way of discovering what you really want to do, which is counterintuitive.
White Fragility (Robin DiAngelo): Beware of the white savior mentality. Recognize race and the difference in upbringing and opportunity openly. People who control culture often have biases. Don’t be defensive, stay open and keep learning.
Ready Player Two (Ernest Cline): I loved RP1 but it was not like RP2 at all. It felt gimmicky and a real grind to get through. It paints a future closer to “The Matrix” than any other book I’ve read.
A Promised Land (Barack Obama): I would recommend listening to this on audio as it’s narrated by Obama. It’s super long but I really enjoyed learning from him. He’s articulate and honest and it’s a great listen.
*On Writing: A Memoir of the Craft (Stephen King): Use the word you mean, don’t beat around the bush. Remove unnecessary words that are hard to understand. Bring in your own experience to be most authentic. “Writing is refined thinking” was my favorite quote from the book. Write every day if you want to be a writer.
Atomic Habits (James Clear): Small changes compound and it takes time to see results (be patient and consistent). Need to create a situation of immediate positive response to build habit. Four rules of habit change are (1) make it obvious, (2) make it attractive, (3) make it easy, and (4) make it satisfying.
Bad Blood (John Carreyrou): Story of Elizabeth Holmes and Theranos. Small exaggerations turn into big lies over the course of the journey. Power of charm and big vision in a culture of light diligence. She was recently found guilty by a jury.
The Effective Executive (Peter Drucker): This is considered one of the original books on modern management (and written in the 60s) but still feels relevant. No matter what, you can always manage yourself so do that well. Effectiveness is about competency and this can be learned (it’s not all about inherent talent). Make a few great decisions, not lots of unimportant decisions. Focus on contribution and unique skills, and ignore everything else.
Lifespan (David Sinclair): His view is that aging is a disease and we can stop or slow it the same way we treat other diseases. Intermittent fasting and daily exercise are great for life extension- calorie restriction promotes longer life. There is a whole section on experimental drugs for anti-aging (rapamycin, metformin, nmn, resveratrol) but I’m skeptical until there are longer trials.
Hope these were helpful to folks and look forward to sharing more books next year 🙂 Happy 2022!
Equity: Either in the form of restricted stock units (non transferrable) or stock options.
Perks: Broad but could include flexible hours, working from home benefits (e.g. home office furnishings), free healthcare for your family, and generous parental leave,
Title: Your internal and external title.
Role and Responsibilities: What you actually do and which teams you work with on a daily basis.
I’ve mostly negotiated on equity and my role/responsibilities, especially if I believe in the company (which hopefully is the case if you’re considering working there!). I think the other stuff usually falls into place naturally.
You may also need more or less cash depending on your personal circumstances – e.g. children in major cities are very expensive 🙂
I pulled together this Google Sheet that I’ve used and shared it with many friends and family members over the years. Feel free to make a copy and use it for your own purpose.
Options and equity are really complicated, and I’ve been through the process of exercising and selling my stock options a few times — here are a few things I wish I had understood better.
Strike (or Exercise) Price is the 409a valuation (fair market value) when you joined the company. This is typically lower than the investors as they often have a different class of share (typically preferred shares) which are worth more they are higher in the capital stack. In general, the company tries to keep the strike price as low as possible.
When you exercise stock options (buy stock from your company) you are effectively making an investment into the company. The advantage of exercising the stock is that you start the clock for Long Term vs. Short Term Capital Gains which can save you ~20% on your taxes when you dispose of the stock. You should understand both the risks and the capital requirements of exercising options before you do exercise options:
You have to pay the company the exercise price x the number of options.
You have to pay the government (tax in the US as Alternative Minimum Tax) the difference between the current 409a valuation and your strike price x number of options. This can be significant if the company’s value has increased materially since you joined.
Early exercise of stock options can be great if you expect the stock price to go up and you are a very early employee, as the cost to exercise your options is low and any upfront taxes are negated. You will need to file a form called an 83(b) election within 30 days of doing this for it to be properly reported.
If the company is very successful and you don’t exercise options you may get “priced out” where you can’t afford to exercise the options and pay the taxes (because the gains are so significant). This may trap you to stay at the company for longer than you may want. Alternatively you could exercise your options and the company takes a downturn, which means you may take signifncant losses. Startups are risky and choosing when to exercise your options is not a simple decision.
Qualified Small Business Stock (QSBS) is also worth researching as you can save a lot on taxes (although these rules may change). You have to exercise your options at a <$50m valuation and hold it for 5 years before you dispose of the stock. This benefit can make early exercising of options even more attractive.
This article from Wealthfront also has a lot of good tips on taxes and explains some of the concepts above in more detail and make sure to educate yourself on these concepts as it could mean a material difference in financial outcomes.
I hope this is helpful. As a disclaimer, this is not financial advice and I just put this together to share learnings from my own experience and to make it easier to share with the community.
The internet was transformative because it democratized access to information and enabled instant, complex communication. I think that cryptocurrency has the potential to have as big an impact on the world by powering digitally native trade and commerce. Cryptocurrency allows people to transact seamlessly and agree on the terms for the transfer of value instantly and trustlessly. As more utility is available on-chain more of our daily activity will be powered by crypto rails. NFTs are an early example of this utility.
I’ve been playing around with Non-Fungible Tokens (NFTs) for a little over eight months now and they are super fascinating from both a technology, cultural, and utility standpoint. NFTs are on-chain assets where each one is unique as opposed to “fungible” assets like Bitcoin or USD where each one is worth the same. They can be used to verify ownership of digital assets such as images (the most common use case right now).
Yes, we are living in some weird metaverse microcosm where pixelated Twitter profile pictures (PFPs such as CryptoPunks) can cost more than most people’s houses but this is the start of people placing value on their digital identity. PFPs allow people to express themselves while being a member of a bigger tribe. It’s not much different to being a sneakerhead and buying some rare Air Force 1s to collect and share with your other sneakerhead friends.
Beyond digital identity, NFTs have immediately made lives better for both creators and collectors which I’ll summarize in more detail below.
NFTs are better for Creators
I’m particularly excited about what NFTs mean for creators. Creators have historically given very large portions of their income to promoters, curators, and auction houses. NFTs can help creators find, interact and transact more easily with their customers.
Trading behavior: NFTs allow creators of products (digital or physical) or understand the behavior of their buyers. Are people “flipping” when they purchase? Are people long-term holders? What are the transaction and trading behaviors of their holders?
Direct Interaction: Ownership is all verified and on-chain so creators know who owns their products, how long they have held it for, how many they own etc. This allows creators to have direct interaction with their fans and supporters in a way that was almost impossible in the past.
Annuity: Many NFTs allow creators to participate (via revenue share) in all future transactions of their products. This leads to an ongoing “annuity” from people trading their products and a much lower percentage of fees to marketplaces and platforms which I think is healthy.
Digital distribution: NFTs and distribution tools allow creators to run more complex launches without a lot of technical experience. Creators can run raffles, auctions, or even sell NFTs that can be redeemed for physical goods like the Damien Hirst NFT.
NFTs are better for Collectors
NFTs also make the experience better for buyers and collectors. Here are a few ways that NFTs are superior to “offline” tradiitonal models.
Ownership: NFTs allow collectors to actually prove that they own the asset in a way that is verified by the collective community as it’s “on chain” and cannot be forged.
Authenticity: NFTs are “digital papers” that certify that the asset is authentic. For high-craftsmanship products (e.g. fine art, mechanical watches) authenticity is important. Verifying authenticity is a big part of the reason people transact through trusted dealers and they often charge high fees for this service.
Liquidity: NFTs unlock more liquidity for owners. They can find other collectors to transact with faster and more easily which has always been an issue for more niche products.
Legacy: NFTs allow us to track the history of ownership of assets which is often lost for other products. A Rolex that was owned by Jack Nicklaus sold for $1.2M because it was his watch. Steph Curry’s Bored Ape is likely worth more than the average one because he owned it.
Community: Collectors like to engage with other collectors. NFTs make it much easier to find other real collectors and engage and transact with them and feel part of a club gated by ownership. It’s possible that NFTs are the start of early social networks powered entirely by cryptocurrency.
Many folks are being onboarded into crypto through NFTs and can be tricked more easily than purchasing a physical piece of art from an artist or gallery. They can be victims of organized “pump and dump” schemes, “rug pulls”, fake minting links in Discord all completely anonymously and without recourse. We still need clearer user experience , better requirements/standards, better tools, and trusted information so that the communities and projects are safer for everyone.
Profile Pictures and Generative Art
Profile pictures, collectibles, and generative art are driving most of the trading volume for NFTs right now. I think they are culturally important and the start of digital expression in the Metaverse, but I don’t think many new projects will have long term staying power. OpenSea is currently the largest NFT marketplace. Should the company hold on to its 97% market share, that suggests a total annual GMV of $28BN. (Source: The Generalist Article, from public data).
The most common type of project is modeled after CryptoPunks which was the first project of this kind. The formula is a few thousand (usually 10k) randomized images created with some unified theme (lions, monkeys, aliens etc) and traits (body, hat, sunglasses etc) each with non uniform rarity attached to each trait. This results in a distribution of outcomes which are a combination of the traits (and some are much rarer than others). Rarer NFTs typically command much higher prices in popular collections.
Collectors can mint (create them) these NFTS and for the most popular projects this can be a battle for how much “gas” buyers are willing to pay to secure one of the NFTs. It’s not uncommon to see people spend thousands of dollars on gas just to get to the front of the line and have a chance to mint a rare NFT. Once buyers have minted they can keep the NFT, or trade them on a marketplace like OpenSea which is the most popular place to trade (280k+ monthly users in September 2021). The project creators often receive a portion of the value of all future trades acting as an annuity if their project has trading activity over a sustained period of time.
Buyers pick NFTs on the market based on aesthetics and rarity then often showcase their NFTs as their profile pictures in social media and private communities. The most popular projects are CryptoPunks and Bored Ape and the “floor price” for each is 110 ETH ($400k) and 40 ETH ($150k) respectively.
Every credibly project typically has a published roadmap after minting is complete such as access to special events, future NFTs for holders, or even full-blown games. In reality, very few projects will actually have to stay power to build a robust and active community and continue to develop and innovate. Developers often take the minting the profits which can be substantial (e.g. 10,000 mints x 0.05ETH x $4000 per ETH = $2M) and move on to the nest project. This “drop formula” is becoming stale and many new projects don’t have the same demand unless they have some sort of unique innovation so I expect this wave to pass in the next few months.
On-chain generative art is also a popular category (CryptoArte, and Art Blocks were early innovators). They both have programmable on-demand generative content that is stored immutably on the Ethereum Blockchain – a true intersection of art + code. CryptoArte is an NFT art collection that tells the history of Ethereum with each block representing a moment of time. Art Blocks has done a great job of curating new projects and giving creators a launchpad for their work. Chromie Squiggles were the first project on Art Blocks and the cheapest one is 9 ETH ($37k).
The Potential of NFTs
I’m most excited about the next phase of innovation for NFTs. I think there is a lot of space for growth in terms of quality and utility for NFTs and will be following the developments closely. Here are a few of the areas that I’ll be tracking closely.
As I noted above, NFTs are a great medium for collectors. Collectors can have a good understanding of the total supply of collectibles and also the metadata for these collectibles (for rarity) of the entire universe. As metadata standards and analytics tools (e.g. Dune Analytics) improve this will help collectors build and trade with a more data informed perspective.
Collectors can also more easily get benefits from holding NFTs like access to communities or get special roles or rewards for holding the NFTs (although this has some legal/regulatory ramifications). This could be further segmented based on “sets” with different properties or “time based” to incentivize long term holding of NFTs.
As the technology becomes more mainstream and battle tested, more established creators will embrace NFTs increasing the quality of art available to collectors (see Damien Hirst “The Currency” below).
Digitally Native Communities
I’m very interested in NFT communities where holding the NFT is an “access token” for the community. I’m a member of 888 Inner Circle (promise of NFT drops and early access to quality artists), and Metaverse HQ (early information and access to future NFT drops and a community of serious collectors). These NFTs are all identical and purely act as a gate to access the community.
The same is true for communities like Bored Ape Yacht Club or Solana Monkey Business community MonkeDAO on Solana which have similar NFT ownership requirements to join but the different NFTs add more personality and freedom of expression for the participants. However, many of these communities don’t have a clear purpose and it’s hard to figure out at what level to engage in the discourse.
What’s clear to me is that we’re in the early stages of NFTs powering decentralized social networks and we need better tools to filter important and relevant information from these communities that stretches beyond tracking hundreds of Discord channels.
It’s also clear to me that we’ll see meaningful collaboration within these communities — members will collaborate in a digitally native way and be rewarded by their fellow community members or from the “treasury” (or DAO) where many of the high quality NFT communities are very well capitalized.
Merging of Digital and Physical
I also think that many physical craft products, tickets and collectibles will have companion NFTs and we are already seeing these patterns emerge. These NFTs will represent legal ownership and act as “digital papers” for the products.
NFTs are also very likely to power tickets for events (authenticity, tradability) so that event organizers can capture a larger part of trading revenue over the marketplaces. The same thing will likely happen for gift cards, or coupons as the technology provides a more robust infrastructure for this type of product.
Trading and Composability in Gaming
Many games (especially MMOs, RPGs and MOBAs) have used in game items to increase the power of your in game character or as a medium of self expression. These items typically only have value in the games themselves and it’s not uncommon to see people trading high level accounts on eBay(with lots of loot). The issue with these items or in game currency is they only have economic value in the game and not outside the game.
Games powered NFTs can power composable Avatars where each individual object is an NFT that can be tradeable outside the game which makes the in-game items more valuable because they are liquid and have real world value. The same is true for earned in game currency.
There are also interesting projects like Loot which start off with the NFT or set of NFTs and encourage developers to build games or experiences with those items/NFTs. It’s a mental model that starts with the NFT v.s. starting with the experience which has never been done before.
Gaming is very likely to be significantly disrupted by crypto and will drive a lot of creativity especially on fast, cheap blockchains like Solana. Aurory is a RPG project that I hold and and am tracking closely. The hardest thing in gaming is making something super fun, so I hope many of these projects are not taking too much “game mechanic” risk to increase their chance of success.
Intersection of DeFi and NFTs
The intersection between DeFi and NFTs is also particularly compelling. There are a number of projects that allow for fractionalized NFTs which allows multiple people to bid and own an NFT. PartyBid and Fractional.Art and I’ve used both products (see CryptoPunk Zombie below). This also improves liquidity for NFTs because collectors can trade much smaller units of an NFT which increases the size of the addressable market.
High value NFTs will also be used as collateral for borrowing. Wealthy people who own physical art have been doing this for a long time, but this can now all happen in a decentralized environment in the future pending some regulatory hurdles.
It’s also going to be possible to rent NFTs (like folks do with Axies right now in Axie Inifity) when they have utility. This could be extended to club memberships, season tickets, home rentals etc so that owners can get more utility from these products.
I could even see a world where Gaming, DeFi and NFTs all collide and where resource production in game is functionally equivalent to yeild farming (gives users tradeable tokens) and in game assets are tradeable as NFTs but this is likely a while away. The 13 year old in me is thinking about a crypto native Command and Conquer Red Alert and getting pretty excited to play it 🙂
We are still in the early innings of both DeFi and NFTs powered by crypto. It’s easy to dismiss NFTs and the current expression of projects as “fads” but after digging a few layers deeper, it became more obvious to me that it is one of the most important innovations in crypto to drive more utility on chain.
Open source technology and infrastructure development is a very powerful way to make scalable software. Open source can also allow a more diverse community to build products that are flexible enough to solve for a broader set of use and edge cases.
Contrary to popular belief, many of these open source projects are developed in house at large technology companies (e.g. Google – Tensorflow, Angular, Android, Chromium; Facebook – React, PyTorch) and not all small independent groups collaborating on projects in the open (e.g. WordPress, Telegram).
In this post we talk about some of the advantages and issues of open source as well as some of the specific business models are built on open source projects.
Advantages & Issues
I spent a few years working on WordPress (at Automattic) and here were a few of the advantages and issues that I observed during my time there.
The biggest advantages of open source exist in leveraging the community for product development, hiring and product distribution.
Product Development: The community can act as a decentralized product management function and help with QA, Localization (language, local integrations), and support.
Long Tail: Open source allows users with very specific requirements or use cases to build these themselves which frees up the core development community to focus on the core use cases and platform. Anyone can add customizability and depth to the product.
Diversity: Open source allows for more geo, cultural and variety of use cases for the same product which ultimately makes the product better for a more diverse and global audience.
Hiring: For businesses that are built on top of open source technology, they can access a pool of talent already engaged in the project from the community — richer data on potential candidates and better hiring funnels.
Distribution: Open source projects are typically free to try which leads to more bottoms up adoption. A single developer can make a decision to use open source technology which then ultimately propagates across an organization vs. relying on top down decision making.
The advantages that come with having a strong community can also lead to drawbacks as well.
Community building: A core part of building open source products is building the community of users, developers and supporters of the project. Building community takes time and many open source projects take longer to get off the ground (when not incubated in larger companies with specific use cases) but are often more resilient at scale.
Bar for completeness: New features in open source projects often have a higher bar for shipping, and it’s harder to run fast experiments and iterate (with data/feedback etc) – localization and accessibility increase the amount of product an development work to ship even for experimental features.
Decision making: With a more decentralized product management function it’s harder for smaller groups to hold a vision of the product and make significant product evolutions without alienating members of the community. This often leads to slower iteration, but better adoption once the community embraces the changes.
Bigger pie, smaller share: When building an open source product you’re often expanding the size of the addressable market but only capturing a portion of that for yourself. Closed loop companies that own all their technology, data, and users can monetize those users more aggressively but also may lead to divergent interests to their community of users over time.
There are also a number of examples of both widely adopted open source software and successful business models and here are just a few companies who’ve built successful businesses with open source products.
There are a few high level categories of business models built on top of open source projects:
Hosting is one of the primary sources of revenue for many open source companies. Often, the creators of the technology have a brand halo effect around them can attract more users to their hosting service over others in the market.
Cloud hosting can make open source products easier to access over self hosting which requires more technical skill and investment. Hosting can include the following features (not a full list), which users are often willing to pay for:
Authentication to allow for secure signon
Permissions/Roles for access control
Encryption (especially important in specific industries)
Backups and changelogs (to recover previous versions)
Support and Consulting
Many successful open source projects have a rich community of freelancers, agencies and consulting services providers who are specialists in the technology and platform to help users most effectively leverage these tools. Open source projects are often more flexible but flexibility can come with complexity in set up and ongoing management, as the products are less streamlined for specific use cases. In the WordPress world there are many agencies that will help you set up and manage your site and provide ongoing site maintenance and support.
Even for do-it-yourself cloud hosted products like WordPress.com, support is an important part of the service that they provide and people are willing to pay a subscription fee for ongoing support for their site. WordPress.com has hundreds of support folks called “Happiness Engineers” to help users troubleshoot and perform light customization to their site.
Paid Extensions and Marketplace
Open source products often have an “open core” which has a base level of functionality that is immediately useful but for more complex use cases or advanced features users may have to pay for these as paid extensions. These extensions are often offered as in-house proprietary features to further differentiate the product (and the cloud hosted version paid tiers).
Some open source projects also have marketplaces where developers can build their own extensions for users. This marketplace can be free, but could also be monetized by the platform using revenue share or installation fees (much like Google/Apple do with their app stores).
Onboarding and Bundling
Finally, there are now more companies that are building streamlined products for more specific use cases powered by open source technology.
This could look like a full “bundle of products” tightly stitched together to solve a very specific use case (e.g. a site template for dental practices with all the right images, plugins, scheduling and payment systems with all the workflow and integrations totally templatized). This could also include very thoughtful onboarding flows, starter content and tutorials built on top of the open source technology.
Users are willing to pay for speed, ease of use and convenience of accessing their intended use cases right out of the box even if there is some sacrifice of flexibility to start faster.
Here are a couple of articles that I thought were thoughtfully put together on open source business models as well, in case you’d like to dig in further:
One of the movements I’m most excited about is decentralized finance. Here is the description is taken directly from the Investopedia article which sums it up nicely.
“Decentralized finance is a system by which financial products become available on a public decentralized blockchain network, making them open to anyone to use, rather than going through middlemen like banks or brokerages. Unlike a bank or brokerage account, a government-issued ID, Social Security number, or proof of address are not necessary to use DeFi.”
One of the better crypto funds I’ve come across, 1kx, estimates that 35% of the cost of the labor market is driven by establishing trust – legal, tax, accounting, auditing, KYC, etc. DeFi refers to a system by which software written on blockchains makes it possible for people who have no established relationship or confidence in each other collaborate without going through a middleman or central authority with a trustless transaction. It puts established centralized institutions such as banks, clearing houses or governments at risk and as such is one of the most disruptive ideas of our generation.
The blockchain is enabling a shift from the “internet of information” to the “internet of value” where information and value transfer can be written into the same protocol and the incentives of users and developers are more closely linked than ever before.
We are still in the early innings of decentralized finance; even though there is ~$75BN locked in the ecosystem, the global financial system is close to $100TN (1000x the size). DeFi only really saw the volume pick up a little over a year ago in May 2020 (the start of the “DeFi Summer”).
This evolution from traditional finance to decentralized finance is not going to be a smooth ride — the incumbents are centralized institutions like governments, banks that are deeply ingrained in our politics, economics, and culture. The disruption is all bottoms up and global by design and these central institutions are not going to embrace change or give up control quietly.
Traditional or Centralized vs. Decentralized Finance
Centralized (traditional) finance gives control to a small number of organizations (banks, governments, clearing houses) which users of those organizations are supposed to trust. In many developed markets we trust these central organizations but it’s not true in many emerging markets, with good reason.
Centralized finance excludes many people in the world. Almost 2BN people in the world don’t have access to the banking system and almost 40% of Americans under 25 are underbanked. These systems are built on outdated infrastructure and process which have very high fixed costs relative to decentralized finance and lack interoperability. Another thing that we cannot control as individuals is the leverage ratio of central banks, the supply of money (governments can print new USD causing inflation) and this gives us less control of our finances in the long term.
DeFi, has many structural advantages – better technology, faster, cheaper and no reliance or expense needed for central institutions which operate with much higher costs — physical locations, expensive employees and rigid systems.
For example, international wires using traditional rails can have multiple intermediary banks, complex processes, unpredictability of the final transfer amounts (FX and fees) long wait times, and high transaction cost. It’s expensive, slow, and feels awful compared to crypto rails. When you first send USDC to a friend in another country using their wallet address instantly, which is fully trackable and is a fraction of the cost it’s so obvious that the incumbent technology and process is broken.
Here is some high level data on two lending platforms on traditional vs. decentralized rails; Lending club (-60% margin) vs. Maker Dao (+99% margin) and decide which is a better business 🙂
Even though decentralized finance has many structural advantages and I’m very bullish on the bottoms up shift towards decentralized finance, the products and experience are still in their infancy and not appropriate for most people.
It is complicated to access, requires understanding of the underlying mechanisms (which are in turn, complicated) and you have almost no protection as a user. There is constant risk of getting hacked, logic bugs in Distributed Applications (DApps), rug pulls, user error and no FDIC insurance to save you if the sh*t hits the fan. If your wallet or the projects you’re investing in gets compromised you lose your money and there is no way to get it back. The tax code in the US also treats cryptocurrency like property which means that every time you swap currencies it’s a taxable event which is also no bueno for your taxes. The attitude of many enthusiasts in the ecosystem is one of “do your own research” not one of protection or support – proceed with caution even if you are curious.
If you’re interested in digging in further, here are a few articles that I think are worth checking out:
This month marks my 10th year of angel investing so I synthesized a few learnings as a complement to the more tactical “Angel Investing Learnings” post from last year.
This post is broken up into three parts; dissecting the why behind angel investing, understanding your asymmetric advantage and how to apply this advantage in the investing process.
Why Angel Invest?
I don’t think that you should angel invest if you care most about compounding capital — there are probably better ways to achieve this goal with lower time commitment. Angel investing has been one of the most fulfilling things I’ve done in my career, and has the following benefits many of which are not tangible or easy to measure:
Relationships: You will meet amazing people along the way; entrepreneurs, co-investors, and limited partners. Each of these connections has a chance of becoming a meaningful professional and personal relationship — collaborating with more people gives you the chance to both expand and deepen your network and relationships.
Learning: You will get an insider’s view into the positioning and evolution of a wider range of businesses that are successes and failures. You get to talk to founders making hard decisions and learn during the investing process and throughout years of partnership — this can help you become a better operator and / or investor through pattern recognition.
Paying it forward: You get the opportunity to support former colleagues, friends and folks earlier in their career or with less access to capital. It’s a wonderful way to leverage your own learnings, relationships and capital to help pay it forward.
Compounding capital: Your money will typically be tied up for a long period of time (illiquid) unless the company does well and has some sort of outcome (sale, IPO, secondary transaction). By definition this makes you a long only, value investor as you are forced to compound your capital without “messing with it” like you can with liquid investments especially as an angel.
If you’re going to make just a few investments then accept that you will likely lose it all, but if you are going to make 15+ investments then take a portfolio approach and expect at least one company to “return the fund”. Your choice here will depend on your personal situation and risk tolerance.
Angel investing is all about leveraging your asymmetric advantage — you need to know something that the market does not know better than the market in order to make good investments. I think of asymmetric advantage in three buckets:
People: You know the people involved in the business better than the market – for example you personally know the founders (ideally you’ve worked with them) and/or know some of the other co-investors well. If you’ve known and collaborated deeply with these folks then you have data that is hard for other investors to easily replicate. Abe Othman (AngelList) refers to these as “credible deals”.
Industry: You know the business model or the industry really well. If you’ve been an operator in the space you’ll have a good understanding of what it takes to build a successful business. I’ve made the mistake of knowing the pitfalls of an industry “too well” and not being able to see past these risks for some good investments that I’ve missed, but mostly more industry knowledge has served me well.
Market: You know the market/geography (e.g. I invest in Kenya because I grew up there) better than the other investors. If you understand cultural, economic and political nuance about investing in the market you will make better decisions. This is why many venture capital firms are “local”.
I’ll occasionally make small investments in companies where I have no asymmetric advantage but I try and make these as small as possible and with founders that I have a strong connection with and feel like I will learn from them throughout their journey.
Where can you leverage your advantage?
As an angel investor you should try to leverage any asymmetria advantage across the investing process, which I think of in the following buckets:
Seeing: If you have great deal flow and see a lot of quality companies through your personal brand, network, writings/media or your affiliations (e.g. where you work) it helps you pick from a larger sample set. Being in the “flow” of quality deals is very important to be a successful angel as you have more to pick from.
Picking: Picking is very hard and often separates the great angels from the good angels. This ultimately comes down to judgment, repetitions and a long time horizon built from successes/failures and great mentors. I still write memos (and post mortems) for every investment that I make, even if no one will ever read them but me as it helps me get better at picking.
Closing: Once you’ve picked a company to invest in, you need to “sell yourself” to get into the round which is now getting harder and harder for quality companies as more capital and angel investors flood the market. This is often a function of your connection with the founders, your personal brand or affiliations or very specific knowledge you can bring to the company.
Building: Once you’ve invested, how can you help the company? Are you an expert in a particular area, have specific biz dev or fundraising connections, or could you ultimately even join the company to help them scale? I’ve been most effective at helping build with very specific point in time asks such as specific intros or meeting a senior potential hire.
Angel investing is multifaceted craft that will likely take many lifetimes to master and involves a healthy dose of luck. I find it intellectually stimulating and personally fulfilling and I expect it will continue to be an important part of my life 🙂
I’m excited to bring my children up in a world where anyone can learn anything, anyone can invest in anything, where world class software/tools are free to use and customize, and where anyone can contribute to software development regardless of their physical location.
We have made progress on all these dimensions and we’ll see even more foundational progress over the next decade. I hope it will lead to a more open and connected world and empower more diverse groups of people to create amazing things together.
Caveat: To participate, people need access to an internet connected device, and this is still only <60% of people in the world. As internet becomes more widely available and the cost of devices and data goes down substantially, more people will have access to these opportunities and be included.
I hope that everyone will be able invest in anything.
New projects will have (near zero cost) legal entities automatically spun up in the background, regulations will allow all of us to invest in products with any amount of money and own equity (with drastically simplified legal agreements). These micro pieces of equity will be liquid and easily to other people and there will be clear, immutable record of all these transactions (probably powered by cryptocurrencies).
People of any age/location will be able to contribute to projects with their friends with both their time or capital. They will all be able to create and capture value without the need for angel investors or venture capitalists (who currently have to meet accredited investor standards). They will not be excluded from early stage investing. People in any country will be able to buy fractions of securities in any other country, diversifying their exposure (particularly important for emerging markets).
Syndicates (groups making an investment) are still really expensive and has high friction, despite the progress we’ve made. SPVs on AngelList cost about ~$10k to set up and run over their lifetime and so only make sense for investment rounds of a few hundred thousand dollars (which is a lot of money). Rolling funds can accept much smaller amounts of capital than traditional funds, but are still expensive to run and require capital scale to make sense.
Software will power the legal and financial framework for investing (combined withj adoption of cryptocurrency and smart contracts) and will be able to reduce the overall cost and hide the underlying complexity.
I hope that anyone will be able to learn anything.
Access to the highest quality teaching materials will no longer be locked in walled gardens and this content will be completely open. Many leading universities are already opening up much of their teaching content (e.g. Harvard, Stanford) and this is the mission statement of the Khan Academy which has helped people learn all over the world, for free.
Students will be able to learn (at their own pace) using whatever format works best for their preferred method of learning (e.g. watching videos, reading text, listening to audio). They will easily be able to then test their mastery with interactive problems and real world applications at no marginal cost. I, personally, learn better visually and orally and that is why I found lectures in college so useful (and why I watch a lot of YouTube videos).
Schools and higher education will need to adapt (culturally and practically) to asynchronous learning, and a more diverse mix of students in each class. One of the main benefits of school and college is the ‘cohorts’ of students who go through the shared experiences (much of which happens outside of the classroom) and I still think it’s important to try and create opportunities for young people to have shared experiences and work in groups.
I hope that higher education, in particular, will preserve the cohort and community aspect but there will be specific focus (v.s. community as a byproduct) on collaborating in groups, building lasting friendships, and creating stuff together.
I hope that anyone will be able to build anything (software) and getting started with the best tools in the world is free.
Open source is a very powerful movement and, at scale, encourages global collaboration and development so that software can easily modified to meet local expectations and standards. One of the best examples is WordPress, which powers 39% of the top 10 million websites in the world with tens of thousands of contributors working together asynchronously.
Software is now being developed in the cloud first and new projects are powered by more self serve SAAS tools than ever (Slack, Notion, Figma, Asana, GitHub). I hope that all of these tools start free to reduce the barrier to try out these tools, and also reduces the barrier for projects to start and for people to collaborate. It also puts more pressure on SAAS software developers to build quality products, have quality customer service and continue to improve their products over time.
In order to build a sustainable business SAAS companies will need to charge for features that become necessary when projects evolve into businesses that scale. This could include customer support, security, performance, connectivity with other applications, hosting and payments.
I also hope that more SAAS tools expose more of their information via API (in addition to building integrated solutions) and give project owners more ownership of their data own (so they don’t remain locked into these tools). This will also be better for the ecosystem as more tools will be able to talk to each other and less information will be lost across different tools which will improve the quality and efficiency of software development.
I hope that anyone can work from anywhere.
The Covid-19 Pandemic has catalyzed mass adoption of distributed work especially for technology companies. If companies can hire globally it significantly increases their accessible talent pool v.s. the constraint of hiring locally (along with many of other benefits). I’m a big fan of distributed work for software development, and write about it on my blog.
With more open work, people of all ages, races, nationalities will be able to collaborate on projects together, bringing more perspectives to the table. These products will end up being better suited for global audiences, as these perspectives and empathy will naturally make it into the product development process.
Workers will be more focused on collecting skills and knowledge vs. collecting brands. When we recruit now, we use proxies to infer skills or background; where we went to school, what companies we have worked at, or how we were brought up. This should evolve into showcasing our specific skills backed up by actual contributions to specific projects that roll up into a more accurate picture of our whole self. Companies will also become better at assessing skills, knowledge and experience over relying on brands as a proxy for the requirements for jobs to be done.
I’m excited raise my children in a more equitable world where less of their fate is decided at birth and I’m inspired and hopeful at the progress we are making globally.
We will see continued improvement in social and economic mobility, better products from more diverse people and more collaboration across groups with different ages, genders and countries.
There has been a movement towards decentralization of content creation in many industries (Youtube for video, WordPress for writing, Podcasting for radio). These creators and storytellers now have the tools to deliver high quality experiences (without massive budgets) and have access to distribution platforms to find and grow audiences, which was very hard to do in the past. I think there will be a movement towards the decentralization of game development next.
The power of games is in the mechanics, the stories and the world. Even for large game studios, the visionary is usually one or two people (also true for Pixar Movies – see Creativity Inc for more). However, most of the cost and the time for games is spent in the ‘production phase’ for AAA studios which means many independent game makers cannot compete with large franchises.
If small, independent teams had access to free/cheap and high quality game engines, reusable off the shelf content (entire rule based worlds + logic), asset libraries (textures, photogrammetry, user generated) and common game mechanic libraries (leaderboard, ELO) then their focus can be on the story, the world, the core gameplay.
Flexible, cross platform game engines like Unreal and Unity are not quite good enough yet to realize this vision although I think we will get there very soon. I spent some time in 2017 making a VR film entirely in Unity and was really impressed by the power and flexibility of the platform.
My mind was blown when I learned that The Mandalorian was made in a single room and all the worlds were created in Unreal and rendered in real time during filming on massive LED screens (short video below).
Game distribution platforms like Steam, Google and Apple App Stores (and communities like Discord) are going to become even more powerful and influential for creators to find players and engage with them (and each other). Franchises will still be very powerful, but independents will be able to access (niche) audiences much more easily than ever before. I think there will be a lot of pressure on app stores to reduce their take rate as 30% feels much too high. Epic and Unreal have the most developer friendly agreement I know (free to use and then 5% after $1M in sales)
I’m particularly excited for young people (even children) to be able to have access to the tools that will allow them to conceive, create and publish games the same way we publish a blog, podcast or youtube video today. Roblox is a great example of a game creation tool that embodies these principles (30M DAU, 7M Active Developers & $600M Revenue) and has exploded in popularity over the last few years, especially with young people. It still lacks the power of Unity and Lua is not that easy to learn for non-technical folks.
There is a lot of innovation on both creation and distribution that will continue to empower creators. Combined with the general trend in ‘no code development’, this will democratize game development which, I hope, will continue to become more mainstream. The game engines and distribution platforms are very well placed to both create and capture value over the next decade if they build for the long tail of creators.
Finally, more of our social lives are now lived online and combined with lasting effects of physical distancing (from Covid-19) this will accelerate the development of games where people can have meaningful, deeper interaction online. For example, I play Fortnite with my nephew in Paris (he’s 9), from America and it’s a really nice way for us to have fun together and hang out.
My family and friends live all over the world, and I’m rarely physically present with them. If we had more options to socialize over games (both simple as well as immersive) maybe even made by us together, that would be pretty dope.
Two of the most significant issues with private market investing are their inherent illiquidity and the unpredictable nature of exits. It means that you need to ‘invest and forget’ when investing in private markets, and is particularly true for angel investing. This problem also applies to equity based compensation for employees at startups, where employees are unable to realize value even when the business has increased in value.
I believed this problem will be solved over the next few years. There will be a number of new options for liquidity in the private markets and early stage investing is going to become even more attractive to even more people. I also think that the US government will make further relaxations to the accreditation rules that restrict investors from making certain investments based on their net worth or income (originally intended for their protection).
For late stage (pre-IPO) private companies there are a number of platforms (e.g. Forge, EquityZen) working on the liquidity problem, but very little is automated. Typically ‘blocks’ of equity become available either in secondary offerings (existing holders, like an early employee selling their stake) or when early investors have pro rata rights to a future fundraising round and can’t fill it themselves. I’ve used these platforms from a buyer’s perspective (and explored as a seller) and it’s all fairly manual right now, and the products are mostly a nice user interface. There are also more traditional alternatives like Setter Capital who don’t claim to be a technology platform.
In real estate, companies like Cadre are both providing access to large real estate projects to small investors (breaking up allocations into smaller chunks), and providing “windows” where investors on the platform can sell portions of their positions (every 6 months or so). This both increases the number of investors who can invest in the asset class (lower minimums) and improves the exit options for investors who would typically have to hold their equity position for 5-10 years.
In the future, I expect platforms like Carta and AngelList to lead the way in creating a true ‘marketplace’ for private securities. Carta just announced their new liquidity platform CartaX, a private stock exchange which is an awesome innovation launching in January 2021. It’s a natural extension of their business model, and I’m excited to try it out. Angellist will also continue to innovate, especially because of their SPV and fund offerings, as they hold a lot of private company stock (and have access to a lot of data).
There are some problems that need to be solved such as restrictions on employee stock, rights of first refusal and companies at the early stages desiring control of their cap table. I think these are all surmountable, and most of the trading will start with late stage private companies first, where these concerns are less relevant.
Overall, these developments make me even more excited to continue angel investing; as private company stock becomes more liquid, it’s value will increase (in addition to normal value creation through growth). Ultimately, it means that more investors will invest in private companies and they can have more of their capital ‘working’ (and need less of a cash buffer) because they know that there will be a liquid market in case they need the capital.
Covid-19 has led to significant changes in how we live, work, and interact with each other. In some cases, they have accelerated trends that were already in motion, and in other cases forced changes that we did not anticipate or expect.
In the next few years, I think we will go through a rapid pace of innovation and re-imagination powered by entrepreneurs, and here are a few trends I’m excited about and interested in exploring further.
The best summary I’ve read on the acceleration of distributed (not in person) work is this one from the CEO of Automattic, Matt Mullenweg where he talks about change happening slowly, and then all at once driven by this catalyst. Automattic has been fully distributed since its inception, and Matt has been a champion of distributed work for years and the benefits of accessing a global talent pool, and working asynchronously.
The #WorkFromAnywhere Podcast series led by the folks at Greylock is also excellent and CEOs of companies like Box, Quora, Okta, Figma and Zapier speak about their transition to working from anywhere.
I’m particular excited about the tooling that will be developed, both in terms of specific software as a service products to drive much better distributed collaboration, but also the underlying plumbing that ties all these tools together.
This also changes the nature of distribution/logistics and the entire supply chain. Companies like Shopify and Amazon have doubled their market cap (adding over $60BN, and $850BN (!!) of value respectively to shareholders since mid March 2020).
The nature of major cities and concentrated urban areas is going to evolve. I wrote about my thoughts on megacities recently here, and I also liked this piece from Fred Wilson about how a reset was much needed in NYC and how the city could evolve into something better. Many of my friends have ‘accelerated’ moving to their ideal living areas and and left places like NYC and London. My wife and I, having just had our first baby, are asking ourselves the same question – is it worth staying in NYC if we don’t intend to stay longer term? The pandemic has forced a conversation we likely would not have had for a few years.
Startups will create innovative tools, and platforms to help craftspeople to discover projects, collaborators and showcase their work (e.g. Contra). Much of the benefit that we get from a ‘normal job’ (e.g. competitive healthcare insurance plans, retirement accounts, etc) will also be available to creators through saas products.
As humans, we yearn to build new relationships and deepen relationships with folks that we already know. Traditionally we’ve built these relationships in person with repeated interactions and meaningful collaboration on projects. Being forced into lockdown has forced us to explore alternatives.
I’ve personally been experimenting with platforms like Enrich (curated network of similar executives), Fractal (1×1 matching with other product people), Village Global Events (with startup founders and investors), and am starting the On Deck Angel Fellowship soon. These are all digital communities with fairly niche audiences, which I think will become more common.
I’m hoping that these will lead to meaningful relationships and collaboration and also improve the chance for serendipity despite not being able to spend time with folks physically. I’m excited that these platforms could open up the possibility of meeting interesting people all over the world, and not just limited to my place of residence.
I’m not sure how this will play out with larger conferences, where most of the value is in relationship building and improving the probability of serendipitous connections often through extended hang out time (often over meals and drinks). I expect that recreating much of the value will be possible, but will require some first principles thinking.
In my own recent experience, I wrote about how the funeral for my grandfather was actually much more inclusive and rich because it was virtual and allowed for more people to attend that were close to him (like his sisters).
Folks who provide coaching, classes or specialized services are all going through a similar, accelerated transition.
Companies like Peloton have successfully taken spin classes and made them virtual, allowing both synchronous and asynchronous (on demand) classes with world class instructors. Each class can now be attended by step function more people which greatly improves the ROI for each class.
Experts providing specialized, personalized services like physiotherapy, child psychology, lactation consulting can all increase their addressable customer base and people who are in need of very specific services can access a larger pool of specialists which is better for both groups. They both need tools to make it easier to discover each other, and improve the experience of booking and transacting (e.g. Ribbon Experiences).
Digitial Payments and Services
Digital payments and digital services (e.g. digital hr, or payroll) to help businesses transact with their customers and run their teams will also see more new users, and increased adoption. I think these products will be ultimately sticky even after Covid-19 because they function better both in person and remotely, and allow for more flexible customer and employee interactions. In my personal investments in these areas I’ve seen increased volumes and good retention through the pandemic.
These are just a few areas where I’ve personally observed changes in my own life or with folks close to me, and I’m excited to learn more and closely track how these trends evolve.