Tremendous

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Business, Technology

Is Fathom the Future of Blockchain?

January 12, 2022 tremendousblog Leave a comment

I was blown away when I read how fast Solana can process transactions. But there’s a new kid on the block: Fathom.

Fathom is even faster than Solana on one important metric:

Solana averages 50,000 transactions per second, versus 14 per second on Ethereum. Fantom is not as fast as Solana, but it’s still way ahead of Ethereum; in a test run back in 2018, its blockchain processed 25,000 transactions per second. But Fantom has a pretty solid claim to being the fastest blockchain if you look at time to finality. This is arguably the most important statistic, as that’s the moment when a transaction has been fully validated on the chain. Fantom’s time to finality is about a second, versus 13 seconds on Solana and more than a minute on Ethereum.

To me, the metrics that matter are:

1) How long until my transaction is done?
2) How much does it cost?

Both Solana and Fathom are very cheap to run, and Fathom seems a little faster in finalizing transactions.

Both are light years ahead of Ethereum. I would expect to see Ethereum slowly fade unless there’s a major update to leapfrog the newer protocols.

Fathom is worth about $7 billion today. Could it one day be worth 100 times that, my bar for highly speculative investments?

I think it’s possible. Visa and Mastercard together are worth $830 billion. Add in American Express, and you’re at almost $1 trillion.

And that doesn’t cover banks that charge tons of wire fees. A protocol that could replace these high fees with near-zero ones could be worth $1 trillion or more.

The question is, which blockchain will dominate? I don’t know.

I would favor backing a lot of promising tokens early in the hope that one of them returns 100 or 1000 times one’s initial investment.

This is the same approach I take investing in startups. It can work well when there are numerous small, promising competitors and the likelihood of a winner-take-all outcome.

But buying all those tokens is a lot of work! An ideal investment vehicle would be an ETF that owns all the major coins (Bitcoin, Ethereum, Solana, etc.) and another that owns high speed smaller coins (Fathom, Near, etc.).

The SEC does not allow ETFs to directly hold cryptocurrency. Like so much of what the SEC does, this policy is counterproductive.

It should should approve crypto ETFs so that investors can spread their bets. If the government’s goal is protecting people’s savings, anything that aids diversification is a plus.

I’m excited to see what the future of finance will look like!

We may soon be living in a world where you can send anyone money in seconds for (almost) free. A world in which politicians can’t devalue your savings on a whim.

That’s a future worth building for!

A Day in the Life of an Angel Investor

January 11, 2022 tremendousblog Leave a comment

Not that kind of angel!

You’ve heard of angel investors and their big brothers, venture capitalists. But what does an angel investor actually do in a day?

I thought I’d break down my day today so you can see how the sausage is made:

1) Read deal memos in inbox. It could be as few as 2-4, or it could be as many as 12 or more.

Since I invest in seed stage startups, I generally look for some traction and a valuation of about $10-15 million. I like to see companies with 6 months of revenue, growing 20% or more month over month.

The traction and valuation criteria eliminate about 99% of startups right off the bat.

2) Send over a developer candidate to one of my companies. Looks like they like him!

Adding value through intros to possible employees and investors is a big part of an angel’s job. I try my darnedest to help the companies I’ve invested in.

I found this candidate via a Slack community for developers. Finding good developers who don’t already have a job is very difficult nowadays.

But I still try! One great engineer can make a huge difference to an early stage startup.

3) Answer LinkedIn messages. Usually the deal flow here isn’t great, but sometimes it can be excellent!

Don’t discount cold messages. Jason Calacanis found LeadIQ because the founder cold e-mailed him, and now the company is worth over $200 million!

4) Read about the industry as a whole. Every day, I try to learn more about technology investing as a whole, not just the companies that cross my desk.

Today I read about how founders can get investors to work for them. I also read about finding the sweet spot between valuation and traction, which will inform me as I read tomorrow’s deal memos!

5) Attend a Q&A w/ two expert angel investors tonight!

This afternoon @Jason and I will be taking your best questions on @TWiStartups Bring it…. https://t.co/msDmdenCES
— Zach Coelius (@zachcoelius) January 11, 2022

Being an angel investor is about continuous learning, first and foremost.

You learn about new companies every day and select that 1 in 100 (or more) you want to invest in. And you learn about technology and business in general, which makes you a better investor!

This constant opportunity to learn is one of the things I like best about angel investing. You see companies doing everything from 3D printing human tissue to revolutionizing e-commerce search.

There’s seldom a dull day!

What have you always wondered about angel investing? Let me know in the comments at the bottom!

Have a great day everyone!

Citadel Can’t Beat the S&P 500, Despite High Fees

January 10, 2022 tremendousblog 3 Comments

Citadel LLC trailed the S&P 500 in 2021, returning 26.3% to the market’s 29%.

Citadel charges as much as 5% or more of the fund’s assets every year, in addition to 20% of all gains. These fees are among the highest of any investment fund.

Why should investors pay such massive fees when the Vanguard S&P 500 Index Fund Admiral fund (which I own) charges a mere 0.04% of assets with no performance fee?

The only possible justification would be returns that are consistently far higher than the market’s. While Citadel’s Wellington fund has outperformed the market in some years, such as 2020, its performance is inconsistent.

Few hedge funds have consistently beat the market. Jim Simon’s Medallion fund has returned 39% a year net of fees annually since 1988, but is closed to new investors.

Perhaps this underperformance is why Citadel is trying to make it harder for investors to withdraw their money.

Unless a fund can consistently beat the market by a wide margin, high fees will make it a losing investment. Hedge funds sound mysterious and awesome, but you may do better with boring old Vanguard!

More on markets:

AMC Fails to Deliver Soar Past 400,000

How Solana Could Wipe Out Visa and MasterCard

Citadel Holding Nearly $500 Million in AMC Options

Photo: Citadel LLC CEO Kenneth Griffin

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Books, Life

How the Bulls Dominated the NBA

January 7, 2022 tremendousblog Leave a comment

Michael Jordan plays basketball better than anyone else in the world does anything else.
Scott Turow, quoted in Playing for Keeps: Michael Jordan and the World He Made

The Chicago Bulls dominated their league like no other team in no other sport during the 1990’s. They won 6 NBA championships, an astounding record.

I just finished reading the outstanding book Playing for Keeps: Michael Jordan and the World He Made. It’s an insightful look into what made Jordan and his Bulls so special.

Here are some of their secrets:

1) Hard work. Jordan came to practice before anyone and left last. This got him from being rejected for the high school varsity to dominating the pros.

2) Coachability. Anyone who coached Jordan, even in baseball, said he was unusually coachable. His willingness to learn from others, rather than think he knew everything, set him apart.

Consider that for a player of his stature, it would be easy to dismiss a coach’s suggestion! But he didn’t.

Even the quirky Dennis Rodman listened carefully to coach Phil Jackson’s lessons.

3) Love of the game. Both Jordan and Scottie Pippen stood out for truly loving basketball.

Jordan even had a highly unusual clause in his contract. He could stop at any basketball court in the world, any time, and play a pickup game.

And he did so, frequently! I like imagining Jordan pulling up at a playground in a fancy car, lacing up his sneakers, and heading out onto the court.

I just wouldn’t want to have to guard him!

This type of clause is highly unusual due to the risk of injury, but Jordan insisted on it.

It’s hard to work at something so intensely for so many years if you don’t love it! And that’s what it takes to excel.

4) Ability to see others strengths, not just their weaknesses.

Jackson was upset when Pippen refused to play at the end of the Eastern Conference Finals. But he didn’t let that incident sour him on Scottie as a player.

Instead, he viewed it in the context of all of Scottie’s great work over the years. Even the exacting Jordan became more aware of his teammates’ strengths over time.

This is an area I struggle with. If someone does one thing wrong, I tend to view them negatively, forgetting all their great work.

I plan to take a lesson from Coach Jackson on this in the future!

5) Never giving up. Jordan was famously cut by his high school team.

Rodman didn’t even make the team at all. And Pippen started college basketball at a no-name school as the team equipment manager.

These are not people you would think would’ve ever even made it to the NBA, much less won 6 championships.

Their perseverance made the difference!

Check out this excellent book along with the addictive Netflix series The Last Dance. Even if you’re not a basketball fan, you can learn a lot from the Bulls about excellence in any field!

This Week in the Venture Bubble

January 6, 2022 tremendousblog Leave a comment

Venture capital funding is growing at an incredible rate. The money pouring into early stage startups, my playground, has increased by billions of dollars per quarter just since 2020.

I see the perverse results of this cash flood every day. Here are a few, from just this week alone:

1) A company raising a seed round at a $125 million cap with no product in market.

2) An uncapped note. The ultimate schmuck investment vehicle…you don’t even know what you paid for your shares!

3) A restaurant raising venture capital.

Restaurants can’t scale like software businesses and are far less profitable. And food is not a winner take all market like many software products.

The standard VC playbook is losing money at first to dominate a market. Then, you make big profits later with your favorable unit economics.

That model doesn’t apply here.

3) A company raising a seed round at a $150 million valuation.

Some investors are now willing to invest in any business at any price. This may lead to more of the fourth thing I saw this week:

4) A company that had raised over $10 million in funding from blue chip VC’s recapitalized, completely wiping out prior investors.

Despite raising a boatload of funding, the company had never found product market fit and had very poor gross margins of about 25%. (A solid gross margin for a software business is more like 80%).

If we don’t want to lose our money like those unfortunate investors, we need some discipline. Here are my standards:

A) No $100 million seed rounds. Fred Wilson of Union Square Ventures proved this model cannot work.

B) No startups without a product in market unless it’s a very high profile founder. We’re taking sold her last company for $1 billion high profile.

C) No uncapped notes.

D) No low margin, old economy businesses masquerading as tech startups.

Who’s with me?

What are you seeing in the startup world? Let me know in the comments below.

AMC Fails to Deliver Are a Massive Outlier

January 4, 2022 tremendousblog Leave a comment

Fails to deliver in shares of AMC Entertainment Holdings, Inc. passed 400,000 in data just released by the SEC yesterday. But what does that actually mean?

To put the number in perspective, I pulled the fails to deliver for the 10 largest US companies by market capitalization. As you can see, at the end of the reporting period (December 14), AMC’s fails to deliver dwarf them all.

Combined.

Am I the only one who finds this a little odd? Why would this comparatively tiny company, at a $13 billion market cap, have more shares failing to clear than companies valued in the trillions?

If this high level of fails to deliver were unprecedented, I’d think nothing of it. But massive numbers of AMC shares failing to clear has been common for many months (see this, this and this).

Sometimes fails to deliver have a benign explanation, like clerical errors. But why would there be a colossal number of mistakes in AMC shares and not in Apple?

And why would that be repeated for much of 2021?

I suspect a more nefarious explanation: naked short selling. In this usually illegal trade, a trader sells short shares he does not own.

The shares are never delivered because they never existed. Meanwhile, the trader can push down the share price without limitation.

When will the SEC act on its own data?

There will be no blog tomorrow. I have an acting gig in the city! See you Thursday!

More on markets:

AMC Fails to Deliver Soar Past 400,000

How Elrond Could Take Over Payments Worldwide

AMC Blows Up Hedge Fund with Sordid Past

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Business

AMC Fails to Deliver Soar Past 400,000

January 3, 2022 tremendousblog 5 Comments

They’re baaaack.

After bouncing around at mostly low levels in November, December saw AMC Entertainment Holdings, Inc. fails to deliver soar to over 400,000.

AMC registered 405,523 shares as failed to deliver as of December 14th, the last day in the data set just released by the SEC. This represents a nearly 70-fold increase from the last reporting period.

Shares fail to deliver when a trade is not closed out properly. This can happen for benign reasons, like administrative errors.

But when there is a persistent pattern of high fails to deliver, as we saw through much of 2021, they can be a sign of something more nefarious. Naked short selling, or selling short shares one does not own, can cause huge fails to deliver.

The shares are never delivered because they never existed in the first place! This illegal trade is a powerful way to push down a stock’s price.

Sure enough, as fails to deliver mounted in the first half of December, we see a steady decline in AMC’s share price. Shares fell 14% in less than 2 weeks.

AMC’s fails to deliver are completely out of line compared to other stocks. Much larger companies like Amazon (43), Apple (36,407) and Microsoft (0) had only a tiny fraction as many fails to deliver at the end of the reporting period.

Maybe nothing inappropriate is happening here. But I’d like to see the SEC investigate it and find out, rather than just releasing the same shocking data month after month with a shrug.

More on markets:

AMC, GameStop Volumes Plummet as Investors Move to Computershare

How Solana Could Wipe Out Visa and MasterCard

Citadel Holding Nearly $500 Million in AMC Options

If you found this post interesting, please share it on Twitter/Facebook/etc. using the buttons at the bottom of the page. This helps more people find the blog!

Save Money on Stuff I Use:

You already shop on Amazon. Why not save $100?

Best of all: No fee!

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.