Tremendous

An angel investor's take on life and business

  • Why I Invest in Startups

    I didn’t need the money when I started this job. So why do I invest in startups?

    For the last 2.5 years, I’ve spent my days meeting founders and investing in early stage tech startups. Any payday is ten years away — but the fun of angel investing goes way beyond money.

    The Most Optimistic People in the World

    At dinner with a bunch of friends recently, someone mentioned how bad many US schools are.

    I threw out one idea after another to improve them. “Could students learn online from the best teacher in the world? What about vouchers?”

    One after another, everyone said “That’ll never happen” or “It’ll never work.”

    I sat there, puzzled. Then I realized the difference between folks in startupland and the normies.

    We try new things. And if it doesn’t work, we try something else!

    Normal people aren’t used to thinking this way. And when we encounter the normies, they feel like an alien species.

    Angel investors spend every day surrounded by the most optimistic, hard working people in the world. It’s a real privilege.

    Wanna See the Future Before Anyone Else?

    Not long ago, a founder pitched me on something really amazing: sustainable biofuels for rockets.

    You can’t write this guy off as a crank. He had worked at SpaceX and Lockheed Martin and held multiple degrees in engineering.

    Since I don’t know anything about rockets, I didn’t invest. But darn if it wasn’t interesting.

    If the general public ever finds out about cool tech like this, it will be years from now. But when a founder creates something amazing, we investors are some of the first people in the world to know.

    The New Needs Friends

    This summer, I met an awesome young founder in London who needed some advice on sales and fundraising. His product was awesome: a cutting edge data analytics tool.

    I introduced him to a founder I backed in 2021 who has sold several companies and raised millions in venture capital. They had a great chat and I think the new founder learned a lot.

    As investor Jason Calacanis put it, “The new needs friends.”

    When you create something new, it’s hard to get anyone to care about it. And it’s hard to know how to make it a success.

    If I can be that friend that helps bring something new into the world, that makes me really happy.

    And Yeah, Money’s Nice!

    The truth is, you can make millions investing in startups. Many millions.

    And I fully intend to do so.

    Who wouldn’t want to have more money? Also, returns is how you measure success as an investor.

    But that big payday is elusive. An IPO could be 10 years off, if ever.

    So I make sure to enjoy the day to day. See an amazing new product. Help a founder who’s struggling.

    If you’re thinking of investing in startups, find some non-financial motivations. They keep you going!

    Wrap-Up

    Above all, I’m curious.

    Angel investing may be the best way there is to satisfy curiosity. Your entire life is about the new.

    And not only do you get to see it before anyone else, you can help shape it — and even profit from it!

    I can’t think of anything else I’d rather do.

    Do you invest in startups? Why or why not?

    Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on tech:

    How I Double Down for Better Returns

    The Minimum Viable Fund 

    How Product Velocity Can Make You a Unicorn

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Border Security For Less Than a Billion Dollars

    Illegal crossings at the southern border are the highest ever recorded. Even President Biden is planning to build a wall. But what if we could solve the problem for less than a billion dollars?

    That just might be possible by using a new technology called Integrated Fixed Towers from Elbit Systems.

    A New Way to Secure the Border

    These towers are loaded with cameras and sensors. They have night vision, thermal sensors, and even radar.

    Each tower can see up to 7.5 miles. And they only cost $2.6 million a piece.

    In a scenario that seems to be getting worse by the minute, surveillance towers are a fast solution. The mobile version, mounted on a truck, can be deployed in under 4 minutes.

    Towers vs. The Wall

    Surveillance towers could protect the border much more quickly and cheaply than a wall.

    Nearly seven years since President Trump was inaugurated, just a few hundred miles of the wall have been built. The cost: $20 million a mile.

    If we finished the wall, that cost would balloon to around $40 billion and could take years. But a network of surveillance towers would cost just $670 million and could be up and running much faster.

    Surveillance towers aren’t just quick and cheap — they provide valuable information a wall does not. A wall won’t tell you who is where, or give you an idea of whether they’re drug traffickers or just desperate refugees.

    With ropes and ladders, migrants can easily breach a wall. But there’s no good way to evade the combination of night vision, thermal sensors, and radar.

    What Kind of Border Do We Want?

    A border bristling with cameras trying to keep the poor and desperate out of our obscenely rich country concerns me. But having security doesn’t mean we can’t let people in.

    I favor letting in any law abiding person willing to work. We have a huge labor shortage and low fertility rate.

    We need more people — and here they are, at the perfect time.

    But we also need to keep criminals and drug traffickers out. And if we have no idea who’s crossing our border, we can’t do that.

    Wrap-Up

    We should put surveillance towers on the entire southern border tomorrow. We can do that for the cost of just 35 miles of wall.

    At that price, we’d be fools not to try it.

    Even if a wall is better, surveillance towers could be a good stopgap until the wall is finished.

    We can be compassionate and secure at the same time. And we may be able to do it faster, cheaper and better than we ever thought possible.

    Should we use surveillance towers? Why or why not?

    Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on tech:

    AI Compute Cost Is Going to Zero

    New York Just Behind SF for Venture Deals

    How General Magic Invented the iPhone — in 1994

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • The Minimum Viable Fund 

    If you’re starting a venture fund, you want to raise as much as you can, right? Not according to Founders Fund’s Brian Singerman.

    “Raise as small of a fund as you can in order to just crush it, because then you can write your ticket for a number of funds. It is much harder to get returns on larger funds than it is on smaller funds. It just is.”

    Brian Singerman

    Once a manager has great returns on that small first fund, subsequent funds become a lot easier to raise. And thus begins the flywheel…

    Small Funds Outperform

    Brian’s contention that it’s easier to get huge returns on a small fund is backed by data. Pitchbook has found that funds below $250 million outperform larger ones.

    This isn’t hard to understand. Even if everything goes right, most startups won’t be worth more than a couple billion dollars at IPO.

    For a small fund, even a thin slice of that means a huge return. But big funds need giant, decacorn exits — and those are rare, especially these days!

    The Minimum Viable Fund

    Let’s say I wanted to raise my first venture fund. What would be the best way to do it?

    I generally invest at pre-seed and seed. At those stages, most startups take checks of $25,000 or lower for direct investments.

    So the minimum viable check size is $25,000. If I wanted to make 36 investments over 3-4 years, a reasonable pace, that adds up to $900,000.

    I like to keep half my capital in reserve so I can pour it into my winners. After years of working with a company, I have a much better idea if it will succeed, and I want to act on that conviction.

    So let’s write that $900,000 up to an even $2 million. That would be my minimum viable fund.

    A Nimble Fund Slides Into Deals

    One of the most common questions from LP’s is “How will you win allocation in competitive deals?” For the minimum viable fund, the question is largely moot.

    Seed and pre-seed are not very competitive, especially if you’re not leading the round. If the founder likes you and you’re at all helpful, there’s almost always room for another $25,000.

    The same is true for sums up to about $250,000, which would imply a $20 million fund given my model.

    The ability to get into most any deal is very valuable. A venture round only has one or perhaps two leads, but smaller investors have greater flexibility.

    Easy to Raise

    Needless to say, it’s a heckuva lot easier to raise $2 million than $20 or $50 million. I could even provide a lot of the capital myself.

    First funds are the hardest to raise. Anything that makes that process easier is a good idea.

    As I stack up returns, subsequent funds could be larger.

    Does It Work Operationally?

    The legal costs to set up a fund run from $30,000 to $200,000 in most cases. Even a teeny tiny $2 million fund should cover that easily, producing $400,000 in management fees over its lifetime.

    What a tiny fund doesn’t allow you to do is take a salary or hire anyone. But I’m fortunate enough not to need a salary, and AI means much less need for researchers.

    A microfund won’t be flush in fees like the big boys, but there should be more than enough to keep the lights on.

    And if I crush it and 5x the fund, for example, I’d rake in $1.6 million in performance fees — hardly insignificant.

    Wrap-Up

    For any new manager, raising the first fund is the hardest. We make it even harder on ourselves by thinking we need a big fund to compete.

    But you’re actually more competitive with the minimum viable fund. It’s easier to raise, easier to deploy into great companies, and easier to get whopper returns.

    I don’t know if I’ll ever start a fund. It’s an intense, 10 year commitment to founders and investors.

    What’s more, I want to produce at least one unicorn before I ask other people for money. I wouldn’t invest in a manager without a track record — so why should they?

    But if I do start one, don’t expect to see some $100 million colossus. I’ll be keeping it lean and mean.

    What do you think is better, a small fund or a big one? Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on tech:

    How I Double Down for Better Returns

    How Product Velocity Can Make You a Unicorn

    Meet My Latest Investment: Argyle

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • How I Double Down for Better Returns

    Two and a half years into my angel investing experiment, some of my companies are doing great, and others are struggling. But I have a trick that gooses my returns, big time.

    Big Bucks, No Whammies!

    I’m a true believer in every company I invest in. At the moment I back a founder, I think she’s going to take over the world.

    So I make the same first investment in every company. At that early stage, I don’t yet know who the winners will be.

    But a year or two later, winners begin to emerge.

    By that time, many companies try to raise follow-on funding. Some are crushing it, while others are floundering.

    When that next fundraise comes, I have a big decision to make.

    What It Takes to Get Another Check

    I always want to concentrate capital in my best companies. And after two years of reading monthly updates and working with the founder, I have a pretty good idea which companies are out front.

    When I see a startup tripling revenue year over year with reasonable burn, I want to re-invest. That’s typically 20-30% of my portfolio.

    Not many startups can triple revenue in a year. Those that do represent an elite — companies with a huge market who know how to conquer it.

    The Surprising Effects of Doubling Down

    I re-invest up to about 5x my first check. I usually put this into the Seed Extension or Series A. Those are the next rounds of funding after my investment, which usually comes at Seed.

    Going “super pro rata” has an amazing effect on your portfolio.

    My first investments were all about the same size. But soon, just a few companies represent a huge slice of the total.

    My most successful startup is a great SaaS company I backed in 2021. Between my re-investment and some modest markups, that company is now 17% of my portfolio.

    Compare that to a struggling company I also invested in during 2021. Today, that company represents just 1.5% of my portfolio.

    My position in the winning company is more than 11 times larger, even though they started out the same size!

    Hard Conversations

    Behind all this math are some really hard conversations.

    Great founders who are working super hard come to me regularly, asking for more money. I have to tell them no.

    Some are about to lose their companies. They face slim chances pitching new investors.

    And nonetheless, I have to turn them away.

    The hard truth is that this is a business. There is no substitute for performance.

    However, founders turn around struggling companies every day! And if that happens, I’d be delighted to re-invest.

    Wrap-Up

    In venture capital, a tiny share of startups produce almost all the returns. Our only job is to own as much as we can of those companies.

    That’s why I double down on my winners. Those are the companies that can put the money to its best use — and it’s my job to get it to them.

    Do you re-invest in your winners? Why or why not?

    Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on tech:

    How Product Velocity Can Make You a Unicorn

    For Venture Funds, Small Is Beautiful

    New York Just Behind SF for Venture Deals

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • How Product Velocity Can Make You a Unicorn

    I had never seen a startup ship this fast. Almost every day, these guys were releasing a new feature. Now, their hard work was beginning to pay off…

    Product Velocity in Action

    This summer, I invested in a company called Micro1. They connect companies with top engineers using AI.

    Founder Ali Ansari and his team ship new features faster than anyone else I’ve ever seen. One of the latest: GPT vetting, or the ability to evaluate job candidates using AI.

    One awesome new feature after another has delighted Micro1’s customers. And it didn’t take long for the team’s hard work to pay off.

    Hard Work Pays Off

    Ali decided to start building in public recently. So I can share what I already knew from the company’s confidential update: Micro1’s revenue is going through the roof:

    When I invested this summer, those April numbers were the last ones I had to go on. In just 4 months since, they’ve doubled revenue.

    I’ve never seen that happen in my portfolio of 26 companies.

    But it’s not just customers who are recognizing their hard work. Shortly after I invested, Micro1 got a new term sheet at a much higher valuation.

    The faster you move, the further you go.

    What Happens When Startups Don’t Move Fast

    At some of my portfolio companies that are struggling, you see a very different picture.

    They take a long time to ship even a simple feature. That means they don’t have enough shots at finding a product that customers love.

    The company languishes, unable to find product-market fit.

    What Gives a Startup Product Velocity?

    What determines product velocity? From what I’ve seen, it comes down to two things: technical teams working like crazy.

    Micro1’s team is largely builders. And they work insane hours.

    People who can build software working late nights means lots of stuff gets built. That’s product velocity.

    That’s why I invest in builders. They can get the job done themselves, instead of relying on others.

    As an investor, product velocity isn’t hard to spot.

    When I meet a founder for the second time, I ask what’s changed in the product. If there are no changes or only minor ones, that’s a bad sign.

    You can even look at app updates in the App Store to see for yourself how often a product is updated. Daily or weekly is good. Less than that is a red flag.

    Wrap-Up

    Every startup faces the same problem: how do we build something people care about?

    It takes countless iterations to find a winning formula. The more shots on goal you can take before your cash runs out, the better.

    That’s why you have to move fast.

    Fast moving companies win. The rest die.

    If you’re an investor, look for builder founders who ship fast. If you’re a founder, learn to code and ship like crazy.

    What startups do you know that are moving fast? Leave a comment and let us know!

    Have a great weekend, everyone!

    If you enjoyed this post, subscribe for more like this!

    More on tech:

    For Venture Funds, Small Is Beautiful

    New York Just Behind SF for Venture Deals

    AI Compute Cost Is Going to Zero

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Distressed Commercial Real Estate Hits Highest Level in Ten Years

    As skyscrapers stand empty, a crisis is brewing in commercial real estate. The amount of distressed CRE hit the highest level in 10 years, according to a new report from Bloomberg.

    The value of distressed US commercial real estate neared $80 billion in the third quarter, its highest level in a decade, as rising interest rates and sagging office demand shook the property market.

    The value of buildings in bankruptcy, repossessed by lenders or in the process of liquidation increased by a net $5.6 billion in the quarter, MSCI Real Assets reported. Office properties accounted for 41% of the $79.7 billion total.

    Landlords In a Tough Spot

    As work from home continues, many office buildings are empty. Since commercial real estate loans are usually for 5 to 20 years, as opposed to 30 years in residential, many of those loans will come due in the next few years.

    The interest rate on any new loan will be much higher than the old one. Can a landlord afford those much higher payments, especially with half his building empty?

    And if you’re a lender, why would you even make this loan? A landlord with a half empty office tower and declining rent roll isn’t a good risk.

    Even if a landlord wants to give up and sell, buyers are hard to find. A friend of mine who’s a commercial real estate broker in New York City tells me there are no buyers for empty office space, at any price.

    With rents declining, buyers few and credit tightening, I expect to see many landlords hand the keys back to the bank.

    Return to Office? I Don’t Think So.

    There’s one thing that could bail out landlords — a return to the office. But although many companies are trying to get employees back in their cubicles, they haven’t had much luck.

    Work from home rates have declined nationally. But that decline is concentrated in more rural states with few white collar jobs.

    In the major markets, remote work still rules. Again from Bloomberg:

    Average office attendance across ten big US cities remains about 50% of pre-pandemic levels, according to security firm Kastle Systems International LLC, no higher than where it was early in 2023.

    My friends in New York tend to work remote about 40% of the time. If only half the company is there on any given day, office space is an easy item to cut.

    What Happens to Those Empty Office Towers?

    “Everyone I know is starting a distressed fund,” my broker friend told me recently. Clearly there are buyers for these empty office towers, even if landlords won’t like the price.

    As banks repossess empty buildings, they’ll be itching to get them off their books. And if the price is low enough, a conversion to residential can make sense.

    These conversions are very expensive. You need to re-do the entire floor plan, add lots of plumbing, and more.

    But if you can buy the building cheap enough, you can make the numbers work. And unlike offices, the demand for housing is red hot.

    Wrap-Up

    Having everyone in New York City converge on a single point at 9am every day is insane. And after the invention of the internet, it no longer made sense.

    And yet we did it, every day!

    It took a major shakeup to finally get us to take advantage of existing technology. And now that workers have gotten used to a 30 second commute and Zooms in their sweats, they’re not going back.

    I’d like to see these office buildings plummet in price and get converted to housing. Many are in prime locations where people would love to live.

    If we get rid of hellish commutes and add reasonably priced housing, that’s a win-win.

    What do you think the future holds for commercial real estate? Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on markets:

    Office Towers: The New Dead Malls?

    Empty Offices Hurting NYC Budget

    Is Adam Neumann Coming Back to WeWork?

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

  • Carl Icahn Loses $740 Million on Bet Against Malls

    It should’ve been the trade of a lifetime. Instead, Carl Icahn’s bet against shopping malls has cost him $742 million — and counting.

    The Big Short 2.0

    Reporters called it the Big Short 2.0. In 2019, the hedge fund billionaire placed a massive bet that the growth of e-commerce would push malls into bankruptcy.

    Icahn bought over $600 million of credit default swaps on mall debt in 2019. These derivatives would pay off handsomely if the malls defaulted.

    At first, he saw big gains. Sure he had struck paydirt, Icahn doubled down, increasing his bets to a staggering $2.1 billion by 2020.

    Now, those bets are going bad.

    Massive Losses

    Icahn lost $742 million on his mall bet in 2022, according to The Wall Street Journal, with further losses coming this year. In total, Icahn could lose billions.

    Malls have performed poorly since 2019, as he predicted. But the malls he bet against just managed to skirt total default, meaning his trades went sour.

    Icahn is not the first hedge fund manager to be burned by betting against retail.

    Gabe Plotkin of Melvin Capital and Glen Kacher of Light Street Capital lost billions betting against GameStop. Other funds have lost substantial sums shorting AMC Theaters.

    We’ve all predicted the demise of brick and mortar retail for years. And yet, it persists.

    A Failure of Risk Management

    Icahn’s mistake was not taking some profits off the table in 2019 and 2020, when his trades were making millions. Once I see big gains, I always want to lock in some profits.

    When I invest in a startup, for example, I want to sell 10-20% of my shares once I’ve made a return of 50-100x. The expected returns in a swap are lower, but trimming your winners is still the right move.

    Another Hole in Icahn’s Sinking Ship

    Icahn and his company, Icahn Enterprises (IEP), have lost billions this year. IEP stock is down 65% year to date.

    Worse yet, the SEC and DOJ are probing IEP. If they find wrongdoing, I expect the stock to fall much further.

    Much of Icahn’s personal net worth is tied up in IEP stock. He even carries substantial loans on his IEP holdings, raising the risk of ruin.

    If you’re Icahn, now is not the time for big bets. Now is the time to retreat, regroup, and live to fight another day.

    Wrap-Up

    The problem with bears like Icahn and Plotkin is they’re swimming against the tide.

    America grows almost every year. Businesses produce record profits, and stocks go up.

    When you’re betting the opposite way, it’s awfully hard to make money.

    “…I have yet to see a time when it made sense to make a long-term bet against America.”

    Warren Buffett

    What do you think the future holds for Icahn? Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on markets:

    Carl Icahn Loses $1.7 Billion in a Day

    Pelham Capital: A Hedge Fund in Crisis

    Citadel Alums Take $300 Million Loss

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

  • For Venture Funds, Small Is Beautiful

    Startupland is all about getting big, fast. But for venture funds, smaller is better.

    Funds below $250 million have outperformed larger funds significantly in recent years. Smaller funds delivered comparable or better performance in most periods, according to Pitchbook data going back to 2017.

    Twilight of the Megafunds?

    The boom years saw the birth of one megafund after another. A16z even raised a $4.5 billion crypto fund in early 2022, just as crypto markets were falling apart.

    Today, we’re 8 quarters into a severe downturn in tech. If companies can raise money at all, it’s usually a lot less.

    Deal sizes are down significantly, with late stage deal sizes falling nearly 40%.

    Fewer, smaller deals mean those giant funds lack opportunities. When deal sizes are small, what do you do with billions in capital?

    Founders Fund wisely cut its fund size by half, from $1.8 billion to $900 million. Others should follow suit if they want to preserve their returns.

    Do VC’s Care About Returns?

    But returns aren’t really the goal for a lot of big VC’s.

    Venture funds generally get a 2% management fee every year, no matter what. Good performance or bad, that money rolls in.

    On a small fund, it’s barely enough to keep the lights on. But on a $4.5 billion colossus, that’s $90 million a year hitting your account no matter what.

    Let’s say you 2x that fund. That’s a rotten return for LP’s, but the fees are juicy.

    At the typical 20% carry, you clear $900 million in performance fees and another $900 million in management fees over 10 years. That’s a whopping $1.8 billion in fees for a crappy result.

    Misaligned Incentives

    Let’s compare that with a smaller fund.

    If I started a $1 billion fund and 3x-ed it, a solid return for LP’s*, I’d see $400 million in performance fees. I’d also rake in a tidy $200 million in management fees, bringing me up to $600 million.

    I performed great! But I actually made over a billion dollars less than the guy who just hoarded capital.

    The incentives for LP’s and GP’s** are not aligned. The LP wants good returns, but the GP just wants more assets under management.

    No wonder we’ve seen so many big funds in recent years!

    Picking a Venture Fund

    If I go to a car dealership, the salesman’s job is to sell me the most expensive car possible. He doesn’t care about selling me the right car for me, or finding me a deal.

    I can still do business with him, but I have to know his incentives.

    In venture capital, the GP’s incentive is to hoover up as much money as possible and sit on it. Especially at a big name fund, he has no reason to care about returns.

    Look for managers running smaller funds with a strong track record of returns. A good VC should produce at least 15% a year — the minimum you should accept for so much illiquidity and risk.

    Wrap-Up

    In our country, we want everything to be big. But sometimes, small is beautiful.

    I hope to see more small, nimble venture funds out there racking up great returns for LP’s.

    What do you think of VC performance? Leave a comment and let us know!

    If you enjoyed this post, subscribe for more like this!

    More on tech:

    New York Just Behind SF for Venture Deals

    AI Compute Cost Is Going to Zero

    Early Stage NYC Startups Struggle Through Venture Downturn

    *LP stands for Limited Partner. They’re the investors who put capital into the venture fund. They’re usually endowments, pensions, other institutions, and wealthy individuals.

    **GP stands for General Partner. These are the people who run the fund, invest in startups, and take the fees.

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  • New York Just Behind SF for Venture Deals

    New York pulled neck and neck with the Bay Area as a startup hub in Q3. The Big Apple inked venture deals at a blistering pace, closing 403 to the Bay Area’s 515, according to a new report from Pitchbook.

    The Beast from the East

    Before COVID, running a startup meant going to SF. Today, startupland is increasingly bicoastal, with SF and NYC the twin capitals.

    The Bay did shoot in the lights out in one area, however: total capital raised. Bay startups pulled in $12.7 billion in Q3, compared to just $3.6 billion for New York.

    New York’s startup scene is newer, so it makes sense that fewer dollars were raised. Early stage companies raise single digit millions while late stage startups can raise billions at a time.

    As NYC startups mature, you’ll start to see those Silicon Valley-style megarounds here as well.

    What I’m Seeing in the Big Apple

    The New York startup scene feels more alive than ever to me.

    Events are happening every night of the week. Founders I’ve known on Twitter have a funny way of moving here.

    Founders and investors that don’t live in NYC stop in frequently. And when they’re not here, there’s a pretty good chance they’re in Silicon Valley.

    Some founders and investors are finding NYC more appealing than the Bay these days. For all its problems, New York is safer than SF with a richer cultural scene.

    NYC Is Producing Top Talent

    Traditionally, Silicon Valley’s universities provided a better pipeline for tech startups than New York’s. But NYU is producing some great founders, and Cornell Tech on Roosevelt Island is cranking out top tier engineering talent.

    This environment is launching some great startups. In the last year, I’ve invested in as many companies in NYC as I have in the Bay — something I never thought would happen.

    Wrap-Up

    Ten years from now, I think SF and NYC will be roughly equal as startup hubs.

    Founders will ping between them raising money. Investors will rack up frequent flier miles hitting the other coast to see what’s new.

    What do you think of the New York startup scene today? Leave a comment and let us know!

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    More on tech:

    Early Stage NYC Startups Struggle Through Venture Downturn

    AI Compute Cost Is Going to Zero

    Where’s the Money? — Venture Funding Slips Again in Q3

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • AI Compute Cost Is Going to Zero

    AI is incredible, but expensive — the chips cost $30,000 and require tons of energy. But AI may be about to get 100X cheaper.

    Cheaper, Faster, Better

    A research team at Northwestern University was able to perform complex AI tasks with 100 times less energy than current AI models. From the report:

    Northwestern University engineers have developed a new nanoelectronic device that can perform accurate machine-learning classification tasks in the most energy-efficient manner yet. Using 100-fold less energy than current technologies, the device can crunch large amounts of data and perform artificial intelligence (AI) tasks in real time without beaming data to the cloud for analysis.

    Mastering a Critical Dataset

    The team tested it on ECG data, with incredible results:

    To test the concept, engineers used the device to classify large amounts of information from publicly available electrocardiogram (ECG) datasets. Not only could the device efficiently and correctly identify an irregular heartbeat, it also was able to determine the arrhythmia subtype from among six different categories with near 95% accuracy.

    The nanoelectronic device was able to identify accurately each arrhythmia type out of 10,000 ECG samples. By bypassing the need to send data to the cloud, the device not only saves critical time for a patient but also protects privacy.

    So, How Does It Work?

    The Northwestern team was able to do this using much less energy by using fewer transistors:

    For current silicon-based technologies to categorize data from large sets like ECGs, it takes more than 100 transistors — each requiring its own energy to run. But Northwestern’s nanoelectronic device can perform the same machine-learning classification with just two devices. By reducing the number of devices, the researchers drastically reduced power consumption and developed a much smaller device that can be integrated into a standard wearable gadget.

    Running AI models on huge data sets with basic chips and minimal energy saves a fortune.

    No $30,000 chip to buy (if you can find one). No gigawatts of power to pay for.

    What Happens When AI Costs Fall 99%?

    If you make any product cheaper, people demand more of it. So what would a world with cheap, ubiquitous AI look like?

    AI products could scale to millions of users without charging anything. Only the largest companies can do this today because the compute is so expensive.

    AI tools might start to look more like consumer software: widely used, free, ad supported, and incredibly lucrative.

    We could see more specialized LLM’s for specific tasks. These models may address the needs of certain industries better than ChatGPT or Bard do today.

    Not having to find and pay for H100’s also means anyone with the skills can spin up an LLM.

    With cheap AI, the developing world can get in on the game. Today, it’s not easy for a company in Botswana to pay that hefty Azure bill.

    But if they could run a sophisticated AI model on a laptop, the company in the developing country can compete with the biggest in the world.

    Wrap-Up

    AI is improving productivity by the day. If it gets much cheaper, and sees much broader use, productivity will skyrocket.

    That makes everyone’s life better.

    Do you think this discovery will change computing? Leave a comment and let us know!

    Have a great weekend, everyone!

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    More on tech:

    Early Stage NYC Startups Struggle Through Venture Downturn

    Where’s the Money? — Venture Funding Slips Again in Q3

    How I Became an Angel and More with PIN

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order.