Light Street Capital Management’s hedge fund tumbled 54% in 2022, according to a person familiar with the matter, one of the industry’s worst performances last year.
That drop rivals the 56% decline for Tiger Global Management, and is steeper than Lone Pine Capital’s 36% loss and Whale Rock Capital Management’s 45% slide.
Light Street was the classic crossover hedge fund. It made big bets on technology companies, both public and private.
Many of those bets were at eyewatering valuations. Tech was crushed in 2022, pushing many such funds to the brink.
What strikes me is how simple Light Street’s strategy was. Its biggest holdings were a who’s who of growth stocks:
Anyone could’ve bought Tesla and hoped for the best. Why should investors pay Light Street 2% of assets and 20% of gains to do what they could do themselves?
Light Street’s 54% loss is abysmal even compared to benchmarks. The S&P 500 lost 18% last year, while the NASDAQ lost 33%.
Investors could’ve bought index funds and avoided hundreds of millions in losses, not to mention outrageous fees.
Today, Google is the king of search. But is it about to be dethroned?
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The search giant seems to face a new competitor every day. ChatGPT launched on November 30, with Perplexity and Allsearch coming shortly thereafter.
The “page of links” is starting to look antiquated.
Meanwhile, with nearly 200,000 employees, Google has released nothing in response. But new reports indicate Google may finally release a competitor this spring:
In addition to an ethical AI chatbot such as LaMDA, Google is now planning to reveal 20 more AI-based products at its I/O conference scheduled for May 2023. ChatGPT has sparked worry about the use and viability of conventional search engines, as the chatbot aims to provide answers to searches instead of just giving relevant links to users.
Taking over 5 months to respond to a mortal threat to your business is unacceptable. Google should’ve worked day and night to produce a ChatGPT competitor within 90 days.
So what’s the holdup?
Google has shown wariness in revealing AI products and services, especially with the raging debate on the ethics of using AI, with the potential for bolstering biases present in training data. All current AI offerings by Google are heavily restricted in terms of what they can be used for.
Large companies are obsessed with risk. Meanwhile, startups have to release something or they’re dead in the water.
By the time Google does release a competitor, it may already be outdated. OpenAI’s GPT-4 may come out in the first half of this year.
I don’t know what GPT-4 will be capable of. But seeing the massive improvement between GPT-3 and ChatGPT, I expect it to be very impressive.
How fast you launch and iterate is especially important in AI because AI tools can improve at incredible speed. From a recent column by economist Tyler Cowen:
ChatGPT, the model released late last year, received a grade of D on an undergraduate labor economics exam given by my colleague Bryan Caplan. Anthropic, a new LLM available in beta form and expected to be released this year, passed our graduate-level law and economics exam with nice, clear answers.
Maybe Google will release a ChatGPT killer and blow us all away. But I expect to see it fall further and further behind, mired in complacency and risk aversion.
What do you think the future holds for Google? Leave a comment at the bottom and let me know!
For all its powers, ChatGPT has a fatal flaw: its training data only goes through 2021. Ask about anything recent, and it’s stumped.
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But a new tool lets you use the power of AI to find up-to-the-minute information. It’s called Perplexity AI, and it might be the best search engine ever.
Just a month old, Perplexity AI looks like a traditional search engine. But it uses AI to answer your question, instead of just providing links.
Its answers are pithier than ChatGPT’s — usually about a paragraph. And unlike ChatGPT, Perplexity cites its sources.
This helps us confirm the results are accurate. The lack of sources is a serious problem on ChatGPT, since it occasionally produces incorrect answers.
Let’s give this baby a test drive!
So Perplexity, how’s the market doing so far this year?
The answer isn’t perfect — it’s leaving off today’s return. But it’s accurate enough to be useful.
Meanwhile, ChatGPT is stumped:
Google doesn’t even seem to understand the question. It returns today’s performance only:
Let’s try something a little less time sensitive: what are the best selling albums ever?
Perplexity nails it, giving us a complete answer with excellent citations.
ChatGPT’s answer is restricted to US sales. It’s a decent response, but not as complete an answer as Perplexity’s.
In all, Perplexity seems better at answering questions than ChatGPT. But if you want to generate content, like a blog post or a screenplay, ChatGPT is the right choice.
I don’t think cold exposure protects you from catching the cold. And why Allsearch assumes cold plunges involve a race, I don’t know.
Meanwhile, it missed the benefits to alertness, sleep and hormone levels.
On to prompt # 2…
I decided to go with something more straightforward and historical. This time, Allsearch was on point.
Allsearch correctly notes that the USSR economy was in shambles, which led the government to collapse. Students are going to love using this for their papers!
For the 3rd and final prompt, I dug into the world of technology:
Again, Allsearch’s answer is excellent. It covers personal computing, the space race, and the computer revolution in business.
Where Allsearch beats ChatGPT hands down is in citing sources. If you want to know more about a topic, you have a reading list right there on the page!
You also trust results more when you see where they came from.
I think this is an amazing tool. The results aren’t perfect, but for a version 1.0, it does a great job.
Never one to miss an opportunity, I just contacted the creators to schedule a meeting. This might make a juicy investment. 🙂
What do you think of Allsearch and generative AI? Leave a comment at the bottom and let me know!
Last Thursday, I was preparing to judge a startup pitch competition. I thought to myself, “How can I make sure every startup hits the key points?”
Then, it came to me: a checklist!
Every time you pitch investors, you need to give them certain key pieces of information. Without those details, they may just move on to the next company.
Make sure that never happens to your business! Whenever you pitch, make sure you check off these 6 key elements:
1) Problem. What problem do you solve? For example, Uber solved the problem of expensive, hard to get taxi rides.
2) Solution. How do you solve that problem?
Uber makes it easy to get a ride with a simple smartphone app. You always know exactly what you’re paying and where your driver is.
3) Traction. Show us a chart of your revenue, broken down monthly or quarterly. Also, compute a growth rate using a tool like this.
Investors want to see a strong growth trend. Make absolutely sure you give them that, if at all possible.
Don’t have revenue yet? Show us monthly active users, signups, etc.
4) Market + Competitors. How big is your market? Who do you compete with?
I’m more interested in your competitors. Who do you lose deals to? Who do you beat for deals? And why?
Hint: “we don’t have any competitors” is rarely the right answer. Maybe no company does exactly what you do, but who is close?
5) Team. This is especially critical for early stage startups. At this point, there usually isn’t a ton of performance to sell.
So you have to emphasize the quality of the team. Why are these the best possible people to take on this challenge?
6) Ask. Here’s one of the strangest things I see: a founder telling a great story with solid traction, and then saying “thank you” and sitting down.
Umm, don’t you want something from us?
Never forget to tell the investors exactly what you’re asking for! Tell us how much you’re raising, at what valuation, and specify if that’s pre or post-money. (If the valuation includes the money you’re raising, that’s “$X post-money,” also referred to as “$X cap.”)
It’s also good to specify what type of fundraise you’re doing. Is it a SAFE, a priced round, or a convertible note?
Say something like this: “We are raising a $1 million SAFE at a $10 million cap.”
If you hit these 6 key elements, you’ll have a solid pitch that gives investors the details they need. You’ll also have a leg-up on other founders who provide incomplete or unhelpful information.
Best of luck on your fundraise!
Next, I asked ChatGPT to write an article on the same topic:
Here is its answer:
Raising money for a startup can be a daunting task, but having a solid fundraising pitch can make the process a lot smoother. Here is a checklist of items to include in your pitch to give investors a clear understanding of your business and why it’s worth their investment:
Problem: Clearly articulate the problem your business is solving and why it’s important.
Solution: Explain how your product or service addresses the problem and how it’s different from other solutions on the market.
Market size: Provide data on the size of the market you’re targeting and how you plan to capture a share of it.
Traction: Share any traction your business has already gained, such as customer testimonials, partnerships, or revenue.
Team: Introduce the team behind the business and highlight their relevant experience and qualifications.
Business model: Explain how the business will make money and provide financial projections.
Use of funds: Clearly outline how the funds will be used, such as product development, marketing, or hiring.
Ask: End your pitch by clearly stating the amount of funding you’re seeking and the terms of the investment.
Bonus: Show a clear path to exit and give an idea of what investors can expect to gain from the business.
By including these items in your pitch, you’ll be able to give investors a comprehensive understanding of your business and why it’s worth investing in. Remember to keep your pitch clear, concise, and visually engaging.
A strong pitch will also demonstrate that you understand your market, your customers, and your competition. It will also show that you have a clear vision, a solid team, a scalable business model and a sound plan for using the funds.
What strikes me most is how similar they are!
ChatGPT included all 6 of the items on my checklist. It also added 3 more.
For the most part, I think ChatGPT’s answer is excellent. Clearly stating a problem, showing how you solve it, and showing your traction are critical.
But at certain points, ChatGPT gets sidetracked. It suggests showing projections, which most investors discount pretty quickly.
It also tells us to show how the company will exit. This is wildly premature for most startups.
An exit is often 10 years off or more. There’s no telling how it will shake out.
What’s more, a founder who’s too focused on an exit is a red flag to investors.
Are they just looking for a quick win by flipping the company to Big Tech? If so, this will only be a small outcome for the VC’s.
Also, ChatGPT doesn’t provide examples. Examples are helpful in knowing how to frame a problem simply or how to describe the terms of your fundraise.
Moreover, ChatGPT lacks a personal tone. I describe experiences meeting actual founders, which a computer program can’t do.
Sometimes, you want a little of that human touch!
In all, ChatGPT’s writing was surprisingly good. But I think it has a way to go before it puts me out of business. 🙂
Which post did you like better, mine or ChatGPT’s, and why?
Tough times in startupland show no signs of ending. Venture funding fell 67% in December from a year earlier, according to a new report by S&P Global:
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The aggregate value of venture capital-backed funding rounds worldwide dropped 66.7% year over year in December 2022 to $19.71 billion, which is around the same level of annual decline seen in November 2022, according to S&P Global Market Intelligence data.
The number of completed rounds fell by 57%.
These grim stats match what I’m seeing in the market every day. Far fewer deals are getting done, and those that are take longer to close.
The weakest companies have left the market.
The $100 million “seed” rounds in crypto startups with no product or customers were everywhere in 2021. Now, those companies have either given up on fundraising or gone out of business.
The good news is that good companies are still getting funded. I’ve been a part of several multimillion dollar seed rounds in recent months.
These companies have annual revenues in the hundreds of thousands, growing fast. They also have a head start in huge markets.
Even for these companies, rounds take months to close and sometimes don’t fill completely.
If your startup doesn’t have rapidly growing revenue, your chances of raising today are slim. Instead, I’d focus on getting more customers first, which will make your fundraise much easier.
If you are fundraising, you want to raise enough to give yourself runway for two years at least. The 18 month standard I used in 2021 just isn’t enough in this bleak environment.
And don’t count on all that “dry powder” saving you. VC funds may be sitting on a lot of cash, but they’re also deploying more slowly.
The “VCs have a ton of dry powder to invest” narrative misses half the equation
The timeframe over which most funds are expecting to deploy capital has greatly increased to counteract having deployed way too fast in 2020-21
Thus their available capital per year has decreased
I stepped off the icy street into a bustling food hall. This is Urban Hawker — a Singaporean market that was one of Anthony Bourdain’s last projects.
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Hawker centers are everywhere in Singapore. The descendant of street stands, these food courts bring together people from all walks of life to enjoy dishes like chicken rice and pork noodles.
Singaporean hawkers were the first street food ever to win a Michelin star.
These humble stands selling some of the best food on earth captured the imagination of Anthony Bourdain. The chef and travel show host worked to bring hawker centers to his home, New York City.
The original plan called for a massive complex on Pier 57 in Chelsea. But negotiating the lease proved impossible, and the plan was abandoned.
Sadly, Bourdain committed suicide a few months later. It looked like his dream for a Singaporean market in America might never be realized.
But one of Bourdain’s partners, KF Seetoh, refused to give up.
In September of 2022, he opened Urban Hawker, the first Singaporean hawker’s market in the United States. While smaller than the original plan, it contains 17 stalls offering a wide variety of Southeast Asian specialties.
My friend and I circumnavigated the market, mesmerized. Everything looked so good!
“Let’s not get distracted,” I told her. “We have to make the right decision.” 🙂
We landed at Prawnaholic. Prawnaholic specializes in seafood noodle dishes, one of my favorites.
I ordered Singapore Char Kway Teow. The chef kindly substituted fish cakes for the pork, a thoughtful touch.
The dark noodles and glossy sauce had a deep, rich flavor. They reminded me a little of squid ink pasta, an Italian specialty.
The shrimp were perfectly tender, the fish cakes light and delectable.
My friend ordered an oyster omelette. She offered me a bite, and I couldn’t resist.
I thought I didn’t like oysters, but I was wrong! They were tender and delicious, not overcooked and chewy like so many others.
Next to our table were the beautiful cakes of Lady Wong. I only wished I had room — next time!
This is a market Anthony Bourdain would’ve been proud of. I only wish he could’ve sat there with us, eating and laughing.
What are your favorite restaurants in New York? Leave a comment at the bottom and let me know!
Let’s say I come to you asking for a raise. “Sorry Francis, we’re tapped out for the year.” I could leave — if only I didn’t sign that noncompete.
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Noncompete agreements restrict a worker from starting or working for a competing company for a period of time. The Federal Trade Commission is considering banning them.
Here’s why this is absolutely the right policy…
Worker Leverage
If I can’t work at a competitor, that means I cannot work in the field in which I have experience. And if I move to another field I know nothing about, my wages will be much lower.
So rather than leave my employer, I’m going to stick it out, even if the pay isn’t great.
Innovation
California is the most innovative state in America, by far.
California also happens to be one of the few states in the country that doesn’t enforce noncompete agreements. Workers are free to leave a company and start a competitor.
Is California so innovative because it scoffs at noncompetes? I don’t know.
But it certainly doesn’t seem to be holding them back.
Benefits of Noncompetes are Dubious
The economist Tyler Cowen argues that banning noncompetes will lower wages. From his latest Bloomberg column:
Say you run a hedge fund. Many members of your trading team will have partial access to your firm’s trading secrets, and if they leave they can take those secrets with them. In the absence of noncompete agreements, firms would be more likely to “silo” information — becoming less efficient and less able to pay higher wages.
Cowen’s argument is purely theoretical. He offers no evidence that states or employers without noncompetes have lower wages than those with them.
Cowen also argues that without noncompetes, employers will have less incentive to train. After all, their employees could jump ship at any time.
But again, he offers no evidence that companies without noncompetes invest less in training.
My Experience with Noncompetes
I’ll admit it, I have an ax to grind here. In my first job out of college many years ago, I had to sign a noncompete.
I didn’t want to sign it. But I was fresh out of school with barely a dime and no work experience — what else could I do?
When I found out other people in the industry were making two or three times what we were, naturally I wanted out. But the noncompete stopped me from working in the field for a whole year.
Unable to work in the field I knew, I applied for jobs outside it. But with no experience, there were no takers.
So I lived off my savings for a year until the noncompete expired. And sure enough, I dramatically increased my pay just days after it ended.
Let’s Ban This Nonsense
Noncompetes offer workers a terrible choice. Would you prefer indentured servitude, or unemployment?
In the absence of powerful evidence of their benefits, noncompetes should be banned. I urge you to write your representatives and ask them to end this abusive practice.
Freedom matters.
What’s your view on noncompetes? Leave a comment at the bottom and let me know!
There will be no blog on Monday for the holiday. See you Tuesday.
Many founders work incredible hours. So what’s all this for…just to make someone like me money?
Hardly.
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I know startups can change lives because I’ve seen it happen.
My mom lives in a small town in Wisconsin. Getting around without a car is nearly impossible — but she can’t drive.
She was born blind in one eye, making depth perception a mess and driving a nonstarter. The basic things we take for granted — getting groceries, making a doctor’s appointment, or just grabbing coffee at Starbucks — are very difficult for her.
Or were…until Uber and Instacart!
When I was a kid, we often waited over an hour for a taxi home with our groceries. And we did that outside in frigid temperatures, lest we miss the car.
Now, neatly packed bags appear on Mom’s doorstep, like magic.
We stood in deep snow waiting for the bus if we wanted to go anywhere. I think I spent half my childhood saying “Where the heck is this thing?”
Now, an Uber glides up in minutes, taking Mom wherever she likes.
One of my companies got acquired today. It made me think that despite this financial win, we do this job for a lot more than money.
Whether you’re a founder, investor, or startup employee, we want to make something amazing! We want to make a nicer life for other people.
So the next time you’re staring at your computer at 3am, remember this: what you do matters. You’re creating the future, and it’s going to be awesome!
What motivates you? Leave a comment at the bottom and let me know!
We filed into the dim, narrow space full of expectation. I didn’t even know what Puerto Rican food was — but I was about to find out.
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La Casa in Hoboken offers Puerto Rican classics in a cozy atmosphere. Each dish is deeply flavorful and cooked just right.
For starters, we ordered a papa relleno. It’s essentially mashed potatoes stuffed with meat and deep fried.
Just what the doctor ordered! And as delicious as it sounds.
Next, I ordered the camarones al ajillo — garlic shrimp — with yellow rice and black beans. I’ve had gambas al ajillo in Spain, but Puerto Rico’s take is richer and more mild.
Spain’s heavily fragrant, oily sauce is replaced by a creamy one with a more subtle flavor. Even after I finished the shrimp, I lapped up the sauce like a hungry dog!
Unlike many restaurants, the shrimp are properly cooked. No tough little stones at La Casa!
The fluffy rice perfectly complemented the black beans with their deep cumin flavor.
I normally don’t like chicken breast — too dry. But my friend John urged me to try his, and it was moist and juicy.
Overcooked food is a common problem at restaurants. But at La Casa, they do things right.
On our way out, I swung by the kitchen to thank the cooks. They smiled broadly and one gave me a fist-bump.
When people take pride in what they do like the cooks at La Casa, the results are worth writing home about.
La Casa is open every day and in addition to the fine dinner we had, I’m told they serve a delicious breakfast!
There can be a wait on weekend nights. Given the small number of tables, they don’t take reservations.
On weekends, your best shot at getting a table right away is to arrive at 8:30pm or later.
What’s your favorite Latin dish? Leave a comment at the bottom and let me know!
Tremendous 