Tag Archives: Investing

SEC Refuses to Address Massive Fraud in Markets

The Securities and Exchange Commission (SEC) just released its top enforcement priorities for the year. Rather than dig into systemic fraud in our markets, they’ll be regulating….confetti?


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According to a report out this morning on Reuters, the SEC will be focusing on:

”…behavioral prompts, differential marketing, game-like features…and other design elements or features designed to engage with retail investors on digital platforms.”

In plain English, they’re talking about the confetti some stock trading apps display when you make a trade. But that’s not all.

The SEC will also be regulating how funds can use certain words:

…funds with keywords such as “green,” “sustainable,” “ethical,” or “socially responsible” in their names will have to reflect an emphasis on these areas through their investing choices.

As if investors couldn’t simply look at the holdings and see if Exxon Mobil is there or not!

Combatting widespread financial fraud is nowhere in the SEC’s agenda.

Illegal naked short selling pervades our markets. Millions upon millions of trades fail to clear each day, especially in heavily shorted stocks like AMC Entertainment Holdings and GameStop.

But the SEC won’t be looking into that.

Despite $8 billion in losses on FTX, cryptocurrency regulation won’t be a focus for the SEC this year either. Why bother with that when the SEC could be requiring “a summary of registrants’ human capital resources,” whatever that is?

It’s no wonder author Jesse Eisinger called the feds “the chickensh*t club.”

The SEC is a toothless regulator. It busies itself with make-work, avoiding the real issues plaguing our markets.

Gary Gensler and the SEC need to start going after the real criminals.

What do you think of SEC enforcement? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Short Sellers Down $81 Billion in 2023

Citadel’s Illegal Trades — The Tip of the Iceberg?

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Photo: “CMI 101: Demystifying Derivatives with CFTC Chairman Gary Gensler” by Third Way is licensed under CC BY-NC-ND 2.0.

Short Sellers Down $81 Billion in 2023

Well, that was fast! With 2023 less than a month old, short sellers have already lost $81 billion.


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Many are running for the exits. From a new report from The Wall Street Journal:

Short sellers who have incurred hefty losses are actively trimming their positions, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. Investors betting against stocks have racked up $81 billion of mark-to-market losses on short positions this month through Thursday after accumulating $300 billion in gains in 2022, Mr. Dusaniwsky said.

Markets have rallied this year, with meme stocks leading the way. As short sellers race to close their positions, their losses are likely to grow:

Signs that inflation is cooling have stoked bets among investors that the Federal Reserve will pivot from raising interest rates to cutting them as soon as the second half of the year. That has helped risky assets across the board rise. Especially risky corners of the market, such as stocks with high short interest, have rallied even more. Analysts say that has likely forced short sellers to close out bearish positions to cut their losses—resulting in what is known on Wall Street as a short squeeze. 

Some of the most heavily shorted stocks have been among the best performers so far this year.

Meme stocks like AMC Entertainment Holdings, GameStop, and Bed Bath & Beyond are all up over 20%. The broader S&P 500 is up 6% for the year so far.

In addition to huge market losses, short sellers are also paying stratospheric interest rates to borrow shares. Rates to borrow AMC shares have ranged between 20% and over 100% per year in recent weeks.

It’s no wonder that some short sellers may be resorting to illegal tactics. There is evidence of widespread naked short selling in some heavily shorted stocks.

Common and preferred shares of AMC have seen millions of fails to deliver. These failed trades often occur when a short seller sells stock without borrowing it.

This is called naked short selling and it’s illegal under federal law. It’s also a powerful way to push down a stock’s price without paying any interest.

The coming months could push many short sellers to the brink.

A race to close out positions may cause heavily shorted stocks to rally further. Meanwhile, a more dovish Fed could cause a general market rally, adding to their losses.

Short sellers should avoid meme stocks like the plague. A heavily shorted stock with a passionate fan base is simply too hot to handle.

What do you think is next for short sellers? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Citadel’s Illegal Trades — The Tip of the Iceberg?

As Fed Rates Peak, Are Markets Ready to Take Off?

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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.

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Photo: AMC CEO Adam Aron

Citadel’s Illegal Trades — The Tip of the Iceberg?

South Korea has fined Citadel Securities for illegal stock trades made with high frequency algorithms. From a report out last night in Reuters:


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South Korea’s financial regulator has imposed a fine of 11.88 billion won ($9.66 million) on U.S.-based Citadel Securities, saying it disturbed the local stock market with high-frequency algorithm trading.

The Financial Services Commission (FSC) said in a statement released on Thursday the firm had distorted stock prices with artificial factors, such as orders on the condition of “immediate or cancel” and by filling gaps in bid prices.

These illegal trades were no isolated incident. Regulators found improper trades in thousands of stocks over a period of nearly a year:

The firm carried out such trading on an average of 1,422 stocks per day from Oct. 2017 to May 2018, totalling more than 500 billion won worth of trades, according to the statement.

Citadel’s illegal trades stand out as some of the most egregious ever in South Korea:

The Commission said it was the first time it had imposed fines on such high-frequency trading on the South Korean stock market, which has a high proportion of retail investors and little competition among algorithmic traders.


Citadel used strategies such as flash orders to gain an illegal advantage over other traders. This practice involves offering to buy or sell and then retracting the order in a fraction of a second.

Flash orders let you see the prices at which other traders are willing to buy or sell. This gives you an illegal edge over your competition.

In Korea, Citadel used these strategies to take advantage of mom and pop retail traders, which I find particularly heinous.

Citadel’s algos don’t stop in Korea.

The firm was recently fined by the US Financial Industry Regulatory Authority (FINRA) for frontrunning its customers. By placing trades ahead of customers, Citadel made money for its own account.

Breaking the law appears to be quite lucrative for Citadel.

Citadel Securities posted record revenues of $7.5 billion last year. Citadel’s hedge fund made even more, approximately $28 billion.

I think Citadel is using these illegal flash orders all over the world. They may also be using other illicit tactics we don’t know about yet.

After all, if you go to the trouble to create a program that can make you money, why not use it in as many places as possible?

The reality is that these speeding tickets will never stop Citadel. Fines in the millions are a cost of doing business for a multi-billion dollar operation.

Securities regulators worldwide should find out what exactly Citadel is doing in their markets. If they find more wrongdoing, they should simply ban the firm from trading for a period of years.

Nothing but a severe penalty will stop them.

Who says crime doesn’t pay?

What do you think is the future for Citadel? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Tiger Global Losing $185 Million a Day

As Fed Rates Peak, Are Markets Ready to Take Off?

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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.

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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.

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Photo: Citadel CEO Ken Griffin

Major Hedge Fund Down 54% — Survival in Doubt

In a brutal year for hedge funds, few have suffered more than Light Street Capital. The fund lost 54% in 2022, over $1 billion.


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From a report out last night in Bloomberg:

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.

No wonder the California Public Employees Retirement System (Calpers), one of the most astute investors in the market, hasn’t invested in hedge funds since 2014.

The future for Light Street is bleak. It cannot charge a performance fee again until it more than doubles its fund.

That’s extremely hard to do. And without those juicy performance fees, the best traders will leave.

This is the kind of spiral that took down Melvin Capital. Light Street could be next.

I’m a huge bull on technology. But no stock is a good buy at any price.

What do you think the future holds for hedge funds? Leave a comment at the bottom and let me know!

More on markets:

Tiger Global Losing $185 Million a Day

As Fed Rates Peak, Are Markets Ready to Take Off?

Is SBF Laundering Money As We Speak?

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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. 

Photo: Glen Kacher, Founder of Light Street Capital

Google is Losing the AI Race

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.

If that wasn’t impressive enough, ChatGPT and another chatbot just passed the United States Medical Licensing Examination. I certainly couldn’t do that!

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!

More on tech:

Me vs. ChatGPT: Who’s a Better Blogger?

GPT-Powered Search with Perplexity AI

They Passed on Apple, Google and Facebook…Here’s Why

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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.

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Me vs. ChatGPT: Who’s a Better Blogger?

ChatGPT, the hot new tool from OpenAI, excels at writing. So is it time for me to pawn my laptop and ride off into the sunset?


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Today, I decided to see who’s the better writer, me or ChatGPT.

Let’s take a post I wrote about the 6 essential elements of a startup pitch. Could ChatGPT come up with something better?

You be the judge….

My post from April 2022:

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 don’t get too hung up on complicated market size calculations, but here is a resource on how that is typically done.

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:

  1. Problem: Clearly articulate the problem your business is solving and why it’s important.
  2. Solution: Explain how your product or service addresses the problem and how it’s different from other solutions on the market.
  3. Market size: Provide data on the size of the market you’re targeting and how you plan to capture a share of it.
  4. Traction: Share any traction your business has already gained, such as customer testimonials, partnerships, or revenue.
  5. Team: Introduce the team behind the business and highlight their relevant experience and qualifications.
  6. Business model: Explain how the business will make money and provide financial projections.
  7. Use of funds: Clearly outline how the funds will be used, such as product development, marketing, or hiring.
  8. Ask: End your pitch by clearly stating the amount of funding you’re seeking and the terms of the investment.
  9. 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?

Leave a comment at the bottom and let me know!

More on tech:

THE STARTUP PITCH CHECKLIST

VC FUNDING DOWN 67% IN DECEMBER

HOW STARTUPS CHANGE LIVES

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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!

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VC Funding Down 67% in December

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.


As for me, I’m investing in about one company a month, same as I always have.

A few great companies are born every year. In venture, our only job is to own a piece of them.

What do you see in markets today? Leave a comment at the bottom and let me know!

More on tech:

They Passed on Apple, Google and Facebook…Here’s Why

How Startups Change Lives

Entrepreneurial ADD: The Startup Killer

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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

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I wrote a detailed review of Misfits here.

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Photo: “The-Movement LosAngeles Graffiti Art” by anarchosyn is licensed under CC BY-SA 2.0.

Let’s Ban Noncompetes

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.

Have a great weekend everyone!

More on tech:

How Startups Change Lives

They Passed on Apple, Google and Facebook…Here’s Why

Entrepreneurial ADD: The Startup Killer

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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. 

Photo: FTC Chairwoman Lina Khan. “Lina Khan” by New America is licensed under CC BY 2.0.

How Startups Change Lives

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!

More on tech:

They Passed on Apple, Google and Facebook…Here’s Why

Entrepreneurial ADD: The Startup Killer

Have We Reached SaaS-turation?

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They Passed on Apple, Google and Facebook…Here’s Why

“Kid, haven’t you heard of Friendster? Move on. It’s over!”

VC Jeremy Levine passing on Facebook, 2004 (speaking to Eduardo Saverin).

Ouch.


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Bessemer Venture Partners passed on Apple, Google, Facebook and countless other highly successful companies.

In what they’re calling an “anti-portfolio,” the venerable firm explained their reasons for turning each founder down. How they arrived at these decisions can teach us investors a great deal.

I noticed a few themes:

Valuation: Bessemer passed on Apple, Airbnb and Atlassian because the valuations were too high. All went on to become massive companies.

The very best startups tend to go for a premium price. Google’s Series A valuation was around $100 million – scandalous at the time.

If you know you have one of the hottest companies in Silicon Valley, why sell cheaply?

I expect valuations to be reasonable. But focusing too much on price can lead us to “value traps.”

These companies are cheap for a reason and never go anywhere.

Founders Too Young: David Cowan had incredible luck — his friend was renting her garage to Sergey Brin and Larry Page.

The two young comp sci students were working on a new search engine called Google.

The Bessemer partner was unimpressed with these student founders. And who needed another search engine?

“How can I get out of this house without going anywhere near your garage?”

David Cowan

What if Cowan had been willing to take just a 20 minute meeting with Sergey and Larry?

Too Much Competition: Bessemer passed on Facebook and Zoom partly due to competition.

There were already so many video conferencing tools. And haven’t you heard of Friendster?

What the Bessemer partners missed is that being first doesn’t mean you win. The best tool wins, and it’s often not the first.

General Hubris: Now, we come to one of venture capital’s worst scourges.

Sometimes VC’s are so overconfident they can’t imagine being wrong.

You see that in Levine’s treatment of Eduardo Saverin when he passed on Facebook. He knows everything and this “kid” is deluded.

You see it again in David Cowan’s rejection of eBay:

“Stamps? Coins? Comic books? You’ve GOT to be kidding. No-brainer pass.”

David Cowan

We investors must always remember that we do not know the future. The best we can do is take an educated guess.

We will be wrong most of the time. And we must never forget that.

So I try to keep an open mind. And even when I pass on a company, I try to be polite.

With all these misses, you’d think Bessemer is the worst venture firm in the world, right?

Wrong. It’s actually one of the best!

That’s the magic of our industry. We can be massively wrong almost all the time, and still be a huge success.

Bessemer was an early investor in LinkedIn, Twitch, Shopify and many other iconic companies. They may have missed Apple and Google, but they didn’t need them.

I applaud Bessemer’s candor in assessing its mistakes. That’s how we learn!

What mistakes do you see investors making? Leave a comment at the bottom and let me know!

More on tech:

John Doerr’s Biggest Mistake

The Power Law (Part Two)

Entrepreneurial ADD: The Startup Killer

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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. 

Photo: Google founders Larry Page and Sergey Brin. “File:Google page brin.jpg” by Ehud Kenan is licensed under CC BY 2.0.