Life As a FA

Innovative Investing (Notes from June 3 – June 9, 2019) June 25, 2019

The primary theme of the week seemed to be how data can get pooled together to determine a signal and how to learn to seek the best way we, as individuals or teams, can discern valuable content to motivate actions on that information. Data is plenty – it’s a matter of gathering, curation, analysis and testing before putting it into action. This is done by any number and types of companies nowadays – this is a source of advantage seeking that forward-thinking ones make, in my opinion.

Since my notes were more detailed, I’ll try to keep this brief. The wonder people below hailed from banks (First Republic Bank), funds like Emerson Collective and Womens VCFund, marketing company like BEN or LikeFolio and then David Epstein’s Range, Sinead O’Sullivan’s work on space or the data Rohan Kumar collects with Azure Data.

Create a hypothesis. Test the hypothesis. Put into action, or iterate. Rinse, repeat. Good luck!

• Samir Kaji, (@samirkaji) MD @ First Republic Bank (20min VC 093)
  
  • Leading private bank and wealth management, before at SVB
  • 1999 – “anyone with a pulse could get a job” but he was working selling vacuum cleaners at dept store
    • Was told by family to get a real job – applied to first business SVB, got resume in and interview immediately before starting
    • First couple years were tough – learned a lot, but was 2004 until companies had scaled and were getting bigger
      
  • First 10 years were tech companies, series A and B and venture debt – post 2009 Lehman / Bear, went to venture group at SVB for 4 years
    • Made the move with a few others from SVB to First Republic, now leading team in micro-VC and early-stage tech co’s
  • Says the micro-VC is more entrepreneurial & collegial compared to extended stage VC’s
    • First fund is that you can get traction for a second or third one, fees as pressure – most likely why many people come from some wealth
      • Writing large checks as GP, as well
    • 2-2.5% management fees initially vs 1 / 25 or 1/30 model
    • 1999 – 2002 distribution was 0.9x and you’d get 10x return (whoops) – very difficult for funds to get 2-3x for LPs
  • Barriers to entry much smaller for $20-25million as compared to $500mln – institutional, etc — he can go to family friends and high net worth
  • Seed over next 5 years: contraction in space (wrong), but said there isn’t enough returns for funds to max it
    • 1100 in the 2000 year and burst
    • Continued prominence of Angelist platforms, maybe an integral part of the ecosystem
    • Starting to see use of data (Mattermark, CBInsights, SignalFire) to more efficiently identify and action at this level
  • Favorite book is Phil Jackson’s – behavioral psychology, Give and Take is another one
  • Really respects the pioneers of the industry and first-time fund-raisers
    • Mike Maples, Michael Deering, Steve Anderson, Jeff Clavier when it wasn’t a thought
  • Habit – reading book or blog post for 20min in the morning before email
    • Disconnect from audio / video devices and reflect for an hour
    • 2 hours a day for family/friends and disconnecting, as well
  • Thomas Redpoint, Mark Suster, Brad Feld, Strictly VC, Ezra at Chicago Ventures
  • Knows awesome fundraisers but terrible at returning capital – didn’t mention any
• Collectively Driving Change, Laurene Powell Jobs and Ben Horowitz (a16z 5/27/2019)
  
  • LPJ – founder, president of Emerson Collective
  • Grew up in NJ – father passed away in a plane accident when she was 3 – 3 children.
    • Mom remarried so there were 6 of them. Wooded area of NJ.
    • Core values and dedication to education to get out of the area.
    • She went to Upenn – first student from her high school that went to Ivy League – ~20% went on to more schools
  • Addressing East Palo Alto school as a volunteer to help – 1st talk, 0 had taken SATs
    • What happens when you’re first to graduate high school? What’s it mean to the information from family?
    • What happens to be first to want to go to college, thrive&complete it?
      • To have the aspiration, can be a leader in the family – translator, get sucked into all problems
    • Started with 25 freshmen – would have to come with friends for responsibility mechanisms – for College Track
      • 3000 high school students, 1000 college, 550 grads
  • Collective of leaders, innovators – education inequities, access and need for enhanced/robust curriculum
  • 10 year time horizons – getting them together is scheduled with Monday all-staff meetings (3×3 matrix of videos)
    • 5 cities, sometimes philanthropic speakers or reports
    • Discussion of reading as you fall behind through third grade before switching to reading to learn – already behind
  • XQ as SuperSchool dream – 17 of 19 will open in August
  • Caring about impact and solving problems, not wealth increasing – wants access to policy or money and not taxes
    • Judged Giving Pledge for not wanting to be more philanthropic
    • Environmental, edtech portfolio, cancer / oncology investments, immigration incubator, new thinking to old problems
  • How do you know when you’re succeeding? Collecting data on everything they do.
    • Example: XQ – schools and districts, state of RI as switching to statewide competition
    • Chicago has good data for fatal/nonfatal deaths (I disagree)
  • Imperiled or important institutions like journalism and media need to be sustained, how many join?
    • Concentrating and following where IQ is migrating (hahaha – what a joke)
• Data Infrastructure in the Cloud, Rohan Kumar at BUILD conference (Data Skeptic, 5/18/19)
  
  • Corp VP of Eng of Azure Data Team at Microsoft – SQL and data services, open source, analytics, etc
  • Trends in data engineering in the cloud, serverless and hyperscale
    • ML and AI and enabling applications – shifting to edge vs cloud – analysts predict 70% will be on edge devices
    • Solutions and private edges – training in the cloud and deploy them on the edge applications
      • Data platform needs to be the right foundation
  • Highlight for him from conference: work they’ve done on relational databases in the cloud – as volumes grow, scalability challenges
    • Hyperscale for Azure and PostgreSQL, as well as MS SQL soon enough – system scales with needs (they’ve tested <= 100TB)
  • Acquired Citus Data, support scaling out the compute layer – strong team, great product, matches in Azure and open-source
  • Releasing serverless option for Azure database – costs designed to stay low and optimized
  • Analytics side: customers wanted to do real-time operational analytics – didn’t want to move them outside of their core product
    • How is data distributed and having compute be co-located with the data to gain Spark efficiency being nearest to node
    • Support Jupyter notebooks across all APIs to modernize to do more predictive analytics
    • Attempting to build out pipelines requires too much scripts, instead have Data Flows in Azure Data Factory – no-code and UI
    • Wrangling data visually and seeing if something can be recognized or learned to repeat across other columns/tables
  • Latency won’t be ideal if compute nodes occur nonlocal to the data changes – can’t do 50,000 nodes all at once
  • Excited for the future: Horizon 1 (next 8-12 months), Horizon 2 (~3 years), Horizon 3 (moonshots)
    • H2: Hardware trends, what do customers want? Pushing boundaries of AI and ML, healthcare, gaming, financial services, retail
• Wide or Deep? David Epstein, author of Range (Invest like the Best, 5/28/19, ep. 133)
  • First book’s research lead him to get into specialization and finding kernel for next
    • Some countries: turning around national sports teams – why don’t we try other sports? Contrary to 10,000 hour rule.
    • SSAC – debating Gladwell – athletes have a sampling period instead of first gene – delay specialization
      • Used Tiger vs Roger – Roger had tried a ton of sports vs Tiger who was born and was playing golf
  • He was not good at predicting what people/public would attach themselves on to – 10,000 hour rule – race/gender as most talked (but weren’t)
    • 10,000 hour rule were based on 30 violinists in world famous music academy (restriction of range)
    • Height in American population vs points scored in NBA (positive correlation) but if you restrict height to NBA players, negative
  • Finnish cross country skier who has genetic mutation similar to Lance’s boosted
    • Sensitivity to pain and modification to your environment – also sudden cardiac arrest in athletes (what pushed his interests)
    • Book as opposition to Outliers and Talent Code – interpreted a lack of evidence as evidence of absence (genetics matter)
      • First year he read 10 journal articles a day and not writing – they were making conclusions they could not make based on their data
    • Differential responses to training – best talent were missed because we don’t know about training responses
  • Collection and exploration phase – competitive advantage for expansive search function to connect sources or topics
    • Has a statistician on retainer, essentially, to check models or surveys
    • Wanted to know what he was missing – “how come I broke the 800m women’s world record after 2 years of practice? – genetic difference”
      • Racing whippets – 40% had a genetic defect that gave them more muscle and oxygen
  • All of sports as a limited analogy (problem after Sports Gene; now, more tempered)
    • Robin Hogarth addressed “When do people get better with experience?” Don’t know rules, can try to deduce them but can’t know for sure.
    • Kind learning environment: feedback immediate, steps clear, information, goal ahead
    • Wicked learning environment: can’t see all information, don’t wait for others, feedback delayed/inaccurate
  • Study at Air Force on “Impact of Teacher Quality on Cadets”
    • Have to take 3 maths – calc I, II, III (20 kids randomized) – professors best at causing kids to do well (overperforming) systematically undermined their performance thereafter
      • 6th in performance and 7th in student evaluations was dead last in deep learning
      • Narrow curricula were better at the test that they had at the end would be negatively correlated with going forward in performance
    • Teachers that ignored what was on the test taught a broader curriculum (making connections vs procedures)
  • Learning hacks: Testing (wonderful – primed to test ahead of learning), Spacing (deliberate not-practicing, Spanish ex spread 4 hour twice, 8 hours), Mixed practice
    • Ease is bad – known time horizon for when you have forgotten again – interleaving and spacing mixed
  • Passion vs Grit (“Trouble with Too Much Grit” – Angela Duckworth’s research)
    • Duckworth did a study at West Point for East Barracks cadets – candidates score (test + leadership + athletic) was not good prediction of doing this (overall it was good)
      • Grit was a better predictor for making it through East Barracks – she questioned whether it had an independent aspect
      • Variance for grit was probably 1-6%, especially after “flattening” groups – looking at people that had a narrowly defined goal for short periods (cadets or spellers)
    • Cadets were scoring lower on grit at late 20s vs earlier – tried some things, learned others about what they want – grit is poorly constructed
      • Look holistically – if, then signatures (giant rave – introvert, small team – extroverts) right fit looks like grit – developmental trajectory as explosion matching spot
  • Choosing a match for a future them who they don’t know in a world they can’t comprehend – people that find good fits (in practice, not theory)
    • Paul Graham’s “Commencement Speech” that he wrote “Most will tell you to predict what you want in 20 years and march toward it.” (premature optimization)
      • Everything you know is constrained by our previous experiences – limited as a teenager – just expanding and learning as you go forward
  • Gameboy example – with so much specialized information that can be disseminated easier – can take from all types of domains and recombine them
    • System of parallel trenches – can be broader much easier now – hired people for Japanese and German translations
    • Japanese man profiled in his book – technology was changing faster than sun melts ice – didn’t get Tokyo interviews
      • When he got to Kyoto company making playing cards, he was a tinkerer who was maintaining machines – started to mess with them (arms)
      • Turned them into a toy, and it was Nintendo – cartoon-branded noodles (failed), and had toy development
        • Lateral thinking with withered technology – stuff that’s cheap, easily available – takes into other areas
          • Remote control, more features – wanted to democratize this and strips it down – LeftyRX only left-turns
      • Sees calculator from Sharp and Casio and thinks he can do a screen and handheld game – small games
        • Had issues with Newton’s rings so he found other small tech (credit cards embossed) to fix small pieces
    • What it lacked in color, graphics and durability (could dry it out, batteries would be fine, split it up, “app” developers because it was super easy to understand)
    • In areas that next steps were clear, specialists were much better – less clear, generalists were more impactful – depends on the specificity of the problem
      • 3M had a lot of areas for this, “Periodic Table of Technology” – post-it note came from reusable adhesive that had no use for
      • Only Chinese national woman to win Nobel – “Three No’s” (No post-grad, foreign research, membership in academy)
        • Interest in science, history – Chinese medicine for treatments of malaria – world’s most effective treatment from ancient text
• Greg Isaacs, BEN (Branded Entertainment Network) (Wharton XM, Marketing)
  
  • Discussion of getting data from Netflix / Amazon / Hulu / tv to better match brands and advertising
    • Dirty data via a wharton grad who set up a survey style
      
    • Cohorts and demographics, along with psychographics
  • After getting data, attempting to approach Youtubers / social media influencers, tv spots and channels or shows to get their brands in front of the right people
    • More pointed, depending on what interests are for their cohorts
    • Creative storytelling as the change of cultural mind shift has increased
• Understanding the Space Economy, Sinead O’Sullivan (@sineados1), entrepreneur fellow at HBS (HBR IdeaCast #684, 5/28/19)
  • Facebook, Amazon (3000), SpaceX (12,000) and other funding like Blue Origin / SpaceX / asteroid mining or travel
  • Global space economy as $1tn by 20 years – currently $325bn so it would need to 3x
    • Breaking apart space resources and otherwise – earth-focused (delivering or existing in space that helps earth)
      • Exploration or creating interplanetary existence
  • Running out of space in space for satellites – comparing to airplane docking / loading
    • $2500 per kg now to launch, used to be $50k / kg
  • Reliance had been on unilateral agreement for space policy – one tech startup launched a satellite that didn’t have permission (but no fall-out)
    • Food / grocery stores, wifi, phone, insurance pricing due to satellite data – reliance on services are increasing as the market increases
    • Thinks that we’re close to seeing the cheapest cost of launching – cites SpaceX, but won’t allow everyone to participate
  • Ultrahigh accuracy will require higher powered satellites – GPS, nonmilitary grade is ~0.5 m – thinks it will prevent autonomous vehicles solution
  • Ton of money going into asteroid mining but thinks it’s better for testing missions to Mars and figuring out the problems for future
    • Looking at Uber at start and say “people won’t get into a stranger’s car” or other cases as how we see the future – going to Mars, etc
  • Earth-focused space technology – 100+ launched satellite start-ups, micronano satellites, relay companies, downstream analytics
    • More touchpoints for everything in this manner
    • SpaceX will increase public and government intervention and within 50 years, maybe see a human launched there
• Investing w Twitter Sentiment, Andy Swan (@andyswan), LikeFolio (Standard Deviations, 4/25/19)
  
  • 1700+ tweets examined per minute in LikeFolio – discovering consumer behavior shifts before news
    • Direct partnership with Twitter to create massive database and how they’re talked about to look for mentions
    • Purchase intent, sentiment mentions – trends across product categories or brands
  • Example – Delta (as host is a loyalist) – making adjustments
    • Expectations are the relative part – comparison to the baselines (metrics compared to itself as baseline)
  • Put out a comprehensive report on Apple day after keynote event – September 14, 2018
    • Consumers were unimpressed with iPhone lineup – more price sensitive than maybe they’d considered
    • Apple Watch was the silver lining – stock / sales may struggle over 3-9 months (upgrade cycles)
  • WTW version of keynotes – NYE resolutions – subscribing early to drive revenues the rest of the way
    • Purchasing mentions were only up 30-40% compared to 5 or 7x weekly mentions (big difference)
  • Shelf-life and how to consider the sentiment data – lead time may be binary corp event (same store sales or year)
    • Couple months with Apple, for instance, but with Crocs – resurgence that persisted to current time
  • Set up keyword structure and brand database – “I’m eating an apple” as opposed to an Apple mention – human eyes to ‘label’
    • “Closed my 3 rings” – apple watch but sarcasm / spam that wasn’t caught (estimates at 2-3% of data)
    • If spam / sarcasm are consistent portions of the data, doesn’t really have an effect
  • Twitter Mood Predicts Stock Market – Bollen, Mao, Zeng (88% and 5-6% predictions) – fund closed up shortly
  • Advantage being better than analysts or pricing and codifying sentiment behavior compared to past quarters, data
    • Some consumer trends analyzed as true tipping point or actual movements
    • Public prediction before productizing their modeling – made 40 and were 38-2 (confidence as highest)
    • Investing as very specific, concentrated and holding ammo compared to trading with option spreads and has risk profile built
  • https://arxiv.org/pdf/1010.3003.pdf
  • Diversification as 20-25 stocks, doing it over time and with conviction can be done
  • Starting in Louisville for his fintech company, host in Alabama, for instance
    • Talent can be more difficult to seek out but the world is globally flattening via the internet
    • 70% lower overhead cost than being in SF, for instance – developers would anyhow be in Slack channels / not a big deal
    • Reduction in cost maintains greater control of company since they don’t have to take reduction of equity to gather more
  • Network effects don’t matter if you don’t have a great product or product-market-fit
  • Free association game
    • grapenuts: best cereal (Co’s been around for 100+ years, branding and $ spent and they can’t figure it out)
    • Fintech Future: individualization and customization
    • Victory: most important thing in life, achieved what you set out to do – setting goals and achieving these
    • Bourbon: pappie von winkle – collecting for dust on shelf 10 years ago and now going for $3000
• Jonathan Abrams, co-founder Nuzzel news (Launch Pad)
  
  • Landing hedgehog as the mascot – animal as cute, 99designs and surveying 50 friends – 25 men/women
  • Discussing how VC’s don’t have great advice, especially when general – too hard to be an expert in such a wide range
    • Finds it easier to be very context-driven and providing solutions or action-oriented questions to founders
    • Investing now easier with YC and Angelist, etc…
  • Timing and other mistakes he made – out of control, losing equity part early (but depends on where you are / what you need)
• Etan Green, professor at Wharton (Wharton Moneyball)
  • Discussion on paper of how sharp money comes in at horse racing tracks
    • Difference between sites – fairground action compared to tracks, and specific to region (New Orleans, Minnesota, for instance)
    • Big sharp money comes in very late, pushing the underdog prices to higher values
      • More expensive to bet while at the track than the APIs enabling higher volume bets
      • Books at the track are incentivized to bring in as much $ as possible, so $0.20 on $1 vs $0.15 rebate on $0.20 for volume
  • Value and differences in how people will bet
• Edith Dorsen, Women’s VCFund founder, MD (Wharton XM)
  
  • Talking about their focus on first fund, approach
  • Opportunity for finding diverse founders, 25% of their fund had a woman founder
  • Starting a second fund
  • Had consumer tech, enterprise and not so much b2b, but trying to increase
    • Hard to say or give advice if one of their partners don’t have expertise in the domain
• Sophie Lanfear, Silverback Films producer on Netflix “Our Planet” (Wharton XM)
  • Species that are dying, going extinct
  • What we can do about it
• Aliza Sherman, Ellementa co-founder, CEO (Wharton XM)
  
  • Discussion of client talks when she made them aware of her cannabis endeavors
  • How friendly the community is
    • Then knocked the idea that ~30% was female to start before diving off a cliff
  • CBD to mask opioids – does it really do anything from a pain/treatment perspective, though?
    • Anti-chemo because of CBD – really?
  • Sounded too rehearsed – made it sound fake, not genuine
    • Passion/motivation/mission and kept repeating as the best advice she could give – painful