Marvin’s Best Weekly Reads May 5th, 2024
“No act of kindness, no matter how small, is ever wasted.” ― Aesop
- “Impressive people seem to have boundless belief in themselves. How else would they have grand visions, raise that kind of money, or honestly get up in the morning? The truth is that the most impressive people are anxious overachievers. They must prove something — to themselves, their parents, or the world.”
2. “To add some clarity to where I stand on investing in AI — I think the opportunity is massive. But unlike other types of technology that came before, it won’t all start with startups and expand up market. There will be opportunities everywhere, but I think pre-seed and seed AI companies that look like the pre-seed/seed companies of the past decade, will not be nearly as successful.
Find business models that are more than software, because pure software will become less defensible over time. More and more I like models that bundle software with something physical: sensors, services, a needed human touch, etc.
Consider companies that can benefit from strong ecosystems, particularly in GTM. The SaaS wave of the last 15 years was weak on channel partnerships as an early GTM focus. I think that will change. If you have a lot of channel partners or other integration and ecosystem partners who benefit from your success, there are many people who are incentivized to make sure you aren’t replaced.
Look to apply AI in industries that have not had to defend much against the innovator’s dilemma. This could mean bigger more vertically integrated business models but, in many cases I think that will be the right play.”
3. “QT removes liquidity from the system. As of March 2022, the Fed allows roughly $95 billion worth of UST and MBS to mature without reinvesting the proceeds. This causes the Fed’s balance sheet to fall, which we all know reduces dollar liquidity. However, we are not concerned about the absolute level of the Fed’s balance sheet but the pace at which it declines.
Analysts, like Joe Kalish of Ned Davis Research, expect the Fed to reduce the pace of QT by $30 billion per month at its May 1st meeting. The reduction in the pace of QT is positive for dollar liquidity as the Fed’s balance sheet rate of decline slows.
When the TGA balance rises, it removes liquidity from the system, but when it falls, it adds liquidity to the system. When the Treasury receives tax payments, the TGA balance rises. I expect the TGA balance to swell well above the current ~$750 billion level as tax payments are processed on April 15th. This is dollar liquidity negative.
Don’t forget it’s an election year. Yellen’s job is to get her boss, US President Jeo Boden, reelected. That means she must do all she can to juice the stock market to make voters feel rich and ascribe this great outcome to the slow “genius” of Bidenomics. When the RRP balances finally go to zero, Yellen will spend down the TGA, releasing, most likely, an additional $1 trillion of liquidity into the system, which will pump markets.
The precarious period for risky assets is April 15th to May 1st. This is when tax payments remove liquidity from the system, QT rumbles on at the current elevated pace, and Yellen has yet to start running down the TGA. After May 1st, the pace of QT declines, and Yellen gets busy cashing checks to jack up asset prices.”
4. This was a great discussion on owning businesses, business and life philosophy and finding your mission through business.
5. “In 2002, Musk kick-started a new era for the city when he founded SpaceX from a modest office there. By the time SpaceX outgrew El Segundo and moved to nearby Hawthorne in 2008, Musk had cemented El Segundo as a home to top-flight engineers. Some of them — like Radiant co-founder Doug Bernauer — have stayed to start their own companies, while many others have helped form the bedrock workforce for the newest startup boom.
Within the Gundo, almost every startup hopes to turn the Defense Department or some other government entity into a customer. It was an unpopular strategy until Thiel’s Palantir and Musk’s SpaceX proved that startups could secure government contracts when competing against established giants like Raytheon and Boeing. And the increase in defense tech startups in the Gundo mirrors the broader rise in venture-backed startups working defense purposes over the few years, spurred on by SpaceX’s example, as well as rising geopolitical tensions in places including China, Ukraine and Israel. Realistically, of course, securing government contracts remains a long and potentially fruitless endeavor, which could mean many of the El Segundo startups disappear as quickly as they appeared.
Many of the founders expressed to me the feeling that America had fallen behind other countries like China, and that their work in the Gundo is helping the U.S. recapture its faded manufacturing glory. Cameron Schiller, co-founder of startup Rangeview, which uses 3-D printing to produce parts for the military, said he felt himself and the Gundo startups had a common mission.
“We had ideas and things that were very American, but they were old American. They’re not ‘Build this B2B SaaS maker software doohickey to deliver your groceries 10% faster,’” Schiller said. “We wanted to rebuild the fabric of the country.”
6. “Generally, research finds that when we’re challenged or struggle in ways that we believe we’re capable of overcoming, those struggles eventually invigorate us and lead to a sense of meaning and accomplishment.
But when confronted with struggles and challenges that we feel powerless to overcome, that’s when we get demoralized, and in extreme cases, experience trauma.
Throughout history, people erred on the side of subjecting each other to more pain. This is because most of human history fucking blew. War, famine, plagues, slavery, tyranny were the norms of the human condition, not the exception. So people were hard on their kids, hard on each other, and had little sympathy.
This changed about a hundred years ago with the rise of Freud and widespread acceptance of psychology. These days, you could argue that in some ways, we are probably too soft.”
7. My buddy Alex knows the business of VC very very well. This was a great interview on what’s happening in Venture and the tech startup land.
8. “Our search for revenue durability. The final point, on revenue durability, is the real clincher. Everything about LLMs seems to make revenue durability more challenging than ever. As VCs, our approach has been to try to focus tightly on this question as we evaluate the current generation of AI-first/LLM-powered companies, both on the infrastructure and application layers.
LLMs and GenAI provide powerful new tools for technology vendors and customers alike. They change the playing field, but they do not change the fundamental rules of the game. Within the new (and still emerging) rules of the LLM/GenAI game, we continue to search for companies that have a path to creating significant customer value while capturing value for their shareholders.”
9. Jocko Willink is da man. So much to learn from this guy.
10. “I’m sure that to someone in the Navy’s public relations department thinks that simply refusing to talk to reporters about these problems means that the problems have been solved. This is typical of the ostrich-like mentality that I see among a very wide variety of Americans, from Congressional staffers to tech moguls to news reporters and pundits, regarding the imminent threat of war with China. But refusing to talk about problems doesn’t make them go away; it simply makes us less prepared to deal with them.
China’s leaders, meanwhile, labor under no such comforting illusions. In addition to their massive military buildup, they are taking various other actions that might or might not entail purposeful preparation for war, but definitely have the effect of making China better-prepared should a war break out.
For example, China’s dominance of the battery and electric vehicle industries helps insulates them against a potential blockade of their oil supplies through the Straits of Malacca.
Xi has also commanded the country to improve its food self-sufficiency; since the country was 94% self-sufficient in food back in 2000, this is probably not an impossible task. That will insulate China against any possible blockade of food imports in the event of a war.
As for finance, China has been stockpiling gold and urging trading partners to do more business in yuan. That should help neuter threats of financial sanctions, like the one Janet Yellen just issued.
Again, I don’t know which of these measures represent purposeful preparation before the launching of a great-power war. But they all definitely make China better-prepared. Even as the U.S. tries its best to ignore its glaring inability to build ships and missiles and ammunition, China is shoring up its key weaknesses in fuel, food, and finance.
All of this should scare you a bit. It certainly scares me a lot. The possibility that revisionist great powers will launch a world war in order to overturn the global order is now a lot higher than it was a few years ago, and arguably even higher than one year ago. Americans need to be screaming our heads off about this, so that we can start planning for this disaster today, instead of allowing ourselves to wait and be blindsided by it. We need to be warning our friends, and telling them to warn their friends. We need to be talking about this on national TV, in the New York Times, on podcasts, and on whatever social media the CCP still doesn’t control.
Right now, what I mostly hear is a deafening, horrible silence.”
11. llluminating conversation.
“The 1930s are used as a more common reference to the current sanctions on Russia instead of China. We are not sanctioning China. We are only trying to prevent the acquisition of high-end chip capabilities for the sake of reducing Chinese military capabilities.
Since Japan is an oil importer, the WWII oil embargo was a serious hit to the Japanese economy. You are correct that there was a clear connection between the oil export ban and Imperial Japan’s decision to go into French Indochina and the Dutch colonies to gain access to the resources.
There was a discussion in Japan that harsh sanctions on Russia would put Russia into a corner, causing them to do something unthinkable like using a nuclear weapon. But Russia did not use a nuclear weapon, and now they are still trading oil to China, India, and elsewhere.
From a Japanese point of view, there’s always a reference to the 1930s when it comes to the question of economic coercion. There is a national memory. But this argument is separate from the question of economic security. Economic security is a debate about how to prevent economic coercion from being imposed on Japan. Something that hasn’t changed since the 1930s is that Japan depends heavily on imports for energy and food. We are vulnerable to economic coercion, so we need to think of the how to mitigate those risks.”
12. Good state of Saas in 2024 from Jason Lemkin.
13. An excellent discussion on the basics of growth hacking from Silicon Valley. Elliot is a legend here.
14. “What happens if I don’t make this investment?
This explains a lot of what I’m seeing in the market. Sometimes, there’s nothing wrong with a company per se. The revenue traction is fine, the market size is interesting, and the founders are good. But the company just doesn’t feel special. If an investor were to pass on this company, it’s unlikely to be a pass they look back on with deep regret.
In my experience, most investors are unwilling to express this sentiment to founders because it’s awkward to say to someone excited about the business they’re building. Instead of saying this, they find another reason to pass on the company and move on.”
15. “Talent and funding are great, but they won’t get you anywhere if customers don’t want to buy what you’re selling. And that’s where recent economic and political tailwinds come in. Tensions with China and Russia have created pressure on our government to fund defense innovation.
Strained relations with China are also causing companies to rethink their material sourcing and manufacturing for the first time in years or decades.
Additionally, rising minimum wage laws and intensely seasonal hiring needs in sectors like agriculture are pushing many industries toward increasing automation in order to survive.
These global trends are an immense tailwind for startups focused on robotics, manufacturing, defense, energy, and many other areas.”
16. Drone war shows the new face of war. We (USA) are really behind the 8 ball here.
17. So many great mindset ideas for great success in life.
18. Great discussion on being an operator-investor. And the big difference in styles between Founders Fund and Khosla ventures and being an independent thinker.
19. Innovation in war happens on both sides, unfortunately this is one from Russia. Guided precision heavy explosive bombs which has contributed to their advances in recent months.
20. “Services businesses are a promising next frontier. With massive market sizes- the Big 4 alone brought in $200B in revenue last year- and a relative dearth of dynamic tech talent, the ground is fertile. Historically, common wisdom has held “services businesses aren’t venture backable.” Compared to software businesses, services performed by humans tend to be low margin, hard to scale exponentially, lumpy in revenue, etc. etc. There are many cautionary tales. But change is afoot… hastened by AI, cracking open new, huge opportunities for founders brave enough to go against the tired wisdom.
We even have a beacon out there showing the way: Palantir. What started as a services business is now amongst the most highly-valued (on a multiples basis) venture-backed company in the industry. There’s much to be learned from its march to higher margins and recurring revenue. And with the rapid advancement of AI, I’d argue we’re on the verge of a Cambrian explosion of Palantirs.
Service businesses that leverage both AI and humans to deliver holistic solutions to clients are poised to outgun and outpace the services behemoths that’ve dominated for the last 50 years. Legacy providers are ripe for disruption: their business models rely on human labor and hourly billing which can be turned on its head by AI-enabled vendors.
Further, their “product” (humans) is very difficult to integrate AI into. While software incumbents are having a relatively easy time adapting to the GenAI wave, services incumbents will struggle. Founders, this is a boomtown moment to seize.”
21. What a nutty story. White collar criminal sentenced to death (albeit she did apparently steal billions).
22. Punching above their weight geopolitically, the Arab Gulf States: UAE & Saudi Arabia & how they are balancing the major world powers around them (ie. USA, China, Russia, India).
23. Title says it all. Net net: unlearn everything you think you learned from 2019–2021 in startup land.
It was ZIRP era stupidity and most of it was wrong and irrelevant for this new leaner environment now.
24. Brian Singerman of Founders Fund is one of the best investors out there. Plenty to learn from this convo.
25. Bit late to this. Man, Qatar is so wily. Building up their ties with Turkey, Iran & Russia and leveraging their natural gas reserves & massive Sovereign Wealth Fund to beat the Arab state blockade.
26. 6–8 years of man and material left? The limits of the Russian war machine.
27. “Our fast thinking system is an incredible tool. It allows us to drive cars, compare prices, recognize friends at a distance, and play sports. But its availability makes us lazy. Why do the hard work of thinking through a problem when we can just “go with our gut”? In any decision of consequence, it’s good policy to slow down, get out of the stimulus-response cycle, and let your slow thinking catch up. That’s not to say we should disregard our gut — just don’t let it take the wheel.
Ideas are yours to play with, disassemble, shape, and apply where needed. I’ve taken the idea of “slowing down” and mixed it with atheism and stoicism to enhance my personal relationships. When my kids are disagreeable (i.e., awful), or my partner is upset/angry, I often respond as if it’s a threat to my authority or value. I reflexively escalate and get back in their face(s). I now try to disassociate. What I mean by that: I take myself out of my “self” and see someone I care about upset. Being an observer, vs. being in the line of fire, inspires different emotions.”
28. “PMF isn’t attained permanently, but sustained over time as companies & complexities grow. As they scale, startups move up-market, expand into new geographies, add new product lines, & develop new customer acquisition motions.”
29. “Tull, Helberg and the other Idaho attendees see the recent boom in defense tech as a critical bulwark against China and its ambitions. They believe the startups are producing the types of weapons and technology the U.S. needs to secure itself against the rival nation. Overall, China is becoming a topic of intensifying focus in an increasingly hawkish Washington — where dramatic debates over TikTok bans and ominous hearings about China’s military took up a noticeable part of Congress’s winter agenda.
As Tull’s ambition has risen alongside the broader growing interest in defense tech, he’s raised $1.8 billion from investors like Guggenheim Partners for his U.S. Innovative Technology fund, which also contains some of his own personal wealth. (Forbes estimates his net worth at $3 billion.) Tull isn’t stopping there. He is currently in the process of raising even more for the fund, with a goal of securing a total of $3 billion.
Tull’s rise to prominence as a top defense tech investor — and emerging GOP heavyweight — offers a stark contrast with his commercial interests and political spending of a decade ago. Back then, he was growing his film production company, Legendary Entertainment, largely through financing simply plotted blockbusters that resonated with Chinese audiences (he later sold the outfit to China’s richest person). Along the way, he directed some of his Hollywood millions to Democrats like Hillary Clinton, whose political action committees received over $1 million from Tull in 2016. (He still sometimes gives to Democrats, though at a much reduced level.)
As his transformation has occurred, Tull, once a fixture on magazine covers and red carpets, has grown intensely private, retreating to a new home base in Pittsburgh. (He wouldn’t comment for this story.) “He’s very uncomfortable with trying to run out and beat his chest in public,” said longtime friend Joe Lonsdale, a venture capitalist and Palantir co-founder.
The change may seem discordant, but Tull, 53, has in fact long displayed a chameleonlike flexibility of identity. His skill as a shape-shifter came up unprompted when I discussed Tull with Ray Mabus, former U.S. Secretary of the Navy, who described it as “his protean nature.” Added Mabus, who has known Tull for more than a decade: “He is a pretty nimble mind.”
In fact, over the years, Tull has been all these things: laundromat owner; venture capital scout; Hollywood financier; minority owner of the Pittsburgh Steelers; investor in an eclectic bunch of nondefense startups through his holding company, Tulco Holdings, including Colossal, a startup that intends to revive the woolly mammoth; weapons tycoon; and budding political power broker.”
30. Love his newsletter. Contrary Ventures has a very differentiated offer in the VC business.
31. “The key is that there are two major categories of investors, whereby one is focused on unlimited upside, and the other is focused on a minimum return combined with downside protection. When fundraising, entrepreneurs should understand the two categories of investors and think through the pros and cons of being upside-focused or minimum return-focused.”
32. This is a scary forecast on the future of war and geopolitics. Basically we may be close to tipping from a Cold War into a hot war. Worth listening to.
33. Entering a world where everyone is an investor. 2 of the smartest guys on the planet here talking about crypto, it’s back.
34. This is a unique take from a surprising source but I certainly hope he is right that Russia will lose in Ukraine.
I wish & pray for Ukrainian victory over Russia even though it looks grim over there right now.
