UPDATE: I'll be posting over at Tango.vc
The problem with the question “why?” is that when you give an answer you can ask “why?” again and again, trying to go deeper. Here I want to answer why I’m entering the world of venture investing. The answers directly impact downstream strategic and tactical questions, which I’ll cover at the end. So let’s dive in.
Base Reality
Look up at the sky, and you’ll see thousands of stars. Incredibly, we haven’t detected any life out there, famously dubbed the Fermi Paradox. With 100,000,000,000 stars just in our galaxy, we can make conservative guesses for how many have earth-like planets, spark life, develop intelligence, explore the stars, and so on. After billions of years, where is everyone?
There is plenty of room at the top. One way of measuring civilization progress is by the Kardashev Scale, based on energy use.
- Type 1 civilizations use all of a planet’s energy
- Type 2 uses a star’s energy,
- Type 3 is an entire galaxy’s energy.
Humanity could power itself with a 20TW solar installation, the size of Spain, making it type 0.73. A Type 2 civilization might employ a Dyson’s Sphere around a whole star to capture 20 trillion times more energy. Such megastructures should be detectable, even from light years away.
Not only is there a chance to build this unimaginable future, a real call to adventure. But we also need to contend with the chance that humanity is the only conscious life in the galaxy able to do it. Long term, the only way to survive as a species is to leave earth and explore the stars.
The basis of morality is the suffering and thriving of conscious creatures. If our solar system was just rocks crashing together, who cares how they went about it. The most meaningful parts of our universe are pockets of intelligence fighting against entropy. It matters that we survive and flourish.
But back down on earth there are still 700M people living in extreme poverty. It isn’t zero sum, as the history of population growth and extreme poverty illustrates so vividly.
We need to make everyone rich, and there are endless frontiers of progress. Health, education, agriculture, construction, transportation, energy, manufacturing, finance, communication, security...
How we do more with less drives this progress. Much of our history of growth is extractive, where we take without thinking of consequence, hurting people and habitats. The future will be together as a global community, restoring this jewel of a planet.
Roots of Progress
Progress comes from many sources, including globalization, fundamental research, and innovation.
Much of the developing world can grow by building the institutions and infrastructure we already enjoy in the west. More people have left extreme poverty since the year 2000 than remain.
Research labs across the world push our fundamental understanding of what is possible. This work is often done quietly, without much concern for when practical applications will be found.
Established companies can innovate with globalization and commercialization of research. Only The Paranoid Survive because incumbents get calcified and addicted to how they do business today.
New ventures help us thrive by creating and changing large markets. Incumbents have so many advantages that new companies must have something innovative to compete. Venture investing fuels these rocket ships. By helping find and support the best new companies, investors are in a unique position to help accelerate innovation. The reward if you do it well is to do it even more, at higher scale.
I’m moving into venture investing to accelerate progress, by supporting early teams taking on ambitious technical challenges.
I’ve founded two startups and worked within some of the best companies like iRobot, Facebook, Dropbox, and Lyft. All those experiences were similar in that I focused within a single product in a single market. Investing is the same spirit, but with a portfolio instead of a single focus.
Tactics
Why I’m here affects tactical investing questions.
Times are frothy. What used to be a Series A in terms of amount raised and valuations is now common in the seed round. Ironically Series A investors are now getting more involved upstread in seed deal, which might mean only the round naming has changed.
Are the prices too high? Should you continue, wait for the froth to subside, or filter out expensive deals?
If your goal is large absolute returns, then it’s ok to back home runs that start bubbly. If your goal is large multiples, then you can try to compose a portfolio with more efficient rounds that don’t need stellar returns to achieve those multiples.
In my case, I want to help make a dent in the world, which means tackling enormous markets. The global non-residential construction labor market is $6T. I invested in Cruise and worked in Lyft Level 5 because consumer transportation is a $2T market just in the US. Winners entering this space can easily be worth $10B+. The price at the seed doesn’t matter when you’re in the home-runs business in these markets.
What about fund stage and size? I’m drawn to early stage investing because I love working with founders from the start of their companies. As a new investor, this is great if I want to start my own fund, as a smaller fund can participate in early stages. But what about hardware? The capital required is often larger, and timelines longer. I’ll need to refine my plans if I want to make an impact.
Learning More
I’m writing here to help refine my view of venture investing, and also putting the ideas on YouTube because I love video so much as a way to learn, discuss, and teach.
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