Your Song
w.179 | Debt Deals, After the Creator Economy, AI Hackathon, Max Pain, YC Startup Outcomes
Dear Friends,
I hope you are staying warm and safe wherever you happen to be. Usually, I get to complain about how terrible the December weather is in Minnesota relative to the rest of the country. But the Bomb Cyclone is impacting nearly the entire continental United States, so unfortunately everyone now gets to experience what is typical for me.
Below is a 3-min holiday video/Spanish Ad to warm the heart. H/T to Paddy
One more week until 2023!
Today's Contents:
Good Reads: Sensible Investing
Trends & AVC Weekly Wrap Up
Song of the Week: Your Song
Good Reads: Sensible Investing
Unlearning the Macroeconomic Lessons of the 2010s by Noah Smith.
The early 2020s have taught us to worry about asset bubbles a bit less than we did in the 2010s, and to worry about excessive government stimulus a bit more. But that doesn’t mean everything we learned in the 2010s was bunk. Private banking systems are fragile without the government to stabilize them. Aggregate demand does matter, and the government can affect it with both fiscal and monetary policy. Basic Keynesian macroeconomic intuition still looks pretty good in the 2020s, just as it did in the 2010s and before.
Silicon Valley Start-Ups Race for Debt Deals in Funding Crunch in the FT. It’s no surprise that this is an outgrowth of the current environment where profitless, late-stage companies need to raise cash, and their investors don’t want to report down rounds.
This will have a knock-on effect, and I predict it will change the early-stage investing game quite a bit. Why? Because early risk capital gets crammed down (and often out) when liquidity events do occur. If your seed fund is based on you having billion-dollar outcomes, but when those are achieved with deals that took structured debt, the seed capital might earn only a 2-3x return, and that’s not going to move the dial for the seed funds. Yikes.
Hemant’s Year End Letter to LPs from General Catalyst. Primary source material on what a large venture firm calls the stewardship winds from Limited Partners.
“The magnitude of these problems are far beyond what the venture industry has historically tackled. As such, we have to transcend the traditional VC mindset if we're going to make a difference. The way we're going about solving these things right now is not going to get it done.”
Life and Death of Y Combinator Startups. Useful data. The chart below illustrates the percentage of YC startups that are active (i.e., still operating), inactive (i.e., failed), or public/acquired (i.e., exited) by batch since the incubator’s founding in 2005. Even YC companies have a high failure rate.
Trends & AVC Weekly Wrap
Gumroad’s Pricing Disaster with Sahil Lavingia. Video explaining this week's controversy on communicated price hikes for the micro-creators and those that build in public.
After the Creator Economy, a zine edition from a fragment of the economy. As the economics of being a creator come under pressure from pull-back in spending, the more socially-minded aspects of the community will be more dominant.
Max Pain - a zine article. H/T Ben Dietz. This an interesting concept to describe the zeitgeist.
“Max Pain is an urban legend-slash-theory from the options market, in which certain people are betting on a price to go up and others are betting on it to go down, yet it somehow finds a way to do neither, instead converging on the place where most people’s bets expire worthless, regardless which side they’re on. In this metaphor, “Pain” means both losing money and not knowing what to do, even though you had a reasonable assessment of the future when you started. Max Pain means, even when you’re right, you’re wrong; it describes a climate in which everyone’s opinion is right at some point, but never at the right time.
To expand the term beyond its original scope, Max Pain punishes people betting on the future, regardless of the direction. Max Pain is the feeling that we’re doomed to fail—that even when you are right (about climate change, for example) you are wrong (you flee New York City and find that even Montana is somehow underwater). You are right, but you can’t win because conditions oscillate dramatically between opposing states, hurting everyone equally. The most painful outcome is the most likely outcome (everyone is wrong long enough to lose conviction, for example).”
Here’s What I Saw at an AI Hackathon by Dan Shipper. This piece feels like a first-person account from the front line. So, almost like primary research.
TL/DR:
Google’s brain drain.
People are expecting asymptotic gains for completion quality.
Startups building infrastructure on current models are in trouble.
OpenAI can extract a 10% equity tax from any company that wants to win.
The future of programming is writing prompts.
A battle between AI’s dark side and light side is currently raging.
AVC Weekly Wrap
We are taking a week off the weekly wrap. We did another test run and are making adjustments. Thanks to everyone for the thoughts and feedback!
Selfie and Song of the Week: Your Song
Music video of a live performance here.
I struggled with what to share in this edition after doing festive songs last week. But I liked Your Song for gifting season: I know it's not much, but it's the best I can do. My gift is my song, and this one's for you.
It’s also a classic and one of Elton’s best.
This newsletter is an outcome of The Artist’s Way. It’s been the book I’ve recommended to people most over the years, and I’ve sent out quite a few copies. One part of the practice is that you write 750 words (three pages) daily for three months and take yourself on ‘artist dates’ to do something just for you.
This year, I’m gifting myself the time to do daily pages again via 750words.com. It’s meditative and therapeutic; I think it makes me think more clearly. I also feel accomplished when I start the day this way. I’m on an 11-day streak, and I will keep on going.
“Your Song” by Elton John
If I was a sculptor, heh, but then again, no
Or a man who makes potions in a traveling show
I know it's not much, but it's the best I can do
My gift is my song, and this one's for you
And you can tell everybody this is your song
It may be quite simple, but now that it's done
I hope you don't mind, I hope you don't mind that I put down in words
How wonderful life is while you're in the world
Selfie of the Week:
Our family tradition includes swiss fondue (both cheese and meat) on the 23rd. Happy holidays from my family to yours.
Thanks for reading, friends. Please always be in touch.
As always,
Katelyn