I’ve written about the “So what?” filter before. There are two filters that I’m trying to apply more consistently: I believe that investing intelligently in venture post-crash means investing in businesses for which the playbook is unknown. Venture capital, meanwhile, which is theoretically speculative “Financial Capital”, has increasingly become professionalized and standardized, thanks in part to the rise of cloud platforms like AWS building a new SaaS company to take on another old-world vertical certainly takes hard work, but the playbook is fairly well-known. They require “speculative Financial Capital.’”Īs Ben Thompson wrote in October’s The Death and Birth of Technological Revolutions : If I’m being critical of myself, that list seems a bit “buzzword BINGO.” What do those categories have in common? Putting web3 and defense in the same bucket seems odd.
In Not Boring Capital’s last LP Update, I shared that we were tightening our focus: we’ll remain generalist, but put a “strong emphasis on the frontiers of bits and atoms – web3, AI, ML, and security on one side, climate, energy, space, defense, healthcare and bio, on the other.” In other words, what should we invest in coming out of this crash, and as importantly, what should we not invest in? Typically, the same companies and categories that lead the previous run-up aren’t the ones that produce the best returns on the other side of a crash. The part that’s more in an investor’s hand is the what. I have neither the crystal ball nor the intelligence to nail the timing. Historically, if you’d invested after a crash, you would have had a positive ROI, but timing does have IRR implications. When the exact right time to invest is is a tricky question that no one has the answer to. The answer has a couple parts: when and what.
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The more important question is in the third sentence: how to invest intelligently post-crash? Historically, the Nasdaq has recovered and exceeded previous highs after every crash (eventually). The weaker companies get shaken out, leaving the strong companies with less competition for customers and employees. It makes sense to invest in the post crash cycle. Those four companies – Amazon, Google, Facebook, and Tesla – are now four of the eight largest non-Saudi companies by market cap in the world. And that Google came public in the aftermath, the same year Facebook was founded, the year after Tesla was founded. And that of course there were a lot of scams in the dot com bubble, but there was Amazon, too. Now that the market has crashed – with Nasdaq down 28% from November highs – it’s become popular to talk, tweet, and write about the fact that companies like Uber and Airbnb were born in the midst of the Global Financial Crisis. When you do that, and do it intelligently, you are rewarded greatly.
And the lesson I’ve learned in my career is to invest into the post crash cycle.
The Carlota Perez corollary to that is “nothing important happens without crashes”. In a 2015 blog post, The Carlota Perez Framework, USV’s Fred Wilson wrote:
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