The Chomp #039

Inventors & Hucksters, Rolling Funds, and More...

Hey Everyone,

Welcome back to The Chomp—your weekly dose of the best strategic thinking content and top emerging business trends from the internet and beyond, designed to expand your mind and get you thinking. If you’ve been sent this email and you’re not a subscriber, you can join by clicking on the blue button below. With that, let’s dive into it.

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Quick Bite

Why Our Greatest Inventors Are Supreme Hucksters: “In the pantheon of human importance, we always accord high status to the inventor, and low status to the showman. But almost every significant technology, even vaccination, has required ten times as much effort in the selling as in the conception.”

In his book Zero to One, Peter Thiel says that “if you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.” Despite claims to the contrary, no founder to date has made a product that sells itself. Regardless of how amazing a product is—even if anyone who tries it likes it right away—there still needs to be a plan in place for distribution.

The greatest inventors understand the importance of distribution and know how to take it to the next level. Along with inventing a great product, they are able to generate hype that coincides with the release. Most importantly, they generate hype for products that are both novel and useful. Hype doesn't tend to work once the novelty wears off. Video conferencing is a great example where the hype and usefulness didn't come at the same time.

Rory Sutherland does a great job of highlighting why in this fantastic article. Had video-conferencing been introduced at near-perfection, and at a time when most people had high bandwidth at home, the entire course of its adoption would have been different. But the hype and the application didn’t come simultaneously.

With the introduction of the iPhone, Steve Jobs was immediately able to draw hype. As soon as he introduced it on stage in 2007 you knew the iPhone would be the future of mobile devices. Elon Musk did the same for Tesla when he revealed the Model S to the world. Gone were the days of electric vehicles looking like a Toyota Prius. Immediately following the Model S release there was a months-long waitlist.

As Sutherland further points out in the article, the ability to create hype alongside an invention may be the decisive factor. Had Steve Jobs and Elon Musk not been incredible salesmen, Apple and Tesla likely wouldn’t be where they are today. Our greatest inventors are the best hucksters of them all.

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Deeper Dive

Rollin’ (ARR-Paid Vehicle): “The “Rolling Fund” structure, as productized by Angellist, allows a solo GP to set up a fund that accepts commitments from investors on a quarterly basis, rather than raising the fund commitment all at once and then drawing it progressively through capital calls. They’ve been around for a little while, but didn’t really catch the zeitgeist until recently, when Sahil Lavingia raised one in a flash, with others quickly following”

Way back in February (which feels like five years ago), AngelList launched an innovative new fund structure called the Rolling Fund. The announcement generated a bit of buzz at the time but quickly fell to the wayside as COVID ramped up and took center stage. Over the past couple of weeks, Rolling Funds have come back into the conversation—and back in a big way.

Traditionally, venture investing has followed a pretty standard formula. Dumbed down, it works like this:

1. One or more General Partners (GPs) create a fund.

2. GPs go out and raise money from Limited Partners (LPs). These LPs are typically made up of institutional investors, sovereign wealth funds, corporates, or high-net-worth individuals,

3. When an LP agrees to invest in a fund, they commit a set amount of capital to be deployed over the life of a fund.

4. GPs invest in new companies over a multi-year period and draw committed capital from their LPs when needed through capital calls.

Rolling Funds seek to disrupt this model by rewriting the rules of engagement. By launching a Rolling Fund, GPs forgo the process of raising the entire sum of a fund at the outset and are able to raise capital on a quarterly basis. For LPs, they don’t need to commit a large sum of money upfront. They can start small and increase their investments over time as the GP proves their value.

The Rolling Fund model also massively lowers the barriers for entry on the LP side. Rolling Funds to date have had minimum quarterly investments as low as $5,000. This means that successful tech employees (or any accredited investor) can now join the party.

As Alex Danco highlights in this excellent post, the recent announcement of Sahil Lavingia’s Rolling Fund put the new fund structure back in the spotlight. As the Founder and fulltime CEO of Gumroad, Sahil went from never considering being a VC to launching a fund in under a month. A fund with over $1M to invest per quarter, nonetheless.

There are certainly some thorny issues with Rolling Funds* that will need to be worked out over time, but focusing on these issues causes you to miss the bigger picture. Aside from lowering the barrier to entry for prospective LPs, Rolling Funds also add a new level to the social dynamic of investing. Backing an emerging GP is now just as easy as backing a startup through an angel investment. There’s a whole new world of clout up for grabs.

Alex does an incredible job of breaking this new dynamic down in the post. My words don’t do his ideas justice, so go give it a read to better understand why Rolling Funds are likely here to stay.

*Ali Hamed wrote a great post outlining potential issues with Rolling Funds here

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Chum Bucket

• Apple’s China Loopholes Are Starting to Close (The Information)

• There is a Crisis of Face Recognition and Policing in the US (MIT Technology Review)

• Apple, Epic, and the App Store (Stratechery)

• What the ‘Tech Exodus’ Could Mean for Silicon Valley (Bloomberg)

• Uber and Lyft Get Reprieve After Threatening to Shut Down (NY Times)

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Tweet of the Week

Chadford Whitmore VI 💸 @PunchableFaceVI

Jeff Bezos met with 60 people in 1994 to start Amazon and only 22 invested. Take solace that there’s 38 people that have made worse investing decisions than you.

Song of the Week

Apple Music Link

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Books

Currently Reading

Recently Read

• Zero to One sat on my reading list for quite some time before I finally picked it up. Despite having rave reviews and being considered one of the quintessential books on startups, I never felt compelled to prioritize it ahead of other books on my list. After finishing it, I’ll admit that was a mistake—I should have read it sooner. Peter Thiel is one of the great contrarian thinkers of our time, and his work speaks for itself. Setting his somewhat controversial political views aside, Thiel is an expert founder, operator, and investor. Zero to One offers a fantastic outline of Thiel’s business philosophy and his filled to the brim with valuable advice. This is worth a read regardless of your interest in the startup economy. (4.5/5)

• Essentialism is a book that I wish I knew about much sooner. Greg McKeown’s philosophy of essentialism is a powerful antidote to the craziness of our non-stop world. McKeown lays out the argument that we can actually accomplish more by doing less through the relentless pursuit of focusing on what’s essential. By setting out on the path to essentialism, we can all make the highest possible contribution to the things that really matter to us. Essentialism was an impactful read that will now be high up on my list of recommendations. (4.5/5)

• With finishing Master of the Senate, I’ve now made it through ~2,750 pages of Robert Caro’s masterful The Years of Lyndon Johnson series. Clocking in at 1,200 pages, Master of the Senate is one of the most detailed and impressive chronicles of the U.S. senate ever published. While I encourage, and highly recommend, reading the entire series, Master of the Senate can easily be read on a standalone basis. It’s a phenomenal read that will leave you with a working knowledge of how our legislative system truly works. As I have said before, and I’ll say again, Robert Caro is the best biographer to ever put pen to paper. (5/5)

Parting Thoughts

This Week in History

• On August 18, 1920, women finally got the right to vote when the 19th Amendment to the US Constitution was ratified. The decisive vote to ratify the amendment in the Tennessee House of Representatives was cast by a 24-year-old representative who reputedly changed his vote after receiving a note from his mother. (Source)

“The most contrarian thing of all is not to oppose the crowd but to think for yourself.”

— Peter Thiel

If you found something that piqued your interest this week, please help me out in expanding the reach of The Chomp by forwarding it along to a friend or sharing it with others in your network. Until next week.

-CM

This newsletter is created and authored by Cody McCauley and is published and provided for informational purposes only. The information in the newsletter solely constitutes Cody’s own opinions. None of the information contained in the newsletter constitutes—or should be construed as—investment advice.