Chris Paik - Venture Investing Frameworks - [Invest Like the Best, EP.338]

Transcript from https://podmenti.com/t/b1f7b3f91a507b26

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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best.
This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.
Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossis.com.
Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and the CEO of O'Shaughnessy Asset Management.
All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum or O'Shaughnessy Asset Management.
This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of Positive Sum or O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.
My guest today is Chris Paik, who is a general partner at early stage venture firm Pace Capital.
Before Pace, Chris actually spent eight years building and investing alongside last week's guest, Josh Cushner, at his firm Thrive Capital. During that time, he sat on the board of Twitch.
Our conversation explores Chris's frameworks for investing.
from atomic value swap to business model product fit and the seven deadly cents.
We also discuss different consumer trends like the rise of virtual YouTubers, Apple's Vision Pro, and why everyone graduates off of YouTube.
Please enjoy my conversation with Chris Pake.
Mm-hmm.

So Chris, I think an interesting place to start because it's something you said at lunch that I don't think I've seen you write about elsewhere.
Is the history of humanity as a data storage and transfer problem?
And how that relates to new kinds of computer interfaces. We're lucky that
We've now gotten to see the latest Apple.
Vision Pro
Which it probably figures into this discussion somewhere.
What is this big idea of yours and why is it interesting for those interested in technology?
Let me caveat
This with it's probably in the bucket of
half baked and still in the realm of theory and the world of audiophiles, there's this term called lossless.
Where
If you are an audiophile buff, you're trying to get as close to the quote unquote source or original thing as possible. And so compression algorithms are your enemy.
And it's what drives people to spend insanely ungodly sums of money on their audio setups. And I think this concept of lossless is really interesting as it
Proteins to
Data.
and data transfer and
What are high fidelity experiences, what are low fidelity experiences.
What our lossless experience is.
If we think about
Data between humans
In the same generation, data across generations
Information
So ability for us to transfer information

And access it.
Is
So important to
Societal efficiency prevents us from reinventing the wheel time and time again.
thing that's interesting to think about is songs.
Songs as a
Compression algorithm for data.
We are wired in a certain way to
Feel
certain tunes being catchy and we can remember song lyrics. But if you think about it, the
Oldest.
Forms of songs, poems, epics
were meant
Two
Transfer data.
Between people and across generations. It's this data compression algorithm and perhaps the original form of data storage.
When we think about the advents of technology that have allowed us to create these step functions in data transfer and data storage.
Notably the written word.
Huge, huge advancement.
The biggest change though
happened with the invention of the printing press because it took
Store data.
And made it scalable to distribute. So all of a sudden there wasn't one copy of one thing.
There could be an infinite number of copy or a multitude of copies of the same thing.
And so
If
You think about
individual conversations as
an amount of data that's being transferred.
We're having this conversation right now.
If it weren't recorded.
And it warn't
Distributed.
The amount of surface area that that data could impact ends.
You and me in this conversation. Or each of us take a little bit of it away ourselves. Exactly.
And if you think about
the invention of the written word, that was it.
Somebody writes it down.
And then it is limited to that single copy being consumed.
They mention the printing press.
Created this
Incredible.
distribution mechanism for that same data to be consumed.
You look at the internet.
as another form of data transfer, data storage.
One thing that I think is underexplored
Is
The
Impact of data transfer speeds.
As
actual why now reasons for companies existing.
Let's look at mobile social networks and the order that they were founded in. So Twitter 2006, Instagram 2010, Snapchat, 2011.
Maybe most recently
TikTok.
Nay musically.
in two thousand fourteen.
It could not have happened in any other order.
Because of the minimum packet size.
Of the content.
On that.
platform.
So
Twitter was
Text based, smallest packet size, it was actually able to run over SMS Rails. And then when mobile bandwidth was in its infancy,
it was still sufficient to transfer those kilobits of information.
But it basically wasn't until three G.
Until
Instagram was possible. You had compressed images, and in order for the average person to have a high fidelity experience,
You needed
wide distribution and attachment rate of that.
Snapchat coming shortly thereafter. Also imagery and short form video.
And then TikTok.
Three years later.
with longer form video.
with audio also part of the consumption experience.
The thing is TikTok couldn't have
Started between
Twitter and Instagram.
And interestingly enough, I would argue that Instagram could not have been started after
TikTok.
We'll all due respect to a number of
Great founders building
Great innovative things.
I would argue things like
Paparazzi.
Be real.
Because they are not strictly more bandwidth consumptive.
Then
TikTok.
The why now the technical why now
Is not sufficient, and if they were to have Darwinistically existed and survived, you would have seen them emerge.
In the
Instagram
Snapchat era of three G.
I think a lot about
Data transfer.
Between humans.
Across generations.
But then also
The read write speeds of
Humans to computers.
So
Our eyes
Weed.
Data.
At about
I think it's a hundred
megabits per second.
Basically Ethernet speeds.
Our whole environment, not just reading text. We read what we can see. Yes, exactly. The amount of data that our eyes
Injust.
Is about a hundred and
Megabits per second.
Compare that to
Linguists who have studied
The bit rate transfer of
Spoken language.
is
Or of magnitude slower.
Most
Current
common spoken languages.
converge at a data transfer speed of thirty nine bits per second. Wow. Tiny fraction.
There are like a number of things that bound that data transfer speed. It is both limited by the right speed of.
A human voice and the data processing speed of
our audio of our ears. Interesting enough, you think about
People who can listen to podcasts at two time speed. Can't listen at five times though. So they actually read speed is twice as fast as the spoken word write speed. Spoken language, the limiting factor
is actually human right speed.
And if you think about voice.
as a
Interactive modality to computers.
That also suggests that a voice interface will also be limited in a data input.
right speed of thirty nine bits per second.
Some examples may highlight
Things like imagine a fighter jet.
That's voice control.
Doesn't work.
Doesn't work for a number of reasons. We as humans, we've created
Tools.
to advance our haptic
ability to input data into computers, whether it's the keyboard or the mouse.
Or the touch screen.
I think there's something interesting to
Think about
Darwinistically.
If voice

Been meant.
as a
input mechanism between humans and computers.
Вот мы сопли сал.
To advance our data input.
via
the sounds we can make. We would have come up with some sing song
language or we would make specific sounds that map to certain data.
But we haven't.
And I think that begs the question of maybe voice is just not meant.
To be
input mechanism.
between humans and computers maybe we have a structural advantage
With our other senses with touch and haptics, and that is actually
The highest throughput.
data transfer between humans and computers and it will be
For the foreseeable future, we're not going to see.
Because site is
our fastest
Reed speed.
From computers.
We're not going to see
A more dominant interface.
Where computers transfer information to humans.
That is not through sight.
Theoretically this
Would argue
That's
Because voice
Hasn't
Actually
been effective as a human computer interface.
It never will be.
There are limits.
to
this framework and again I'll sort of caveat it with like it being half baked.
But I think the most interesting
part of the Vision Pro.
Is
Not
The screens.
Screen get more intimate. We will always advance
Along
better, higher fidelity, more pixels, you know, screens, but the modality won't change. It will always be screens, it will always be site.
What is changing though
is the input mechanism.
from humans to computers.
So every time
We have
advanced in human to computer right speeds.
We've seen a complete paradigm shift.
And

So you started with the keyboard and
That was
Fine. It was good. It was limited basically by the number of words per minute that somebody can type.
average person types it like forty words per minute.
But then the mouse.
Was invented, and all of a sudden.
There is this watershed moment.
of advance on how much humans can write.
Two computers.
As
Data transfer.
I think the thing that happened with the iPhone
That
can misattribute to like well it's like mobile, smartphones, things like that.
Is actually just multi-touch. Multi-touch was the innovation that made the iPhone in such a paradigm shift of human computer interface.
We had plenty of smartphones.
You remember T nine?
You know, your Nokia Dumb Font?
Think about how ridiculously rate limiting that was as a data input mechanism for humans.
two computers.
So enter multi-touch, you know, Apple
bought the company that owned multi-touch and patents around multi-touch two years before the iPhone was launched. That
Was a thing that allowed humans to write more information more efficiently.
to the computers that they were using.
So I think the most interesting part about the Vision Pro.
Is it's eye tracking.
and hand gesture tracking.
Because to me, those represent
advances in humans being able to write information
to computers. If you think about eye tracking.
Think about the process of clicking on something with a mouse.
You look at the thing.
Your brain
subconsciously is thinking, okay, I need to now physically manipulate my hand.
To move this hardware mechanism.
To then move a digital representation of something
to then meet where my eyes are looking and then I click.
With eye tracking, you basically get to short circuit that entire
Lossy
physical loop.
I feel like that's
Why?
you hear from early users, it feels telepathic.
It's such a gain of efficiency of human right speed.
To the computer.
I think the hope.
Is that
continued advancement of human rights speeds to computers.
lead to these watershed moments of advances in human computer interfaces.
I think it's a great excuse to talk a bit more about this notion
of why now and how that critical question plays into your view of investing strategy.
You gave an example around the social networks in each case they were
newly possible because of some underlying platform change or technology change.
Do you think the answer to the question really needs to be ultra compelling every time you make
The technology investments.
To say as much as you can about this idea of why now.
Conceptually and from a platonic ideal perspective.
Yes.
Every venture investment should have
An essential
very strong
compelling reason of why now, whether or not that is actually
Perceptible, measurable.
and articulable in the moment of having to make an investment decision or deciding to found a company.
That's a totally different analysis.
But
From a philosophical perspective.
Yes.
Venture is a pretty unique
Capital instrument.
Maybe think about
Efficient market hypothesis.
Where
Yeah, there's an opportunity.
People create companies to
Take advantage of the opportunity.
Eventure.
Is supposed to
be exposed to companies capable of explosive
Enterprise value creation over very compressed periods of time.
Those opportunities
shouldn't exist.
Unless
Like crazy dislocation has happened in the market.
Because unless some crazy dislocation has happened in the market.
There shouldn't be
B
The opportunity to capture
such a large integral of value.
And so
If there is no s compelling why now, and maybe it's technological or regulatory.
I would make the strong argument.
At that.
is not a venture. That's not a suitable
Canada venture capital.
When you're looking at an opportunity
And you're thinking about that question.
How do you go?
About poking at it.
Because right now you might be able to say
Okay, a company enabled by the Vision Pro.
I get it. Why now is that this thing's new and
For all the reasons you just described, it's exciting.
People get this. People understand that
Dislocations create opportunity.
And they flood it with capital. They flooded web three with capital. This happens over and over again.
This is old, old history.
But how do you go about
In the gray areas.
assessing this because not every great company was created right on the back end of some major identifiable tech change or something.
So
What does this feel like in practice? What sorts of questions are you asking of the company of yourself? This seems like an incredibly valuable exercise.
in the canonical question, is the founder more important? Is the market more important? I think what you're saying is the market is really, really important.
And great markets that can create a lot of enterprise value come from dislocations.
So I'm just curious how you
prosecute this when you're looking at a company.
So my best answer to that is
It's hard.
Two at a micro basis.
I think
The way that I choose to spend my time, which is hanging out in the corners of the internet.
On the edges of things.
That increases the likelihood.
That things that are happening there
are happening because of some new advancement.
And so in some ways
If you choose to spend your time in those spaces
you get a higher
natural hit rate of

Things that you are exposed to.
being possible because of a why now.
It's a good example.
Is V tubing a good example?
VTubing is probably a good example. VTubing is super weird. It's a VTubing portmanteau of virtual
YouTuber.
V
Tubers
have three D models, you know, they build in Unity or Maya, those
are the digital representations
of the content creator. So
They use motion tracking hardware and software.
To
Capture the movements in their face and their body.
And those movements end up puppeteering.
This avatar, this digital representation of themselves.
As a digital content creator. So you can watch a stream of a VTuber and you're watching the anthropomorphic fox.
Or what have you, and there's somebody somewhere.
Sitting.
With
maybe they're wearing motion capture hardware on their body or they're using
Yeah.
And they're creating content.
as
That's
Character.
And I think what's so interesting about that
Is
Enfranchises a completely new
Set.
of potential content creators.
For better or for worse.
To be a successful content creator in this day and age.
Instagram or TikTok, you basically have to be good looking.
Sad, but I don't make the rules.
And what
This allows
is for people who
Maybe arm?
good looking, but are very entertaining. They're
Super compelling. They're funny.
This allows them to achieve the same level of success.
when they previously were completely disenfranchised. I think that's so, so, so powerful.
I think a lot about
Jobs that might exist in ten years.
That don't exist today.
And jobs that exist today that didn't exist ten years ago. You know, like if uh
You told me.
as a thirteen year old kid that I could
make a million dollars a year streaming video games on the internet. Maybe I would have lived a very different life and pursued a very different career. Like that
When I was growing up, that was unheard of. That was literally impossible.
No one was doing that.
And now
It is eminently possible.
People can do that as their careers.
And so I think
a lot about at a micro level.
How people reallocate their own labor hours.
Where they are advantaged, where they're disadvantaged, where they are newly advantaged.
And
As labor flows to higher states of entropy because of these new advances in technology.
Whoever is building that aqueduct.
That water.
naturally flows down.
Will greatly benefit.
Let me say it back to make sure I captured the idea right.
It's incredibly valuable.
to offer
Enfranchisement, I guess is the word.
to a new class of creators.
that previously could not have been productive.
And if you do that
This is like the whole I think it was Bill Gurley or somebody at benchmark told me like you can't start a new social network with existing celebrities. It has to be with new celebrities that you've made possible. Is that a fair summary?
I could not agree more.
That's right.
Charlie Demelio.
Yeah.
TikTok. TikTok. She's a dancer. If you think about it, dance
As a form of content.
disenfranchised on platforms prior.
To really appreciate dance, you need
To hear the music.
But audio is never
A native endemic.
form of content consumption.
On Instagram.
It was always visual or Snapchat.
Visual.
And TikTok was the first platform that made audio a native part.
of the content consumption along with video. And so dance was
Elevated from this completely backwater, maybe if somebody happened to have their audio on while they're scrolling through Instagram.
It became a first class citizen.
Of this new economy.
of TikTok and
It totally makes sense that then the number one most popular TikToker
is a person who has previously disenfranchised that is now currently unfranchised.
Can you explain for people almost nobody listening will know this term who Code Miko is?
Yeah.
Totally. So CodeMico is a streamer.
On Twitch.
She is a VTuber. The woman behind it, Muna, is wildly talented. She
Three animator.
And
was inspired to
quit her job.
And start
Code Miko as a Twitch channel because of what was then possible in VTubing.
You know where's
motion capture hardware, basically all of her body. That inputs motion tracking information.
into an environment that she has created
In Unreal Engine.
that real time animates a character
Called code Miko.
In a
That stands with a game environment.
inside of Unreal.
Her stream is basically one camera angle.
of that game environment inside of Unreal.
And CodeMico is the content creator basically a player.
represented player inside of that environment.
What's crazy to think about though is
What happens when
Code Miko is not the only
Player.
that's represented in that in-game environment.
What happens when someone else who's also wearing
Motion capture.
Hardware software.
That is also a VTuber.
Wants to
represent themselves in the same three dimensional space.
I think
There's this weird corner of the internet in Grand Theft Auto where people
create content on role play servers. We're playing Grand Theft Auto. I'm
role playing a cop.
You are role playing a bank robber, you actually have to rob a bank, and I am supposed to chase you down as the cop, pull you over.
And apprehend you.
The beauty of this is the game
Basically turns into
An improv stage.
And you have this network effect of content creators, where if I, as a new content creator, get to drop into this existing role playing server, it's so much easier for me to create compelling content.
Because there are all these actors that are already.
Creating amazing content.
And so it's interesting to think about.
VTubers who exist as these digital content creators the same way as
characters in Grand Theft Auto exist on these role play servers.
And what is
Possible.
when they are networked together.
and exist in the same three dimensional space.
How do you think about that from the perspective of an investor trying to earn a return?
I totally get the idea that
A great way to back into
Great Why Nows is to hang out.
at fringes. That's the whole William Gibson idea of distribution of the future being here already. That's my favorite. The future's here is just not evenly distributed. Exactly.
So I love the strategy to find interesting things. It's a great sourcing strategy where there might be a compelling why now that you'll be able to
Tell very coherently ten years from now, but would be hard to articulate now. This one's weird.
For most people probably very weird.
How do you then leap from that to like, oh, investment opportunity, I could invest a million dollars and get a hundred million back or something like that.
It seems like a big leap.
So I think
I feel like this is where an economic framework
Comes.
Into
I think there's this concept of product market fit, which we all know very well. And then this other concept of
Business model product fit.
Yeah, maybe you could argue that
Along the spectrum of zero to one hundred of product market fit.
companies products attain
arrive at their fullest potential.
of users.
Using the product.
But on the scale of zero to one hundred of business model product fit.
The company
approaches its fullest potential of enterprise value.
So you can have a product.
That is amazing product market fit.
Open source, for example. Open source is a great example of product market fit with zero
business model product fit.
Linux, incredible technology.
Linux itself.
There's no enterprise value.
Inside of Linux.
I think this is arguably what's happening with Twitter.
Twitter is a great example of a company that has product market fit and is struggling to find business model product fit and this
Very public stage.
So when it comes to going back to your question of how do you evaluate something that has potential
product market fit at the edge. Maybe a good candidate for Why Now, maybe not a good candidate for Why Now
I do through the lens of business model product fit.
There are only so many
Business models.
That exists, arguably. You can
Buy widgets for X.
And sell the widgets for more than X, that's a business model.
One of my favorite business models is you can help people make money.
And then
You take a cut.
of the money that they make.
I think this applies to
Most marketplaces.
There are other business models of uh you pay me
To save you time.
Productivity tools or the convenience economy.
Delivery, things like that.
I think
Basically.
Every company distills down into one of these
core business models.
When it comes to something like a
Code Miko.
I think a lot about
How these emergent VTubers are choosing to spend their time.
What must be true.
For them to
allocate their time in this way.
And where the
business model opportunity.
might exist.
So
If people at a micro level
are allocating their labor in a way that they previously didn't or weren't able to.
They are likely doing so only
Because
It is economically attractive for them too. They're making more money.
In a way.
that they couldn't have done before.
And so
Likely.
Mm
Best
Business model.
There.
is the second one we talked about, help people make money.
And then just take a cut.
of the money that you helped them make.
With Miko verse specifically.
The business almost certainly is going to follow the Chris Dixon's
Come for the tools stay for the network.
create this incredible, incredible
Streaming
Studio setup.
That's optimized for V tubing.
And what we
did is we backed her to take that.
flatten it down into something that is a single runtime.
And
Give it away.
democratize the tools. It's very technically hard to become a VTuber if you don't know anything if you're a non technical content creator.
So we backed her to take
Her entire setup, her workflows, condense them down.
to a product that then could be disseminated as this democratizing tool set to empower and enfranchise a whole new set of would-be VTubers.
And then
The long term bet is
If there is this network effect, the supply side network that I was articulating with the Grand Theft Auto role playing servers.
If there's a supply side network effect of content creation.
That is this compounding mode.
You get this fundamental network effect that advantage you against would be competitors that offer similar tooling.
And then you can layer on
Things that allow
the people that are using the tool inside the network.
to make more and more money.
And take.
a share.
Of the money that they're making.
Specifically.
I think
One of the insights.
With
Code Miko and MikoVers is
Interactivity.
Live content.

been searching for a monetization mechanism. I think one of the challenges of existing monetization mechanisms like advertising or subscription.
is that it doesn't take advantage of the natively new possible things.
with live content.
We've allowed it to crib the benchmark.
Any new network or new platform will home grow its celebrities.
I would argue that any new
Modality.
Uh
creation will home grow its
own business model.
That's unique to it.
For better, for worse.
Are there

Long pioneered this
Monetization insight.
Notably.
Cam girls.
Camgirls on the internet.
Monetize
Very well.
Through
Interactivity.
You are watching this live stream.
You
Pay some amount of money.
You are basically
Immediately gratified.
With the output of the intended
Intention.
That is actually what is now natively possible with live content that was not previously possible with video on demand.
And so
What Code Miko has done.
is taking the same principle of interactivity.
Where if you watch her stream
There is a
Menu.
But you
Can see.
Where
You can
Donate some amount of money.
And actually manipulate.
the content you're seeing. So there are these digitally defined interactivity. So like I want to drop a piano.
On
This VTuber.
I want a car.
to race across the screen and hit them.
And these are all
Digitally defined, coded inside.
Uh the environment.
Also built in Unreal Environment.
You get the same instant gratification.
It turns this stream
Basically into a game.
That the viewers
Play
By paying.
And what's wild
Is that
These streamers
Are making
Basically.
Ten times as much money.
Using these interactivities.
As they were before.
So for example, there's a streamer, awesome, amazing streamer.
Great VTuber.
Pre
Micover software.
was earning about twenty five hundred dollars a month as a streamer, streaming sixty, eighty hours a week.
Using the Nikovir software with the native interactivity.
made that in three streams.
Wow.
Crazy.
And so
That
Economic value proposition.
is this underpinning that will drive adoption of the tool.
And then
with enough adoption of the tool.
the opportunity of the network.
Opens itself up.
And then you can imagine this entire ecosystem of well
Maybe there are people out there that are just really good interaction designers, interactivity designers. They're super creative. And
Maybe there's somebody's gonna make a theme park.
that these VTubers can digitally visit with their own set of interactivities that the audiences can manipulate.
What happens when audiences want to trigger interactivities?
against other VTubers that are in the same environment as the VTuber that they're watching.
I think this is a super exciting underexplored frontier.
of content consumption.
That is also
almost really perfectly aligned with a net new monetization mechanism.
of interactivity.
You've got a bunch of interesting ideas around value creation that I'd love to explore to keep drawing this picture.
The first of which, maybe the most essential of which is this idea of the atomic value swap. Can you describe what you mean by that term?
And some of the implications of it for thinking about companies.
concept of the atomic value swap is
What is actually going on?
What is the exchange that is happening?
Let's take this to a lay example. I walk into a grocery store, I want to buy a head of lettuce.
I pay.
Two dollars for this head of lettuce.
The value swap is
two dollars in exchange for the secular to secular exchange of money for goods. That's very easy to understand. If the grocery store wanted to charge twenty dollars
for that head of lettuce, mat exchange probably wouldn't happen.
The imbalance the asymmetry between what is expected.
In return for what is being delivered.
Won't
Achieving market clearing mechanism.
What's interesting is applying this to things that aren't maybe as
Easily measured.
from a quantitative perspective.
Boils down to the
Why do people do things?
Period.
Because it costs everyone.
Something.
To do anything.
And so what are they getting in exchange?
For the time expended, the effort expended, the money allocated.
And how durable.
is that exchange how repeatable
Is that exchange?
Does it increase in
attractiveness over time. Does it decay in attractiveness over time? Is it a one time thing?
Well let's think about
I don't know.
A company. Twice an interesting one.
Yeah, Twitter's a really interesting one. Let's think about
Why people
do things on Twitter. Why does a content creator
Create.
content on Twitter.
I would argue that somebody creates content on Twitter
Two.
Increase
The distribution.
Of their thought.
And future thoughts.
Future content.
No one makes money on Twitter. So people create content on Twitter.
Two
Become more famous, become more successful.
basically build their distribution and it's baked into the follower model in and of itself.
Conversely.
There are some platforms
that no one makes content for too
Increased distribution.
They only do it to monetize.
Patreon is a good example of this. Or Shopify.
Nobody creates content on Patreon.
to increase their distribution.
they are likely increasing their distribution in other
Spheres.
Whether it's they have a podcast or they have a
YouTube channel or uh Twitch channel.
They are using Patreon.
as a
monetization mechanism for the pre existing distribution that they already have.
Going back to like Twitter's atomic value swap, this is why.
The idea of a paywall?
Is so scary.
For Twitter.
Because
The only reason why people are creating content on Twitter.
is to increase their distribution.
What happens when
You introduce a chilling effect.
to distribution.
Arguably this is why I think medium
failed as a product.
Medium originally.
Was a tool.
That allowed people
Two
more aesthetically or on brand in the way that they wanted to distribute their content.
It was good content.
theoretically it would be more widely disseminated.
But medium.
wanted to monetize their traffic and they thought that they had enough leverage.
To install a paywall on the consumption side.
The issue with that is that violated the original atomic value swamp with content creators originally.
When you change the balance of the values on the scale, sometimes it
no longer makes the original atomic value swap actually market clear or repeat.
And so when
medium introduced this paywall on the consumption side, all of a sudden
Every person that was creating content
With
Incrementally disincentivized.
to create content.
Because the proposition of
Uncapped distribution no longer existed.
there is this ceiling, there's this exogenous force, this compressive force on what distribution they could attain.
And the biggest problem
Is we don't exist.
in these platforms in a vacuum.

always alternatives to these platforms.
If I was a aspiring
blogger or content or writer and
I was getting strictly worse distribution.
through a platform with a paywall.
I'm just going to reallocate my labor.
And time and energy to a platform.
That has unbounded.
Distribution.
It will be interesting.
How Twitter
Navigates.
Through
Finding business model product fit.
It has
Product market fit.
The biggest risk.
Is that
Their attempts business model product fit.
Violate.
The original atomic value swap.
Which gave Twitter product market fit.
and it all starts to inwardly compound on itself negatively.
Is there a difference between your notion of atomic value swap and Christiansen's idea of jobs to be done? Is the key idea under the atomic value swap.
Just that you know what it is, and that many don't know what it is. And if you do, you can then all of a sudden unlock a lot of potential.
Yes, I think that's right. I think that maps very closely, if not
Is the same thing.
I think
Every company
Every product.
generally speaking has multiple atomic value swaps.
You basically have as many atomic value swaps as you have constituents.
So as you pointed out.
On the consumption side of Twitter.
I as a user of Twitter
M Ping.
With my time, he
In exchange for entertainment.
Twitter.
As a company
gets to take the integral
of time across all of its user base.
And then turn around and sell that to advertisers.
The advertiser atomic value swap is pretty straightforward. It is a secular to secular value exchange of what is the row ad what's the return on ad spend as an advertiser on Twitter. And if it's there, it happens. If it's not there, it doesn't happen.
А за юр
Same thing.
I'm gonna spend my time so long as this is the most entertaining way for me to allocate an increment of my time.
The interesting thing is neither of those things happen.
If the original value swap with content creators
Doesn't happen.
That supply side content creator value swap for any UGC platform.
Is so sacred.
Once that's compromised, it's basically the beginning of the end for it.
It will just downward spiral and be competed away by other platforms that are willing to reward
Those incremental content creators
with a more tractive
Distribution
Value proposition.
I'm interested how you think about
Things like elasticity of demand.
And
Sources of value creation.
overlaid against all the stuff that we've been talking about.
I've seen you write about the seven deadly sins before and the degree to which each sin is monetizable. This probably maps onto your business model to product fit a little bit too.
Walk through this idea.
for us because I do think all of these are devices I think of as ways of evaluating a company or a product.
Or team even.
I love the stable of questions that you've effectively created. So what's the seven deadly sins one? How does it map onto the other concepts?
Well first I feel like the seven deadly sins have gotten a bad rap.
I feel like the they should be rebranded as the seven human tendencies. Core motivators. Whatever. I think the seven deadly scenes are basically like the essential reasons why
Humans do anything.
I have a
relatively Kantian view of altruism, I think.
People generally do things
because are self-interested, without exception.
In terms of elasticity of spend, I don't know if these seven deadly sins themselves have a spectrum of elasticity of spend.
But I do think that Maslow's hierarchy of needs
Does it be.
Maslow's Harry can use it, you know, like food, shelter at the bottom and self actualization at the top. I think
humans elasticity of spend
basically increases as you ascend Maslow's hierarchy of needs.
Will I pay?
A hundred dollars for a head of lettuce? No.
Will I pay a hundred dollars for better education for my child?
Absolutely.
And so I think
It's interesting to think about
where different things land.
on Mazo's hierarchy of needs.
when companies offer them.
And then
What is that elasticity of spend?
If we look at
Gaming.
For example.
One of the greatest business model innovations in gaming over the last
Yeah.
is the invention of what are called cosmetics.
Cosmetics do not change
Gameplay.
They only change how in-game assets are visually represented. Think of it as
clothing. You're wearing a polo shirt, I'm wearing a button down shirt. They serve as functionally the same thing.
But they say different things about us. They're different self expressive choices. In some ways
they probably encroach along self actualization of this is who I am. I dress in a way to communicate to other people.
Who I am.
It's a nonverbal medium of communication and self expression. And so
Cosmetics.
Are this incredible innovation?
that has occurred in free to play gaming.
Bucket free to play gaming monetization in two categories.
There is freemium monetization.
And then cosmetic monetization.
So in the beginning of free to play games.
The general consensus was hey, we're gonna
Give this away for free.
But then we're gonna make it kinda hard to continue playing it.
Unless you pay.
Or you can pay
and save time, or you can pay, you can get this unique
asset in-game that makes it a little bit easier. The issue with that kind of monetization is it leads to what are called pay to win.
dynamics within a game.
Where it's fine for the
Beginning.
part of the game when it still feels meritocratic, but as
Gamers advanced to medium and end game.
They start to become increasingly disenfranchised unless they pay. And it starts to feel futile.
It's almost like the game of Monopoly.
No one actually plays the game of Monopoly to the end of the game.
Right. It's foregone conclusion. People just quit. And that's
With
Premium free to play games. The elegance
Of
cosmetic monetized free to play games is there is no difference in the game.
experience that someone gets.
If they pay or they don't pay.
And the axis along which
the company monetizes is purely along the self expressive.
Spectrum.
There's only like ten of these skins out there, and I think it
says something about me as an individual if I have one of these ten skins. There's a reason.
Why?
Bernard Arnaud.
was the contender for the wealthiest person in the world.
Luxury goods, things that we wear.
The things that we consume
They are higher up on Mauso's hierarchy of needs, higher elasticity of spend, a higher willingness to pay.
For
That social signal.
I would argue that Bernard Arnaud has
dramatically benefited from
Instagram and TikTok as well.
The same three thousand dollar handbag that you purchase
Now
is signalable over a dramatically larger surface area than twenty years ago, where it's basically only in person.
And that drives this parallel demand for
consensus signals. So for every
Louis Vuitton, there are
A hundred
mid tier luxury brands that no longer exist.
because society has converged this as the dominant social signal.
We really haven't talked about people behind these businesses at all yet.
Which would lead me to believe that you're like a market maximalist. You're thinking more about
what is the enabling dislocation or something like you talked about earlier.
That makes this new idea that I'm being pitched possible.
And what is the dynamics of the market as it might grow? And we could talk more about that in the future, but I want to spend a minute on the founder side.
What do you care about, look for, watch for

when evaluating the people behind these ideas, assuming you've gotten there on okay, there's some
Market story
that is really compelling here.
Now I have to focus on the people.
What do you care about there?
I think there's the traditional
Things like
Aptitude.
Integrity, sociability, that kind of thing.
All those traditional vectors are super, super important. They evaluate the person's ability to execute, recruit, inspire, delete leadership qualities.
Future fundraising.
One of the things that I deeply care about that
Maybe others don't.
is what I would put in the bucket of like founder market fit.
To use an analogy.
In the music industry
There's this term.
Called the sophomore slump.
Where usually the second album that an artist puts out
It's kinda not good.
In many ways.
I think
About the same
Journey.
Of a founder.
Investors get to cheat.
You get to intercept.
that artist the year before they released their first album, but you weren't there for the 10 years of earned insights that it took them leading up to it.
And maybe more tactically.
I might be able to articulate
Founder Market Fit and Earned Insights.
How they manifest.
So if a founder has
the correct intuition.
About
A product.
And so you start compounding those things and you sum total, oh, we don't have to test this thing because I intuitively know for X, Y, and Z reasons, I have this earned insight. I was the customer.
And so I know that we need to build it in this way.
And then the company and the product building process is so much faster.
Because
Intuitively, the leader
knows exactly what needs to be built without having to ask anyone else.
So I like to think about founder market fit.
Earned insights.
How
long of a period of time this person has basically been collecting the dust of insight.
Over usually very long periods of time.
And then are able to compress it into these diamonds.
That
Somebody else.
Starting from zero.
wouldn't be advantaged with.
So it's really a pathway of
Slowly.
versus quickly earning an insight literally could just be that simple. There's just some core thing that you couldn't have known had you not spent the ten years
in the muck, either as the customer or as someone trying to produce the outcome or whatever.
If you think about other sources of
Where these people might start to emerge.
the idea of sourcing from the edges is really interesting to me.
I've seen you write that any Reddit
sub community that has a million
People in it.
probably could support a venture scale outcome business.
What do you think about everything going on with Reddit? And I just would love to spend more time exploring other pockets of
Sourcing advantage, I guess is what I would call it.
that you use or have used in the past. But we'll start with Reddit. It's a topic that's your'cause lots going on there today.
Reddit is such an interesting company. I think of Reddit as basically an interest graph. There are plenty of subreddits that people are subscribed to.
That
aren't suitable for social media.
There are divorce subreddits, there are grief subreddits. Nobody's gonna post on
Facebook or Instagram. Hey, I'm going through a breakup. Yeah, I'm
This is who I am. So there's this
entire side of who people are, what they're interested in.
That isn't that.
by other platforms. And when I think about Reddit.
It is
Really an interest graph.
And as such.
If across humanity users of Reddit
there is enough of this critical mass of people who express interest and engagement around the same
Interest.
I think that is a good litmus test for
It having enough.
Critical mass.
To birth.
Something
Capable.
Uh
significant enterprise value capture.
It's a silly example.
But
If you follow the Wall Street Bet subreddit.
Where it's basically degenerate gamblers. Robin Hood lines up nicely. Exactly. You could argue that they go hand in hand.
There's some really interesting subreddits out there. There's a subreddit just dedicated to 3D printing firearms.
As you can imagine.
Wildly popular.
I think Reddit is such an underexplored fertile ground of
Signal.
Almost like
hesitant to say that it is. Most people aren't curious enough.
to actually explore all the corners of it and glean it for insights.
What do you make of what's going on there now, which is this revolt?
I don't know else to call it.
And maybe this is a great example of the conflict a business model and the value swap for the customer.
In this case.
But just since it's happening right now and you hang out there, I'm curious what you think about
Everything that's happening.
And how you would handicap what might happen in the future.
I actually think people's
prognostication of what will happen with Reddit.
Is relatively indicative of how much they understand.
The way that internet platforms work.
I think my punchline conclusion
Is
That Reddit mods.
Think they are landlords?
When they're actually sharecroppers.
For better or for worse, whether it is justified or not justified.
mods who contribute their labor for free in exchange for power
Are doing so.
building their castles in somebody else's kingdom. That kingdom is Reddit.
And so
It's kind of implicitly part of the social contract. If you do that.
You are at the whim of the governing kingdom.
I understand.
why they're upset. I understand why the protest is occurring.
But if I were to
Predict what will happen.
Mobs who
Black
out their communities.
Interestingly enough
are probably exactly the mods you don't want on the platform.
The ones that are willing to compromise
The end user experience.
Two seat.
their own power trips.
And so at the end of the day
I think
Either one of two things happens.
Let's say you run R slash NBA.
Yeah.
And you're the mod and you choose to block it out.
One of two things happens.
Either some other
enterpring person who wants to contribute their labor in exchange for power.
We'll start R slash real NBA.
Or R slash NBA, like true NBA.
and create a competitive product again in this marketplace of ideas and market efficiency.
And re ultimately end up replacing the same intent that R slash NBA captured originally.
Either that will happen.
Yeah.
Read it.
Which is totally justified in doing so.
Well
Remove that moderator.
And
Allow other people
to mod that same community.
Again.
what is in the end user's best interest. I think
A lot of what's been written
misunderstands
The atomic value swap.
Between
Moderators and Reddit.
And conflates
Moderator opinion.
With
Redditor opinion.
Moderator opinions are not
Redditor opinions because their value swap is different.
They are rewarded with power.
In exchange for their labor.
They are not going to Reddit.
To be entertained.
Redditors go to Reddit to
Be entertained, to engage in dialogue and
become part of communities.
But mods don't speak for the average Redditor. And I think what
Most stories.
That are written about Reddit.
Miss.
Is
That mod atomic value swap is different.
Let's say you were teaching a class about okay, you've got
product market fit. You've successfully built something that people want.
Now you need to figure out
what the best value capture mechanism is, that business model product alignment or whatever.
And you're
instructing class of people that had product market fit, what would you tell them to go do?
What are the steps that they could take or the questions that they could ask or
Any activity that they could pursue
To try to nail this because
It seems so incredibly critical.
What would you urge these people go do to try to solve that second challenge?
This framework of user generated content networks.
really only monetize via ads.
and editorially generated content.
can only really monetize off of subscription.
Define editorially generated, just like you pay someone to produce the content.
Exactly.
If somebody is being paid to create content.
The only way that you can really monetize that.
is through consumer subscription.
Otherwise, you're competing against UGC platforms basically for the same
user entertainment minute.
And you're competing against these platforms that have a structurally
Better.
Cogs.
They pay nothing.
For the content.
But
they're creating.
UGC platforms
Can never
Monetize via subscription.
Because going back to the medium example.
Their value proposition to content creators is distribution.
And introducing a chilling effect onto that.
Theoretical distribution.
Disincentivizes.
existing and incremental content creators from contributing their content to the platform.
But what they have
Is free content.
That they can then monetize
Via ads.
And
Effectively undercut.
Editorial content.
Conversely.
Editorial content because people who are paid to create content
are primarily incentivized by economic value.
Not
potential distributed value and future potential.
You can and should monetize via subscription.
Twitch.
Was the first board I ever joined.
And when we invest in the company.
They're burning a million dollars a month.
Just on CDM bills.
I mean, we had 14 data centers on the world and we had another CDN bill.
Turns out serving video content's pretty expensive.
You pair that with
No one wanting to advertise.
Against live content.
On the internet.
Not misunderstood, just nobody understood it yet.
brand advertiser adjacency apprehension, you know, through the roof.
We're staring down the barrel of this increasing cost center.
And trying to figure out how to make money.
And there was one board meeting
Where
The team proposed two
Monetization mechanisms. One was called Twitch Turbo.
Which was a monthly subscription.
You would default to a HD stream, 720p. This was back when actually the difference between four eighty and seven twenty p was meaningful.
No ads.
Basically focusing on a better content consumption experience.
And the other
Product.
that we would launch or were experimenting with was what was called
Subs.
Subscriptions.
And interesting enough.
Subs didn't
Offer
A better content consumption experience, but it did.
Allow you
Cosmetic
changes. So it made your name a different color in the chat room of the channel you're subscribed to. You got access to
a specific set of emojis that you could use in that chat.
And you were supporting
The streamer
Who you're subscribing to.
The next board meeting
After
was so wildly
Telling.
Twitch turbo.
Performed as you would have expected.
One of the big issues is the Venn diagram of
viewers on Twitch and
people that used Adblock was basically a perfect circle. So there was no
utility in removing ads.
But Twitch subs
Exploded.
Absolutely exploded.
And it was clear that by the end of the year.
the revenue off of subs was gonna cover the entire Op X of the business.
That's the thing. They had to go through this
Intrinsic experimentation process
Uh
Okay, well, where is the platform delivering value? Where is their leverage to potentially extract value? Where's the attachment to
different constituents
On the platform.
And what are products that you can offer that align all incentives?
So Twitch Subs is such an elegant product because
It aligns incentives across the board.
Streamers can make more money.
The viewers feel like they're more deeply engaged as part of the community.
They get to ex self express.
And they know that they're supporting their favorite content creator.
So they have that additional emotional payoff. And I remember
Thinking to myself, Wow.
This is a new business model.
That the internet has not seen before.
And it's crazy.
That it only exists.
for live stream gaming content creators.
When I saw Patreon
I was like this
is Twit subs for the rest of the internet.
What do you make of YouTube?
I'm really interested in everything you said around distribution versus monetization.
I know you've also written about
The specialized strategy will always be the generalized strategy.
And so specialization is offer one or the other, don't offer everything.
But YouTube seems to have succeeded
to a great degree offering both. People
blow up on YouTube. It's just inherent virality possible there, but people also make a living there.
And I'm also gonna ask about podcasts, which seem to be like the opposite of YouTube that they provide neither. Super weird. I wonder why you think that might be the case. But starting with YouTube.
Why has it been able to succeed
In both.
Or am I missing something?
No, you're not missing something. And honestly, like the YouTube is a a data point that really challenges my assumptions and frameworks as thinking.
My
Best
Answer.
To the continued success.
and monopolistic position of YouTube.
Is
That by trying to offer both monetization
And distribution.
It opens itself up.
to being flanked.
On both sides.
And I think there are
small things that you can look at.
That
Examine whether YouTube is strictly better or strictly worse.
Along both of those
Vectors.
to its constituents.
For example
Justin Bieber.
Pull up on YouTube.
Discovering YouTube.
No longer on YouTube.
You have this dynamic of your best users graduate from your platform. You aren't actually
The best way for them to monetize.
Anymore.
I think there are plenty of examples like a Mr. Beast or other successful YouTubers where it works for them. They still make a lot of money on YouTube.
But I'd be really curious.
If
Those YouTubers
War't
Making more money more lucratively.
outside of YouTube as a platform.
away from the direct monetization from YouTube.
So if you were to look at a successful YouTuber.
How much do they
One.
Multi home.
As a content creator.
So create content on YouTube, but then create content on TikTok or elsewhere.
And then how much do they encourage
Their
Audience.

Effectively meet them elsewhere.
It's like Emma Chamberlain selling coffee or something. Exactly.
Often times.
successful YouTubers will achieve
Enough distribution.
That it opens up more tractive.
monetization mechanisms for them.
to monetize their engaged audience.
And if you think about ads.
Ads are super effective.
At monetizing mass
Shallow engagement.
prank videos.
Crank videos
Work.
On
And adds
driven platform.
But when it comes to
Deep engagement.
And narrow
Deep engagement, ads are terrible.
For that.
Because you're
artificially capping the monetization.
That a consumer of content
can deliver to the content creator.
This is why like nobody's
incentivized to upload
30 minute deep dives into niche content on YouTube as the dominant form of monetization, or
More likely.
If you were to find a niche content creator.
In every video description it would be support me on Patreon.
Because Patreon's a perfect way to monetize
Narrow, deep engagement.
Or conversely, if you are a celebrity, if you have celebrity value, the best way to monetize celebrity
is consumables.
Arguably the only
durable way to monetize celebrity is through consumables. And this is why I'm a chamber in coffee or
Mr. Beesberger.
Skims or
Jordan and Shoes. Exactly. Fenty beauty.
And every time that celebrity has tried to monetize outside of consumables.
Failed miserably.
No counterexamples.
Shots. I think it was Justin Bieber tried to launch an Instagram competitor called Shots. Celebrity affinity
is a one time subsidy in user activation energy in an exchange.
And not a persistent one.
Let's look at shots as an example.
Maybe it gets people to sign up.
but it can't perpetually subsidize an activation energy of consumption or content creation.
Whereas if you're buying gin, you're buying a piece of George Clooney or I guess that's tequila. Exactly.
They're imbuing a consumable with their celebrity and brand.
That's the best way I can articulate it.
And so going back to YouTube.
I think where I would really have to revisit my assumptions.
Is if
The most successful content creators on YouTube.
single homed on YouTube.
And didn't
try to monetize in other
Means
That would mean that it was the dominant strategy of both distribution and monetization, and they didn't want to diversify.
But the thing is that's not the way that they behave. And so it suggests to me
That while it's an attractive value proposition for distribution and monetization, it is not strictly better than all alternatives.
And there is
A gravitational pole.
in both directions away.
Once they achieve
a certain level of success.
Can you tell the story of the investment decision that you are most proud of having made?
It's probably Twitch.
Maybe it's because it was just the first time that I joined the board of a company and stuck my neck out to make an investment.
But upon reflection, it was probably the first time that I
touch ground on my own path to conviction.
As an adolescent I had played
my fair share of computer games and video games, I'd pulled my fair share of all nighters playing Counter Strike. And I think the insight that I had
As
An investor and user.
Is that gaming
Content.
Is entertainment.
I think one of the questions that was
asked at the time of the investment was why do people watch
Other people play video games. Why don't you just
Play video games yourself.
The answer I would give is when people watch
Monday night football.
Why don't they just play football?
It's because
When you develop an attachment and an affinity to something
And you can recognize what excellence looks like, or you can appreciate what excellence looks like.
It becomes a form of entertainment.
In and of itself.
watching it.

So I reached out to them. One of my friends went through YC, I got connected to Justin Khan, and he introduced me to Emmett Shear, the CEO.
Spoke to him was like, Hey guys, I really believe in the direction. I think it's amazing.
I work at this small venture capital firm based in New York called Thrive Capital, where a forty million dollar fund at the time.
I'd love to find a way to work together. Great, we're raising fifteen million dollars.
That's
Awesome and we cannot do that.
And they went on to raise their series B.
From Bassamer.
And it was tough because we didn't have a
capital product to meet their capital needs.
And we raised our third fund, it was a hundred fifty million dollars.
And they were my first call.
I was like okay guys.
We have
The fun size
It would be amazing to be able to work together.
So we engage with them, they're running a fundraising process. Again, it's expensive to host and distribute this content. And this is before they had found the monetization mechanism.
I go to my partners and we have the deal lined up.
It was hard.
Was really hard because we got stuck.
In the fundamental question of
Why do people do this? Is it valuable engagement?
From my perspective, it was so obvious.
People are engaged, they're deeply engaged.
And
Engagement
can be monetized, even though it may not be monetized currently.
And I think the issue was
This
existential question around whether that
quote unquote engagement was real.
Or true.
Actually, we didn't get there.
I was in one end zone, when my partners was in the other end zone, and other people were in the middle of the field.
And we just couldn't reach
A decision.
I had to call
I'm it and Kevin Lynn the COO and it's like, Hey guys
I'm sorry, couldn't get there.
I wish I had different
News.
I think we're out as a potential investor and
Wish you all the best.
That night.
I couldn't sleep.
I stayed up until four thirty.
Rearticulating my thoughts. Compiling
Why
I thought
It was a compelling investment opportunity. Comping the minutes consumed against other platforms, Netflix, Facebook, all these other platforms where
they were able to monetize that engagement and what it might look like at scale.
I sent it to my partners and we talked about it the first thing in the morning.
To everyone's credit, we were able to get there. We reversed our decision.
Was so excited to call Emmet and come back and be like, Hey, actually I'm sorry about yesterday, but we'd love to lead the investment.
And we got there.
And we allowed the investment and rest of history. That's probably an investment decision I'm really proud of.
The same story of the insight, the earned insight. Same story that might be behind a great company.
Totally. And and I think I'm proud of myself because I didn't
Let go.
I didn't like go, I felt like I put it all on the field. And honestly, conviction is such a rare bird in this industry. It can get snuffed out.
By process it can get snuffed out by
Decision making
Structure.
And
For me
That was the first time that ever really pounded the table on anything, and it was the first time that ever stuck my neck out professionally.
But it
Felt right.
How would you describe the state of the union of consumer investing then today?'Cause it seems like
The case you made earlier is that
absent a new major dislocation, maybe the vision represents that thing.
We're deep into the
saturation of things dependent on mobile, maybe even on cloud.
The technologies that enable new stuff.
have been explored. It's mapped territory.
And therefore you probably shouldn't do digital consumer investing.
Is that a fair summation of the consumer investing landscape today, or is there something else that
we have to say about it.
Whether it's a hot pick or a hard truth.
I think that's exactly right.
You look at the most
recent quote unquote success in consumer
It was nine years ago.
As TikTok as musically.
And nothing.
Sense.
And this is what I'll call fast. The ability to create lots of enterprise value.
Per year.
very quickly. As distinct from there will always be
New consumer brands that are grown
More organically, maybe they're bootstrapped, they don't b they shouldn't be financed with this kind of capital.
There are plenty of examples.
There's a business to be built selling widgets.
that doesn't require venture capital and doesn't require a why now.
What does this make you do with your time? Because you're an investor, curious about and interested in the space and deploying capital in this space. That's your job. And the opportunity set is
Left us a bit wanting.
For the reasons we just described. What do you do in the face of that? Do you change your interest? Do you pivot elsewhere? It seems like juicy existential problem.
It does beg the question what are you supposed to do?
Boring.
And
Excellent.
Answer to that question, definitely good use of time.
I tend to follow my curiosities.
I like hanging out.
on the edges of things. I think the reason why I was so attracted to V tubing
Is
Not
Just that.
Okay.
and franchises, this new form of content creator, but it was also experimenting with a new modality of
human computer input.
Motion tracking.
It maps to
I think
the advance of Division Pro, which is
Taking motion tracking.
Maybe not to the extent of eye tracking, but definitely motion tracking.
As this fundamentally new
human computer input.
Based off of my framework of we need
New human computer
Paradigms.
Two
create these new radioactive isotopes of capturable enterprise value.
And the only way that we're going to be able to
Got that.
Is if we have new methods of
Input.
into computers.
I think that's what I

I don't want to over index on the potential of it, but it is really exciting to think.
Think of the possibilities that will emerge on the back of
A new piece of adopted technology that increases the data write speed between humans and computers.
It's almost incomprehensible to fully grasp.
what will be possible. We're limited by the scope of our imagination right now.
What is your method for finding
the most curious stuff. Is it just
Reps. Are you just constantly
Pulling on a thread.
and devoting real hours of the workday to just seeing what is going on.
Or is it your personal entertainment you watching code Miko? Or is it more that you're just wow, this is a phenomenon that's interesting to me.
But I'm not gonna sit and watch it.
I think it's a quirk of mine.
That
I don't know what this says about me as a person. All of my quote unquote internet time or social media time
I spend none of it.
Interacting with people I know.
I spend no time on Facebook, no time on Instagram, no time on Snapchat I don't even know if I have Snapchat installed my phone. All of my time.
Is spent on Reddit.
TikTok.
Twitter.
Other platforms.
And I think what I like
the most about spending time on those platforms is
It gives you
Let's call a lossless.
view into
Humanity.
It gives you these anthropological
Primary sources.
of what's going on.
I just read Rick Ribbon's
Creative actor. Creative actor. He describes it as this thing called source.
And one could argue that is this concept of data.
out there to be absorbed.
And I think for me, I spend so much time
Exploring on these platforms.
In search of source.
I have
My antenna.
trained my radar dishes pointed into the sky, constantly looking for
This source.
And then I'll see signals.
that will suggest to me that there's something there.
And then that will be the beginning of a thread.
That I start pulling on.
Totally fascinating and fun. It's so fascinating. People are interesting.
There's a company called Games Workshop.
They own IP called Warhammer.
That is a tabletop miniature game.
That's all they made. They make tabletop miniatures.
It's a publicly traded company worth eight billion dollars.
And they sent a cease and desist.
To a site.
That was hosting
Three D.
Models.
That
Ostensibly encroached on their IP.
So for me, that signal in and of itself of oh, there's this really large company.
trying to stifle this bottom up motion. That blips. Bulls are your heartstrings. That there's something there.
It's things like that.
Almost countless other ones where
This person
They're
A sophisticated actor. They are

This is economically worth my time to allocate in this way.
And that is so interesting to me. And the more repeatable that is, the more that that is just a tip of an iceberg.
is the extent of my exploration of pulling on threads.
Is all value creation at the end of the day just increasing convenience or reducing friction? And that's the story of technology, just over and over and over.
That's definitely a large
Book.
Love it.
I think that that
Doesn't
meet some of the other
Needs around self expression.
And self actualization.
If it was just homo economicus.
And not Homo sapiens?
Those would be the only two things.
Better, cheaper, faster.
We're not Homo economicists. We are Homo sapiens and somebody will pay more for a
T shirt because it says something about them, then another T shirt, even though from a utilitarian perspective, Homo economicists wouldn't
do that because they're fungibly the same thing.
They serve the same utilitarian purpose.
But again, going back to Lenard Arnaud is the wealthiest man in the world. Yeah, they increase friction to buy their stuff, I suppose. Lou Vuitton handbag has functionally the same utilitarian value as any other bag out there, but it says something completely different.
from a social signaling expressive utility perspective.
Yeah, maybe it's true for technology.
And not beyond technology.
The handbags, the famous ones that are measured basically look the same as they did sixty years ago. So it's much more about
they make it easier for you to signal something about yourself. So still making something easier. You're willing to pay a lot of money for it.
But technology seemed to always just be about friction reduction. That's what it seems like to me.
I'm curious if there's a dark side to that too. We talked a little bit earlier about the inequities.
that result from new technology. Naturally, technology creates more inequity, not less.
How do you think about the dark side of
Tech and maybe it with an example of what's going on in the world today. Yeah, it's tough.
Technology tends to introduce power law curves of demand and adoption.
Or exacerbate those curves.
Where the
Previously weren't powerlot distributions.
You end up with this dark side, the shadow
That gets cast by
The parallel distribution
Examples of taxi medallion holders committing suicide.
Because of the
economic disparity created by Uber.
They're so in the hole.
that it just doesn't make sense for them anymore.
Because what they thought was a projected future cash flow.
Was no longer.
Based off of competition.
Or we talked a little bit about mobile dating and Tinder and the effect
But that has on the rise of incel culture.
Any time.
There is
A new power law distribution.
That
Granted.
Awards a ton of value.
to the head of that power law.
in the form of enterprise value capture.
Pretty as girls. Yeah. It just wipes out
Uh
ton of integral value in the middle of that curve and the long tail.
without exception. And so for every Uber we have the taxing medalliders.
Airbnb, we have countless mid market business hotel chains that have gone out of business.
So the answer is yes.
There always is a cost associated with that reallocation of value. I think there is
a good amount of net new value creation.
Any time there's technological advancement.
But there is also a tan.
of reassignment.
of value away from that mid to long tail.
To the head.
in that new distribution. I have one more question about the role that system settings play on investment opportunities. You've talked a lot about
this why now idea and dislocations, enabling technologies, et cetera, and why they're so important.
What about at like a national level?
Specifically around the United States.
It's amazing how
disproportionate it's been the percent of new innovation that's come from the US versus anywhere else in the world. Why do you think it is that
Basically all.
of the major innovations have come in the last call it
hundred years or maybe even longer from the United States specifically.
What is it about the system itself?
Do you think has caused that to be true? And do you think it will persist in the future? This is a fancy way of asking should you just invest in American based companies.
Gosh, the United States is such an interesting
N of one.
I don't want to come across as just hyper nationalist here.
It's truly remarkable.
And I think it boils down to a few things. One is
United States
And it's been analyzed by people much more than me around the access to natural resources and the geography of the United States. But simplistically
From a system design perspective
The United States had a last mover advantage.
As a country, it's so young.
But it got to learn from all of the
Errors and unforced errors.
Of the system design and governments.
From every other country.
Turns out yeah, monarchy's not good.
Benevolent dictator structure. Yeah, I guess that works.
Only if they remain benevolent dictators and power corrupts absolutely. So you get to design this incredible
system of checks and balances. And I know we talk a lot about the
founding fathers in the system design of the United States.
А най канат стрес.
enough the elegance of the fundamental system design.
If I were to still down
America's advantage at a global scale.
It is
That
We have a monopoly.
On ambitious
Immigration.
Which is insane to think about.
As a country, you get to skim the cream of the crop of hungry, smart, talented people from every other country. That is insane.
А і Exists because
Of
This concept of the American dream.
This idea of social economic mobility, the idea that you can
Leave.
ostentially everything behind.
And come to a country.
That is
A meritocracy
And
create a better life for yourself and future generations.
That position is so dominant.
It's almost this compounding moat of talent.
There's a lot of people that say the United States is dead or it's end of the era.
As long as there are lines around every
Visa immigration center.
The US isn't going anywhere as a dominant power.
I can't
stress this enough to be able to just
Take.
Every
Smart.
hungry, talented person that wants to bet on themselves.
And absorb that ambition that
entrepreneurial nature, that enterprise nature into
This country of immigrants.
That's broken. That's such a broken advantage at a global scale.
I forgot to ask earlier about a category which is always fascinating to me and everyone,'cause they tend to be such good businesses, which is marketplaces.
And this idea of how to start one effectively.
Which I've seen you write about. I can't remember exactly what you said, but something to the effect of
If there's multi skews in the marketplace
It has to start.
With an opinionated individual or something like that. I'm sure I'm messing that up. But I love this business model and therefore love
Any thoughts on the
how these things most effectively start and grow, in your opinion.
I don't know if I have an answer to a repeatable
Motion to create marketplaces.
Actually let's define what a marketplace is, because I think there are varying interpretations of what the quote unquote marketplace is.
Loosely I would describe
A marketplace?
as
Where
supply
competes.
For the benefit
Of demand?
And supply
Does not engage
in demand generation.
Counter examples.
Shopify. Shopify is not a marketplace. Shopify is not a marketplace because all of its supply does its own demand generation. Amazon is a marketplace. Amazon marketplace because none of its supply does its own demand generation. It relies on Amazon.
For demand generation.
I have a framework which is
Um
Behaviors that exist at scale.
in a lower friction format.
Exist.
At sub scale.
In a higher fiction form first. So go look for that. Exactly.
So I think
A way to identify marketplace opportunities.
Is looking
At places where people are jumping through hoops.
Crawling through glass.
to meet liquidity.
There's a lot that's been written about
what makes a good marketplace. Bill Girl has a great blog post of what makes a good marketplace and what are the different dimensions to measure marketplace. But at a minimum,
I think that
If there are primitive examples in the wild
Of
supply and demand
Engaging in extenuating behavior.
to meet each other.
That is a need to have
before you're able to capture that in a
a lower friction scaled model.
Marketplaces are so rare.
Their rarity is
Is
proportional to how good of businesses they are.
They're such
Good.
Businesses
That the efficient market is ruthless in attacking
any and all opportunities that are exposed to them. And so barring, again
A dislocation
in a market of a new technology or regulation.
You could probably safely assume that
If there was gonna be a marketplace it would exist. Darwinistically it would exist.
You started the conversation a little bit talking about business models. Is there something that's the opposite of that?
If marketplaces are so good that it's like the hypothetical twenty dollar bill, someone would have picked it up already. Is there something where the business model is generally so bad?
That it's actually
Essentially an interesting place to apply entrepreneurial effort and creativity.
Yes and no. One thing that I like to explore in the age old debate between idea and founder.
Is there any founder
That could make
a company successful where they sell twenty dollar bills for ten dollars.
I think the answer is no.
No one in the world can make that work. It's just so fundamentally flawed from a business model perspective.
But
No amount of charisma, salesmanship, recruiting, fundraising.
can make that work.
On a long enough time scale, that falls down like a house of cards, if it gets stood up at all.
Now that's different.
From things that may be perceived to be irrational at first glance.
So let's take Robin Hood.
As an example.
Robin Hood
Gives away.
Trades.
Trading is free.
On the platform, which is insane if you look at the market pre-robinhood.
You had
Companies like Scott Trade, T D America Trade.
That we're charging users six, seven, eight dollars per trade.
That was responsible for a third?
Of their profit.
And you had this
Set.
of incumbents.
Who would never
Have thought.
To make their trades free.
And a new entrant.
Sang
We will make trades free.
is completely irrational.
At first order.
And honestly, without
Payment for order flow as a business model, maybe Robin Hood wouldn't be possible.
Without the credit card companies being willing to pay for leads, credit karma.
Wouldn't be possible.
Credit Commer's like, okay, we're just gonna give away credit reports for free. And Aquifax and TransUnion are like, what are you doing?
That's crazy. We're making so much money charging people for this.
And credit karma.
It's like no.
That's not what we're playing for.
We're playing for something else. So it's possible
to look at an ecosystem that's been relatively calcified.
And say
There is this opportunity.
To
Do what is considered first order irrational by the existing incumbents.
If there is a greater opportunity to play for that is second order.
There's a business model that is accessible on the other side, but only
If you're willing to do this thing that is percent. Classic counter positioning. Tigas did this really well with expert calls where it's fraction the cost.
Which seems stupid. Exactly. Exactly. They make it up elsewhere through subscription.
Yes.
Could anyone have actually turned WeWork into a success?
Or was it just so structurally plagued?
Was it selling twenty dollar bills for ten dollars?
How much
of the industry
Mis identifies
business models.
As
value generative and sustainable when they're actually just selling twenty dollar bills for ten dollars.
Talk about sculptors versus painters.
It's an analogy that I
Reach for
Depending on the
Framing.
I think about painting.
As additive.
It's an additive process.
You start with a blank canvas.
And your differentiation
is the amount of paint that you add to it.
Sculpting is a subtractive process.
You start with a block of something.
And then you subtract from it until you find the thing.
Michelangelo very famously has this quote I saw the angel in the marble and set it free.
That is describing what the process of sculpting is like.
In company building.
In many things actually.
You start as a painter
And you end as a sculptor.
And sometimes people miss that step.
Founding a company?
is painting.
You start with nothing, you have to bring a hundred percent of the things that differentiates you.
And add it.
to the canvas.
But oftentimes what founders miss
is the point at which they need to start sculpting.
Because you can overshoot.
Sculpting.
is a lot like management.
You only become more efficient.
If you're able to
Cut.
Things away.
And entrust them to other people.
Otherwise if you can't let go of things.
You're never going to get
Anywhere.
Deeper.
And the starting block of marble.
There are some operators that need control over everything. They need to make the final decision and micromanage every single thing.
And that is the equivalent of
Zero definition on a block of marble.
What a truly defined beautiful sculpture looks like.
Is the
Courage.
To cut.
Deeper.
than others.
And to
Carve that out.
And be comfortable with it.
And unless as an operator as a founder you can do that
you will just have this undefined blob that looks
Like nothing at all.
It's a really interesting way to think about people too. There's probably inherently people that are more prone to one versus the other. I love these binary sorters.
Oftentimes in life we have to switch between the two.
What does it mean for an investor? Are investors painters and sculptors?
Maybe.
I always tell people that
To be a great investor.
You need to have
Great taste.
In investing.
The same way that we have taste in music and food and art.
I think as an investor
You spend your format years.
Training
Developing an
understanding
Of what
you like and what you dislike, what you're good at, what you're not good at, what you think you're good at, that you're actually bad at.
What do you think you're bad at that you're actually good at?
And developing this felt sense.
And strong opinion.
No three star Michel on Chef.
Does
Anything?
That other people do.
They have such a unique perspective.
They have such a unique point of view and taste in what
they want to put out in the world.
That that is what separates them apart.
I think about the existential question of
What?
Companies.
businesses out there, am I
the perfect investor for.
I think it's an incredibly interesting place to wind with been a fascinating discussion. I have one traditional closing question that I ask everybody.
What is the kindest thing that anyone's ever done for you?
It's
Gotta be my wife marrying me.
Chris, thank you so much for your time. This is amazing.
Thank you for having me.

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