As I am reading more and more articles every week I wanted to document the most interesting articles and write a little TL:DR. So let’s start:
1. Atoms are Local
by Elliot Hershberg from notboring.co
There’s a difference between the industrialization of biotech and the biologization of industry. The first is basically using biotechnology to mass-produce things, like insulin and also something like Impossible Food (using genetic engineering). This usually makes the product way cheaper and also replaces highly wasteful and inefficient production methods, as in using animals for meat. This has been going on for a few decades now and we are getting better and better to replace industrial chemistry with industrial biology.
So far, the industrialization of biotech has produced powerful replacements for wasteful and inefficient methods of production. We can now generate insulin, and ironically, cheeseburgers, without sacrificing millions of animal lives. Companies like Solugen are demonstrating that we can use biology to build new chemical factories that don’t rely on digging fossils out of the ground.
Biologization of Industry means, that we will establish local productions and therefore grow everything with only: electricity, biocode and air. The first step is to use this technology to treat disease and there have been some steps made in this direction through DNA printers, that would be used to create antibodies.
And a very interesting thought experiment after this is: Will atoms then have similar marginal and distribution costs as bits? As the internet has made it possible to “disconnect information from a position in spacetime and move it around” (by Drew Endy), the distribution of information has become frictionless. If this biologization of industry is establisehd, suddenly atoms can be moved around frictionless and everything can be grown everywhere.
Interestingly this vision of biology matches David Friedmanns vision for the future, that in the future there will be abundance of everything because we can create most things everywhere. The consequences are massive (especially for shipping, mining, low cost labour, etc).
2. Why exposure to the digitalisation of large truly nascent ecosystems deserves a spot in an institutional VC program
https://sturgeoncapital.substack.com/p/why-exposure-to-the-digitalisation, by Alex Brenton on Nov 8, 2022
TL:DR: Investing in countries, like Brazil, India, Indonesia, etc that are just adopting the digital transformation makes a lot of sense, as the business models that might succeed have already been tested out in western countries, making it easier to deploy capital. Basically the goal is to see which business models / industries have been impacted by digitalisation and invest in companies that can localize that western business model. (And it’s cheaper – valuationwise)
This sums up the post in my view:
While many perceive Frontier EM investing as Risk (Frontier Markets) on Risk (VC as an asset class), this couldn’t be further from the truth. Our strategy is a play on the inevitable trend of digitalisation from a near non-existent base: for example, riding ecommerce penetration from low single digits in a region of over 500m people.
3. The Unaddressed Opportunity in Emerging Managers
https://equalventures.substack.com/p/the-unaddressed-opportunity-in-emerging
A rallying cry for a emerging fund managers.
LPs largely recognize that emerging managers tend to have more diverse profiles (which has shown correlation with higher returns) and often have better incentive alignment with LPs (they need to fight for survival, not just rest on fees). To further the optimism, in a recent survey of more than 50 institutional investors, 62% responded that the risk and return profile for emerging managers was as and/or more attractive than established firms.
But still LPs give most their money to established VC firms (87% of capital to 66 funds in 22Q3 alone). The reasons listed arebecause
- the feedback loop is very long for a venture fund (10-12 years), and a fund manager could be raising another 5 funds before the results for his first fund are in.
- it’s in the best interest for fund managers to scale because of management fees
- for bigger LPs it doesn’t make sense to invest in multiple smaller emerging funds as their minimum check size is to big (also return-on-time)
- it’s incredible difficult to identify new managers
One of the basic premises of this article is that emerging fund managers outperform traditional firms, this seems to come from these studies:
- Cambridge Associates: 72% of top returning firms between 2004 and 2016 were emerging managers
- Diverge Managers are correlated with higher returns
- 62% of institutional investors (over 50 surveyed) responded that the risk and return profile for emerging managers was as and / or attractive than established firms
I think that the biggest challenge for LPs is to identify an emerging fund manager is the most hard to overcome. As there is no way to tell which fund managers are outperforming it definitely makes sense to bet on a fund manager that has already outperformed than another emerging fund manager. Also this means that there is no or very little advantage in scale and accumulated knowledge over time for VCs. Maybe a platform can help where emerging fund managers can postulate their investment thesis and the maximum ticket size. But even then investing is a personal construct which means that there needs to be a personal connection at some point.
4. SPIRAL APPROACH TO EARLY STAGE STARTUP SALES
https://www.startuphacks.vc/blog/spiral-approach-to-sales?utm_source=substack&utm_medium=email
For early stage startups it is most important that you identify the customer that are ready to buy your product and also those that are not. If they are not put them in a queue, and come back to them later. You’re job is it to get better at prequalifying customers and close deals. If they don’t need it now or don’t trust you now, move on.
Ping's Blubb 