Today marks the end of my one-hundred-thirty-fourth week of working from home (mostly). Here are my takeaways from week one hundred thirty-four:

• Venture Atlanta – This was a busy week in the Atlanta start-up ecosystem, with Venture Atlanta and a variety of other supporting events all week. I met some great people, many of whom were from out of town. Overall, it was a great week with great energy.
• You never know – I caught up with two out-of-town friends today. I shared an idea with them, and both offered to introduce me to people who could be helpful. I was surprised by these offers to make intros because I didn’t know these people were in their networks. Today was a reminder that you never know whom someone knows, so you should always keep people in the loop regarding what you’re working on and how they can help.

Week one hundred thirty-four was a long week of networking. Looking forward to next week.

When early-stage founders building high-growth companies think of raising their first bit of capital, they think find a venture capitalist. What they don’t think about is where the venture capitalist gets the money. The people who invest in a venture capital fund are limited partners (LPs). VCs have a responsibility to be good stewards of LPs’ capital—and if they aren’t, they won’t get any more of that capital.

I had breakfast with an out-of-town venture capitalist raising a $100+ million fund that invests in seed-stage (product built, but no product–market fit) companies. They’re not investing at the idea stage, but still early. He worked at a notable fund for years, but this is the first time he’s raised his own fund. We discussed his fundraise and the LP environment. He’s been focused on institutional investors (endowments, pensions, foundations, etc.), given his relationships and experience. He’s gotten good traction with his fundraise, but he’s hearing that many institutions prefer to back a manager at fund three and beyond. They want to get to know you during fund one and two. They want to see the company’s track record and performance and build a relationship with the manager over the first two funds. Once they get comfortable with a manager, they’ll back them over a few funds.

My conversation with this manager reinforced my view that early-stage investing can present a dilemma for LPs because what they’re comfortable with doesn’t align with the flux and transient nature of the early stage.

I walked away from this conversation, and others, feeling like there’s ample capital available from folks who want to invest in early-stage companies. But the current venture capital construct isn’t ideal when it comes to matching capital to founders. I’m wondering, is this an opportunity for an alternative that institutional LPs would like, or will LPs backing early-stage companies forever not be institutions (individuals, family offices, etc.)?

Over the past few years, I’ve connected with lots of investors outside Atlanta interested in learning more about the city’s start-up ecosystem. It isn’t easy to understand, I’ve often heard, and they want to know why. I explain that Atlanta’s ecosystem is composed of mini communities built around similarities. Universities (Georgia Tech, Atlanta University Center, and others), neighborhoods, and coworking spaces all have their own communities. These types of mini communities are a normal part of a healthy start-up ecosystem. The challenge in Atlanta is that they don’t overlap enough. In my explanations, I say that people don’t like to leave their neighborhoods. That’s half joke, half truth. More accurately, people are less inclined to leave their preferred mini community.

Venture Atlanta is this week, and many events are taking place. Yesterday I attended two evening events given by different mini communities. An investor and a founder were tagging along with me. Both were from out of town and interested in learning about the Atlanta start-up ecosystem. As we left the first event and entered the second, one of them commented that the events felt like two different worlds. Both were attending by amazing people from mini communities who want Atlanta to win—people who were noticeably different and only minimally overlapping. As we left the last event, my two guests shared that attending the two events (which were two miles apart) and seeing the mini communities helped them understand the Atlanta ecosystem.

Legendary companies are built when high-potential entrepreneurs are matched with capital, scaling knowledge, and relationships. Atlanta’s mini-community dynamic creates network distance, which fosters inefficient matching.

I see an opportunity to supercharge early-stage entrepreneurship in Atlanta. If the number of conduits between these mini communities were to grow, the free flow of information and relationships in the city would do likewise, thus reducing network distance and increasing matching efficiency.

I’ve shared my views on how short-term valuation changes affect psychology. I was reminded of them recently when I had a great dinner with two established, successful founders, one of whom recently sold his company. The topic of public markets came up, and both shared that their portfolios have lost material amounts of money. The most interesting thing they said was that looking at their portfolios regularly is frustrating. One of them even mentioned that he was nervous about checking it given the recent market trajectory. They’re both considering selling losing positions to stop the bleeding.

Liquidity is a big difference between the public and private markets (i.e., venture capital). Some view the liquid nature of public markets as a benefit. There are benefits to it, but I also see a downside. Because of the liquidity of public markets, investors can constantly check the value of their investments. When valuations fall for macro reasons (i.e., the company is doing fine), some investors may sell their investments with the click of a button. Even though the company is doing fine and could appreciate significantly in value in the future, today’s pain is too much to bear, and people sell prematurely.

Private markets are different. Investors can’t check the current value of an investment. Companies are usually valued at the last round of capital raised. As companies face hurdles or the macro market changes, the valuation is still at the latest round. Resetting the valuation usually means raising a new round or a private party transition between two parties. Neither of these options is easy. If a seller is able to coordinate a transaction with a willing buyer, some companies can have the right to block the transaction. All of this means that investors in private companies are more likely to stick it out with private investments when times get tough.

The illiquid nature of private investments makes it hard for some people to embrace them. I think this illiquidity isn’t necessarily a bad thing. For winners, it forces investors to stick with investments during hard times. As companies get past the hard times, these investors reap returns they likely would have missed out on if they’d been able to sell their investment early.

Last year I had a friendly debate with someone about getting more capital to more early-stage founders. At the time, I believed scale was the way to go. Build larger VC firms (not funds) to increase the number of seats in a historically cottage industry. Make it possible to institutionalize the knowledge of how best to fund and support early-stage founders, which would become more distributed as team members left these larger firms. Build firms, not funds, was mostly my thought process.

I’ve had the opportunity to speak with many emerging and established VC fund managers, their limited partners (LPs), academics, and of course founders since then. These conversations have made me realize my original thesis was incorrect (that’s the power of discovery). Scaling larger VC firms with larger funds isn’t the way to get more capital in the hands of high-potential early-stage founders.

Larger funds create challenges for LPs and VC fund managers (emerging and established) doing early-stage investing:

• Smaller funds are a better fit because they enable fund managers to write a check that’s an appropriate size for an early-stage company.
• Early-stage investors need to suspend disbelief and make nonconsensual investment decisions. Otherwise, investors fund what everybody else is funding. That’s hard to do in a large organization, because decisions tend to lean toward consensus when more people are involved. Smaller teams are more likely to make nonconsensual decisions.
• I also believe in a world where great founders are more geographically dispersed—centralized capital deployment isn’t as effective in reaching high-potential founders. A dispersed model would be more effective because it would help capital meet founders where they are.

It’s been interesting to see my thinking on this topic evolve and realize that the person I was chatting with was more right in his thinking than I was.

I’ve had the privilege of chatting with many emerging VC fund managers this year. One thing I consistently hear about is a goal to raise continually larger funds. For example, a first fund might be $10 million. If it does well, they’re planning for fund two to be $50 million and fund three to exceed $100 million. They’re driven to do this to increase cash flow from management fees, which provide them with more resources.

Most of the emerging managers I’ve chatted with are investing very early. Most aim to invest as close to when the company is created as possible, even if there isn’t a product yet. These emerging managers have unique perspectives and networks they believe position them to find non-consensus and high-potential founders very early. I agree that they’re more likely to find and fund non-consensus founders or markets, and I view them as playing an important role in the early-stage start-up ecosystem. If things go well, these founders, fund managers, and fund limited partners will realize massive outcomes.

Raising larger funds will give emerging managers more resources, but it will also compel them to begin investing at a later stage. The challenge here is that the edge they have investing early might not carry over into a later stage.

The current VC fund fee structure—specifically, the traditional management fee, usually 2%—isn’t ideal for emerging VC fund managers. Successful emerging VC managers want more resources, and rightly so. But they don’t necessarily want bigger funds, because it’s harder to deploy a larger pool of capital. I see an opportunity to provide an alternate structure to emerging managers investing early-stage who exhibit early signs of success. I think this will not only solve the resource problem but also better align emerging managers, their limited partners, and founders. The early-stage startup ecosystem will be the better for it.

Mentoring is important to founders. Good mentors can help you get to your destination faster. They have experience, and they can share with you what they’ve learned from it—that’s a lot of the value of a mentor. You can incorporate their learnings into your decision-making and make better decisions without giving up the time it takes to live those experiences. It’s common for a founder’s trajectory to be changed forever by sitting down with an accomplished entrepreneur for thirty minutes.

Not everyone is fortunate enough to have the right network to get mentoring from an accomplished entrepreneur. The network distance is just too far. Founders shouldn’t let that stop them—learning from others can be accomplished in other ways. I think autobiographies and biographies are a great alternative. Many founders who’ve had a massive impact on society are the subjects of biographies or autobiographies, and their learnings are usually incorporated into these books. That wisdom won’t tell you how to build your business, make a specific decision, or be related to your industry. But these books will share the path these entrepreneurs took, what they learned along the way, and what allowed them to succeed.

If you’re a founder hoping to fill your experience gap through mentorship, consider picking up some books!

Today marks the end of my one-hundred-thirty-third week of working from home (mostly). Here are my takeaways from week one hundred thirty-three:

• Getting better – Last week, an idea I pitched got a warm reception during a few conversations. This week, people were interested in it. That’s better but still not great. I need to keep in mind that these are all friendlies. I’ll keep tightening it up and improving it.  
• Network distance – The number of relationships through which a piece of information must travel to connect two individuals is network distance. It’s a real thing and can be a big hurdle for people. This week was a reminder that if you keep hustling, keep shaking trees, you’re more likely to close the gap and connect with the people you’re targeting.
• Change of scenery – I focused on things that required some creativity. At the suggestion of a buddy, I tried changing up my location. It worked. I got in the groove and came up with some great stuff because of that change. For me, the more natural light, the better.  

Week one hundred thirty-three was a week of breakthroughs. Looking forward to next week.

I’ve been watching Apple push into financial services for some time (see here, here, and here). And I believe Apple will become the go-to consumer and small business bank. My thesis is that distribution in banking is going digital, and iPhones are the perfect distribution method for digital banking. Banking is one of the few markets large enough to move the needle for a company the size of Apple that also has high user engagement (people checking bank accounts, transferring money, etc.).

Today, Apple announced a new high-yield savings account in conjunction with Goldman Sachs. To open one of these accounts, one must have an Apple Card.

Banking is an antiquated business that’s overdue for disruption—and Apple is perfectly positioned to disrupt it. I believe the steps it’s taking will eventually lead to iBank or Apple Bank. It’s interesting to see execution of such a massive plan play out before our very eyes. I don’t think most realize what’s happening, but I do. I can’t wait to see the improvements Apple makes in the banking world over the next few years or a decade.

I had a great chat about matching with a founder friend today. We agreed that great companies are built when founders are matched with capital, knowledge, and resources. The matching is the important part—and the most difficult part at the early stages. The more inefficient matching is, the less likely it is that resources will reach founders who will use them best.

Matching is network driven. The closer founders’ networks are to the networks of people who have capital and expertise, the more likely effective matching is to occur. The farther away they are, the less likely it is to occur. Said differently, network distance affects how efficient matching of high-potential founders and the resources they need is.

If we want to match capital and resources with high-potential founders, we have to reduce network distance to make the matching process more efficient.