Six months ago, I began experimenting with a new schedule. I wanted to be more intentional about how I use the time when my brain is most productive (mornings). Specifically, I wanted to read long-form writings (books, papers, etc.) when I first wake up instead of exercising. (I still exercise, but usually at lunch or in the afternoons.)

This change has had a much bigger positive impact than I anticipated. A few takeaways:

• Optimized learning – My brain absorbs new, and sometimes complex, concepts better in the morning when it’s fresh. After reading something new, I think about it throughout the day and sometimes have a new insight. I don’t do mindless or busywork activities when my brain is fresh.
• Relearning how to read – I took time to study the most effective way to read. I’m now more intentional about focusing on a single concept I want to learn about and seeking out books by those who have mastered the concept (or have a superior understanding of it). I read these materials with the intent to understand the critical part of their argument, not the supporting details. This has accelerated the pace at which I read and understand a concept. After I understand one concept, I move to the next concept and repeat the process.  
• Pace – I finish books much faster, which means I’m learning much faster. 
• Habit – Reading first thing in the morning has established a habit that is second nature now. My brain expects to learn something new every morning.
• Book list – I've found that as I’ve accelerated the rate at which I consume books, I've also accelerated the rate at which I add new books to my reading list.
• Challenge – I initially set a daily goal for my reading that pushed me. I now regularly hit that goal and will expand that goal to push myself a little harder.  
• Night reading – I still read in the evenings too, but I tend to read historical books, such as biographies. For me, nighttime reading is not optimal for learning new concepts.

This experiment has instilled a new habit into my life that I think will have a big impact in the long run. I’m still tweaking things a bit but should have my approach fine-tuned and daily goals solidified by the beginning of the new year.

This is my one-hundred-eighty-sixth weekly reflection. Here are my takeaways from this week:

• No – This week was a reminder that the power of saying no more than yes is underestimated. Saying no allows for more focus on the things that matter most and maintains the optionality of new opportunities. Saying yes to too many things can result in lack of focus and loss of future optionality.
• Strategic sales – I’m hearing more early-stage founders with diminishing runway discuss the possibility of selling their business to a strategic acquirer if they can’t raise additional capital.

Week one hundred eighty-six was another week of learning. Looking forward to next week!

This week, I connected with an early-stage founder who’s fundraising. A few funds that are deep in the process want to do customer diligence calls—they want to talk to the handful of early-adopter customers that are larger companies. The customers don’t understand venture capital or start-ups. The thought of talking with “investors” looking to invest in a provider of a service they deem critical makes them queasy. They’re not sure if this is a sign that the company is in trouble financially and they should rethink the relationship.

If a company has a product with paying customers and it wants to raise venture capital, the investment firms are going to want to talk to the customers. They could construe not being allowed to do so negatively. “If your product is so great, why can’t we hear that directly from your customers?” goes the thinking.

 One way around this is to pitch your most important customers on your big vision. They know the product you’re offering and how it solves their current pain point, but they may not know more than that. Once you share your big vision with them, they’ll likely be more excited to be part of that journey and help turn the vision into reality. They’re also more likely to understand that going on that journey will require growth capital. When they’re asked to do reference calls with venture capital investors, the investors can be described as “partners to help provide the capital that will allow us to execute on our vision” (which is true for VC), not a financial lifeline.

A friend talked to me about an early-stage start-up because I’m familiar with the space. He asked my opinion. The space has lots of downsides, the main one being the small size of the market. And it’s complex, which makes completing transactions difficult, labor intensive, and expensive. He said he wished the founder had chatted with me before starting the company. I agreed. I learned a lot about the space the hard way and would have happily shared what I know.

Something for founders to consider doing before building a new solution is seeking out founders who’ve already built in the space they’re entering. Lessons can be learned from the successes and failures of other founders that can save lots of time, energy, and money. Oftentimes those founders are excited to share what they learned with someone who’s equally passionate about the space. It’s an activity with a high upside and relativity low downside that anyone can do.

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I’ve been keeping tabs on several early-stage founders who are aiming to raise capital before the end of the year. Their funding experiences so far are on the extreme ends of the spectrum (for various reasons). From what I’m hearing so far, it sounds like funding rounds will end up in one of two camps.

• Fundraises will be extremely successful and engender a high degree of interest from several firms. These founders will likely be given offers to raise materially more capital than they set out to raise (which isn’t necessarily a good thing).
• Fundraises will be completely unsuccessful, with zero interest from firms. If these founders are running out of runway, they’ll likely struggle to raise a bridge round.

These initial thoughts are subject to change as the market changes. But if they hold, it sounds like an extreme case of haves and have nots this fundraising season.

A friend recently asked about posts I wrote two months ago summarizing the IPO filings of Instacart and Klaviyo. Specifically, he asked why I spent time reading through hundreds of pages for each company. Couldn’t I have gotten the same understanding from reading summary articles in the financial press—the Wall Street Journal or Bloomberg?

I wanted to determine the strength of each underlying business for myself before they went public. Whenever I’m evaluating something, I aim to come to my own conclusions. Therefore, I try to find first-source data, not interpretations by people removed from the situation. These filings, while long, were great first-source data. They laid out facts and numerical data relevant to all facets of each business, helping me to reach a conclusion about each company with a high degree of conviction. 

I could have saved time by reading summaries in the financial press or listening to the opinions of others. But I wouldn’t have had as good an understanding of each business, might have missed critical things because others overlooked them, and wouldn’t have had strong conviction in the evaluation of each business because I hadn’t done the work myself. 

Howard Marks is a successful billionaire investor who cofounded Oaktree Capital in 1995. As of today, Oaktree has over $170 billion in assets under management, more than 1,000 employees, and offices worldwide.

Marks is known as a shrewd investor and for sharing his insights on financial matters in widely read memos since 1990. It’s said that many notable investors, including Warren Buffett, look forward to reading these memos.

Marks recently released a new memo entitled Further Thoughts on Sea Change. The piece is a follow-up to a memo he wrote in 2022. In the most recent memo, Marks makes the point that a “significant” reallocation of capital to credit is warranted for these reasons:

• Returns on credit are competitive versus historical returns on equities
• Returns on credit exceed the returns required for actuarial assumptions (this is a big deal for pensions and insurance companies, who allocate enormous capital pools)
• Returns on credit are contractual and therefore less uncertain than equity returns

If Marks is correct and we are indeed going through a sea change resulting in significantly more capital being allocated to credit, public equities (i.e., the stock market), venture capital, and various other asset classes could be materially impacted.

More demand for credit could result in less demand for other asset classes. If there’s less demand for public equities, that could result in lower market capitalizations (i.e., valuations) of public companies.

Venture capital firms often aim to sell their companies to public investors by taking them public (i.e., listing them on the stock market). Lower public market capitalizations would mean that venture capital firms would be selling companies for lower prices. Lower sales prices would decrease the probability of venture capital funds generating returns that would justify the illiquidity and risk taken relative to other asset classes. This could make limited partners less inclined to allocate capital to venture capital firms (we’re seeing this already), which, over time, could result in less capital being allocated to high-growth start-ups. 

No one can predict the future, but it’s interesting to think about what could happen if Marks’s insights are accurate.

Marks’s memos are great reads, and I see why people look forward to them. He makes a lot of salient points in this recent memo. If you’re interested in it, you can read or listen to it here and here.

I’ve been thinking about a Warren Buffett quote:

I am a better investor because I am a businessman, and a better businessman because I am an investor.

Founders may not realize it, but they’re resource and capital allocators. Their goal is to operate a successful and growing business. They must figure out the appropriate allocation of resources and capital to achieve that goal. If founders allocate capital and resources to uses that provide low or no return, the business could fail. If they allocate to uses with a high return, the business is successful.

The question I’ve been wondering about is whether Buffett’s experience is true more broadly. Do operators with a track record of success have a higher probability of investing successfully across various asset classes (not just venture capital)? Meaning, are they more likely than investors who aren’t operators to find the best uses of capital across various asset classes and generate higher returns?

I think operators are the best allocators of capital for venture capital, but I’m not sure about other asset classes. That’s something I want to think about more.

This is my one-hundred-eighty-fifth weekly reflection. Here are my takeaways from this week:

• Simple business – I talked with friends about a simple business that’s performing exceptionally well. We were all surprised at how well. This was a reminder that great businesses don’t need to be overly complex. Sometimes the model can be simple and superbly executed.
• Early-stage VC – I’ve had some great conversations with early-stage VC investors the last few weeks. The consensus seems to be that early-stage entry prices are still high relative to public markets.

Week one hundred eighty-five was another week of learning. Looking forward to next week!

This week, I caught up with an emerging VC fund manager who shared something interesting with me. His first two funds were small ones, so he’s been operating for several years. Now he’s preparing to raise his third fund, even though he knows the fundraising environment is rough. 

He said that raising those small funds ended up being beneficial. The management fee dollars were small, so he had a small operating budget. He was forced to be intentional about where he spent his budget and his time and to focus on the activities that mattered most and had the highest return. It’s paying off: those first two funds are performing well.

I’m a big fan of operating with constraints. Limited resources force you to focus your execution and learn from mistakes quickly, often spurring creativity. It was interesting to hear that this isn’t true just for start-up founders; it applies to fund managers too.