The rise of remote work led to many people and companies leaving high-cost coastal cities. This redistribution of talent has changed how early-stage venture capital is deployed. Before, investors would invest only in entrepreneurs whom they could meet in person. Many investors preferred to not travel, so founders migrated to cities with a high concentration of venture capital investors. But the pandemic and the redistribution of talented entrepreneurs changed this. Investors now regularly invest in founders whom they’ve met only over Zoom.

I’ve been thinking about the tech layoffs by large companies like Amazon and Google and what they’ll do to the distribution of talent. I suspect that a material number of people laid off by these companies will rethink living in their high-cost cities, especially if their job was the main thing keeping them there.

I could be wrong, but if this does play out, I’m curious about how venture capital will adjust. If a lot of talented founders no longer want to reside in the Bay Area, for example, how will these firms adjust? Will they continue to stay heavily concentrated in places like the Bay Area and do even more investing over Zoom? Or will they rethink where their firms or their firms’ investors live?

Earlier this month, I shared my predictions about tech layoffs changing the risk/reward dynamic in favor of entrepreneurship. Today, Microsoft announced that it’s reducing headcount by 10,000 people through Q3 2023. This is on top of other sizeable layoffs announced in the last few months by Amazon, Salesforce, and Facebook.

As more tech workers capable of building products are laid off, the risk/reward calculation tilts more in favor of entrepreneurship for some of them. This could be the year that many of these people bet on themselves.

“Start-ups die of suicide, not murder.” It’s a common saying. It means that most start-ups fail because of self-inflicted wounds like bad decisions, not competition. This is true, but even so, it’s critical for early-stage founders to know the competition when pitching investors.

Investors backing founders at the spearhead of company formation want to back someone who understands a problem and the market for it better than anyone else. They expect the founder to have identified something others don’t see that will allow them to succeed. Part of this process should include understanding existing solutions and why they don’t adequately serve the market. That doesn’t mean you aim to mirror what your competitors have done. It does mean you know how your solution will create more value than competitors’.

If you’re an early-stage founder and you don’t know your competition or can’t speak to how your solution is superior, you’ve diminished your chances of getting capital from investors.  

A few months back, I shared Reid Hoffman’s belief in keeping his expectations of meetings low to allow for serendipity. That really stuck with me, and I’ve embraced it, which has indeed led to some serendipity. Since then, I’ve been thinking about how to lean into encouraging more serendipity.

I’ve started to think about how to make room for serendipity through my normal nonwork interactions. I’ve landed on something that’s worked. When I’m doing normal everyday things, I now try to go to new or unfamiliar places to get exposure to new establishments, neighborhoods, and people. A simple example is dinner. Most people have their go-to restaurants and neighborhoods. These places are where they’re comfortable and what they know. Instead of sticking to your favorites, find new places (preferably with good reviews) in an area you don’t frequent. While you’re there, try to understand the people and the area.

I recently had dinner in a part of town I don’t usually go to. The place has good reviews, so I was excited to try it. Instead of grabbing a table, my companion and I chose to sit at the bar. Because we did, we had amazing conversations. The bartender gave us a history of the restaurant and its ownership. And we met another couple at the bar who build custom homes. They gave us a boots-on-the-ground perspective of the Atlanta housing market and shared some information we otherwise wouldn’t be aware of. We all agreed to keep in touch.

Serendipity, by definition, happens by chance, but you can be intentional about increasing the probability of it through your decisions about everyday activities.

Someone mentioned a quote to me this week that stuck with me:

Take a simple idea and take it seriously.

I did some digging and found that the quote is attributed by many people to Charlie Munger, but I’m not sure whether it originated with him.

When I read this quote, it reminds me that focus can lead to outsize outcomes. Successful people often had a simple idea at the core of their success. The idea itself often wasn’t earth-shattering—it was how seriously they took it that made all the difference. They thought deeply about it—to the point that they became fanatically intense about it. Eventually, they shifted their intensity to executing on their idea. Execution is often the hardest part, but because they had such conviction, they pushed through challenging times that would have caused others to throw in the towel. When the dust settled and they looked back, they’d taken a simple idea that other people probably also saw to a new level because they focused intensely on it.  

‍

Last week, Fred Wilson shared his predictions for 2023. Fred’s a well-known VC and general partner at Union Square Ventures. His thoughts on start-ups in 2023 were of interest to me. A few points that founders should take note of:

• 2023 will be a tough year for start-ups. As money-losing companies, many avoided raising in last year’s difficult environment. They’ll be forced to raise this year as their cash dwindles.  
• VCs have ample capital to invest but will be more selective. Companies with product–market fit, strong teams, and good unit economics will be able to raise. Start-ups that don’t have these things will struggle to raise, regardless of valuation, and many will fail.
• Valuations will return to the levels of 2015 or so. Seed rounds will be around $10m, Series A rounds around $15–$25m, Series B rounds around $25–$50m, and growth rounds capped at 10x revenue.
• Lower valuations will lead to flat rounds, down rounds, inside rounds, and lots of structure in the rounds. CEOs and boards should accept the pain of lower valuations over a lot of structure.

Fred’s predictions come from someone who’s seen a few VC cycles. Things won’t necessarily play out just as he’s said, but his predictions are something for founders to be aware of.

I’ve had chats with a few founders in the last week about their next funding round. Many have accepted the current valuation environment but haven’t processed what impact a down round or one with lots of structure will have on the cap table and start-ups overall.

I’m of the opinion that Q1 will set the tone for 2023. If the rate of decline in public markets we saw in 2022 persists, Fred’s predictions are more likely to be accurate. If public markets are flat to slightly up, I think conditions for start-ups could be slightly better than Fred predicts.

‍

One of the things I’ve often heard successful investors mention as a founder trait to look for is clarity of thought. Clear thinking about the problem they’re solving and the solution they’ve built or want to build. Thoughts they can articulate clearly and concisely so others can follow along and that show they have great understanding of the topic.

For most founders, clarity of thought isn’t something that happens on the fly. It’s usually the result of taking time to truly understand a problem and thinking deeply about what you’ve learned. Deep thinking helps you organize your thoughts so you can express them clearly. And as you think about the problem more, you build conviction that you understand the problem and how to solve it based on a unique insight that others may have missed.

As I shared yesterday, paying attention to one thing at a time is important (as Charlie Munger has pointed out). Making time to think will help you do that. Making time to think is also important for founders because it leads to the clarity of thought and conviction that usually precede outsize success.

A friend shared a quote from Charlie Munger with me:

I think people that multitask pay a huge price. They think they’re being extra productive, and I think they’re [out of their mind].

I think when you multi-task so much, you don’t have time to think about anything deeply. You’re giving the world an advantage you shouldn’t do. Practically everybody is drifting into that mistake.

Concentrating hard on something that is important is . . . I can’t succeed at all without doing it. I did not succeed in life by intelligence. I succeeded because I have a long attention span.

It’s telling that Charlie attributes his success to concentration, not intelligence.

I was chatting with a very successful person, and he shared with me that he blocks out time to think. He said he’s disciplined about when he checks text messages, email, etc. so he isn’t in a reactionary state. And he’s intentional about making time to focus on important topics.

These days, more distractions than ever are making it harder for people to know how to focus. This person and Charlie are both super successful, and both make a point of setting aside time to concentrate. That isn’t a coincidence.

I’m intentional about making time to think regularly, but not on the level of these two. In 2023, I want to look for ways to multitask less and lengthen my attention span.

‍

I hold all entrepreneurs in high regard, but a subset separates themselves from the rest. I call these people multipliers. They’re driven and accomplished like other entrepreneurs, but they go beyond, seeking to multiply their success and impact. The easiest example is financial, but it could also be in other ways, such as impact on society.

Love him or hate him, Elon Musk is an example of a multiplier. He sold Zip2 in 1999 for over $300 million, personally pocketing over $20 million. He immediately rolled that into another start-up, X.com (which later became PayPal). eBay acquired PayPal for about $1.5 billion in 2002, netting Musk hundreds of millions. He rolled that windfall into starting Tesla, SpaceX, and SolarCity. Last year, Elon acquired Twitter for $44 billion.

Most people would be content with $20 million, but Elon wants to multiply his impact (and, I assume, his wealth). He continues to multiply his impact with bigger moves.

Multipliers are intriguing to me. Even among a rare class of people, they stand out because they’re wired differently. When many would focus on preserving what they’ve achieved, these individuals continue to take on risk to keep multiplying.

I wonder why. Are these people driven by something materially different than other entrepreneurs are?

Layoffs are mushrooming in the tech industry. For example, Amazon, Salesforce, and Facebook—big, public tech companies—have all announced sizable layoffs. These are high-paying, skilled jobs that used to be thought of as safe. These jobs were abundant while these companies grew for many years and competed for talent, creating a market where talent always knew they could find a job. Things have changed. These companies are all reducing or freezing headcount at the same time. This is playing out with smaller private tech companies too.

Absent a reversal, I suspect this will lead to a big uptick in entrepreneurship. Until now, employees with safe, high-paying jobs have had a strong incentive to not pursue entrepreneurship. Low-risk, high-reward positions were abundant. But with the market changing, the risk is greater. If you’re laid off, your reward is low (zero pay). For those who have entrepreneurial desire, starting a company now makes more sense. They’ll still be in a high-risk situation, but they’ll also have a shot at high rewards and have more control over their own destiny. Said differently, in an environment where you can’t find a job, what do you have to lose by trying to start a company?

I think we’ll start seeing more people (in tech and other industries) look at the changing risk/reward dynamics and decide to bet on themselves.