In the last eighteen months or so, we’ve seen asset prices increase rapidly. I’ve been having debates with friends about this. Most of them think this is a bubble and it will reverse. I think the opposite will happen: asset prices (real estate, equities, etc.) will remain elevated. Prices will go up at slower rate than we’ve seen in the last eighteen months, but they will keep increasing. I have several reasons for believing this, which I won’t get into today.

Equity (i.e., ownership) in companies is key to most investors’ strategy, and I see a change on the horizon in how they acquire it. More investors will look to invest in private companies (private equity) instead of public companies (public equity) via the stock market. The driving force will be the desire for higher returns as the stock market growth rate slows. Again, lots of reasons for this.

The private companies with the highest rate of return will likely be early-stage companies, which puts venture capital—a subset of private equity—in a position to see an influx of investor capital. Some established funds have begun taking advantage of this and have announced they’ve raised sizeable funds this year. We’ll continue to see more of these announcements, but I think we’ll see something else too: an increase in the number of investors stepping out to start their own funds for the first time. Some will come from other venture capital funds, some will be former entrepreneurs, and some will be subject matter experts in emerging fields.

Historically, experience as an investor in venture capital has been key to starting one’s own fund. Experience is hard to come by because most funds don’t have many open slots, so . . . high barrier to entry. As more investors seek equity in early-stage private companies and more capital flows into venture capital, I see this barrier being lowered. More investors will take flyers on people who have unique relationships in and understand emerging sectors well but have zero venture capital experience. Some of these new managers will fail and some—hopefully more—will succeed.

I’m not sure of the timing of all this, but I’ll be watching it closely. We could be on the cusp of a big change in venture capital!

I’ve been chatting with a founder friend about a deal he’s considering doing. The seller doesn’t have any other suitors, probably because they’re asking for above-market pricing. My friend knows this and has been trying to get them to a price more aligned with the current market. All the numbers support my friend’s argument.

Today we spoke again, and he told me he’s going to try to meet them in the middle. He’ll likely end up paying more than the deal is currently worth. Not expecting this, I questioned his logic. His explanation: he’s focused on future, not current, value. He has a vision for creating more value using the asset. If he executes on it, the difference between what the deal is worth now and what he paid will be negligible. He sees a great opportunity to create a large amount of value and wants to capitalize on it quickly before someone else sees it.

Recognizing greatness is important to any founder’s success. I didn’t do it early in my journey, and it hurt me. When this founder began focusing on how great this opportunity is, it changed his thought processes, actions, and sense of urgency. I’m looking forward to seeing him create something profitable and great out of this opportunity!

I talked with an early-stage investor today about a recent investment his firm made. He listed lots of great reasons for doing the deal: strong team, great traction, big market, great customer feedback, etc. But one point stood out to me. Competitors—other well-funded large players—have platforms that solve the same problem as this new portfolio company as well as a variety of other problems. They do an okay job of solving most of them. The new portfolio company, on the other hand, solves one problem extremely well. The hyper focus on a single problem helped this investor have conviction for the deal.

I think of this new portfolio company as taking the sniper approach to solving a problem, which its new investor loves. It’s laser focused on a single problem that its leaders have taken the time to understand well. Their solution is designed to eliminate a pain point so customers don’t have to worry about it anymore.

The larger competitors are taking a shotgun approach. They’re aiming in the general vicinity of this problem and many others. They understand the problem from a high level but haven’t gone super deep. Their solution is designed to mitigate the pain of this problem, not erase it.

Both strategies have pros and cons, and large companies can be built using either. My personality leaned toward the sniper approach when I was a founder, but I’ve shotgunned too. From my experience, the decision of which to embrace depends mainly on what customers want. Who are you targeting and what do they want? A one-stop shop that does a decent job at solving many problems but doesn’t shoot for perfection? Or an expert that’s trying to eliminate a problem altogether?

Listen to what your customers want to give you a clear idea of what you need to build.

I had a spirited chat with a friend this week about a house in Atlanta that just hit the market. We debated how long it will take to sell. I think it will sell within a week, and my friend thinks it will take a few months. Surprised, I dug into his why. He things it’s overpriced and that a price reduction will be needed to move it after it sits unsold for a few weeks. I think the price is fair. The true disconnect is what we think the house is worth.

After more back and forth, I got to the root of our disagreement. I’m bullish on Atlanta. I think the city offers qualities other major metros can’t that make it a place people see themselves settling down in and calling home for the long term. And pandemic dynamics contribute to it being a desirable destination. Home prices reflect this and are likely to continue increasing for the foreseeable future. I believe that prices are fair relative to where they’ll be in the future.

My friend has lived in Atlanta for a long time. He remembers a glut of houses on the market after the financial crisis and some now-trendy neighborhoods being seedy. He believes Atlanta is in a real estate bubble and prices will drop at some point. In other words, he believes current prices are inflated relative to historical prices.

As I reflected on our conversation, I realized that we had different perspectives: I was focused on the future, and he was focused on the past.

Looking at an opportunity, I’m a fan of future thinking. I wasn’t always like this. Flipping this mental switch transformed how I analyze opportunities. I’m able to see opportunity and capitalize on it because I can still see it as “cheap.” If things go as I predict, the asset will increase in value, and I will have gotten a deal at its current price. It’s irrelevant that I didn’t buy at the cheapest historical price, a consideration that I view as a mental trap.

Personal finance has been a hobby of mine since high school. When I hear founders solving for problems in this area, I’m always interested. Today a founder shared some interesting insights that got me thinking. One of the biggest challenges I’ve seen is that most tools to help people manage their finances are outside the normal consumer flow. If you want to save for a big purchase or just stick to a budget, it can be difficult. Part of the challenge is that these tools are usually independent apps that the user utilizes after a transaction has occurred.

Digital wallets on smartphones are gaining traction. I believe that in the not-so-distant future, we will no longer carry a wallet in our purse or back pocket. Everything—driver’s license, credit cards, etc.—will be in our digital wallet. The digital wallet will be how we make purchases, and it will become the center of gravity for consumer purchases. When that happens, we’ll see the next evolution of personal finance tools, because they’ll be built into the consumer’s purchasing flow. They’ll be able to affect the buying decision before it’s completed. This could lead to sustained behavior change, which many of us desperately need if we’re to improve our financial situation.  

I’m not sure when the digital wallet will be adopted by the masses, but when it is, it could have a big impact on consumer spending habits.

I listened as an investor described what he’s seeing in the world of investing: a “land grab for high-quality assets.” He’s been an investor for years, so I was curious to hear his definition of high quality, which turned out to be a rapid growth rate that can be sustained. He doesn’t think a specific number defines rapid growth; rather, grown is relative to others in the sector or business model. As for the meaning of sustained, he wants to see a path to maintaining the growth rate for at least three years.

His perspective is interesting. I’m not sure I agree with all of it, but I respect it. Sustained growth is great, but combining it with profitability is even better, in my book. I’m not saying that a company has to be profitable to be great, but sustained rapid growth and profitability is an amazing combination that’s difficult to achieve. The companies that have it are the ones I view as being in a league of their own.

A friend read my post about individual investors becoming more of a force. We had a good chat about it today. Here’s my takeaway:

Investor knowledge gap – Just as early-stage founders have gaps in their knowledge about raising capital, lots of investors have gaps in their knowledge about deploying capital into early-stage tech companies. They see what’s happening, want to participate, and have the capital, but they don’t know where to start. This is beginning to change. Information is more readily available. More platforms are making it easier for would-be investors to find and participate in tech deals and connect with and learn from other investors. As more individual investors learn about and gain access to investment opportunities and find their community, they’ll start deploying capital.

Great chat today with my buddy. We’re both looking forward to the rise of the individual investor.

I’ve been interested in personal finance and investing since adolescence. I’ve always read about them as much as possible, and I even crowdsourced financial advice when I got my first job offer. Usually, I was in the minority in my circle of friends. Finance and investing just weren’t things that many were interested in or cared to talk about. Over the past eighteen months, that has changed drastically. Investing and finances are regular topics in my various friend groups.

Consumer interest in investing and personal finance will continue to expand. Information is more readily available, fees have been virtually eliminated, and access to platforms is easier. This is leading more people to take a hands-on approach. They’re learning and applying their knowledge. I think this will be a positive trend in the long term, but there may be a period of adjustment in the short term.

Public investments like the stock market are most accessible, and that’s where many consumers have recently gotten their feet wet. As they get more comfortable investing, I suspect interest in investing in private companies will grow. If that happens, entrepreneurs will likely see more willingness among their friends and family to invest in their early ventures. This will have pros and cons but, I think, net out as positive. Founders will have access to more capital to build businesses. Consumers will be able to invest in private companies that serve their communities and hopefully see financial gains that they can reinvest in more founders.

I think the next decade or so will be one of change and disruption like nothing we’ve ever seen. Investing will look radically different in the future. I’m excited to watch the rise of the individual investor and how their capital will change the entrepreneurial landscape.

I spent time today pondering an intriguing idea of someone I respect. He believes technology is evolving so quickly that with respect to company valuations, the next decade won’t look like any other. The rate of change and disruption will be like nothing we’ve ever seen and result in valuations higher than we’ve ever seen. Historical valuation norms will be useless as benchmarks for the future.

This person believes these higher valuations will be difficult to grasp initially. But once it’s clear they aren’t going away (for a variety of reasons), people will quickly embrace the trend en masse, which may push them even higher.

This is an interesting concept. I’m not sure if I agree, but I can’t rule it out, either. I want to digest it further. If this person is correct, it will have broad implications, and not all of them will be good.

I read the reflections of a successful investor recently. Most of his insights had to do with why he and his team had been successful. One factor is that they focused on a sector that was target rich—meaning the incumbents were highly profitable in comparison with other companies globally. These incumbents weren’t keeping up with changing consumer behavior, though, so the sector was in need of modernization.

This was an interesting insight. Large, highly profitable companies were solving problems, creating value for customers. But their solutions weren’t keeping up with the pace of change, so they were outdated. This created an opening for a new solution.

This investor identified companies that were solving well-known problems. There was no need to wonder if the problem was painful enough for customers to pay for a solution; that had already been validated. The market size had also been validated by the incumbents’ large and profitable businesses.

This investor believes that investing in a target-rich sector significantly increased his chances of success. He thinks an average investor in a target-rich sector can win out over a great investor in a sector full of great competitors.

I like this reflection, and I think it’s a strategy some founders can leverage too. Focusing on a sector or problem that’s proven and ripe for disruption will likely increase your chances of success (assuming you have founder/market fit).