An Entrepreneur’s Perspective – Reinventing Early-Stage Venture Investing; Plus Register for Our Upcoming Conference!

July 8, 2022

Friends,

I am excited to interview Michael Gibson of the 1517 Fund for this issue of An Entrepreneur’s Perspective.

Michael, together with his business partner Danielle Strachman, co-founded and runs the 1517 Fund, a venture capital fund focused on true early-stage investing.  Michael and Danielle both previously worked for Peter Thiel, where they helped to start the now famous Thiel Fellowship, a program that backs young entrepreneurs (such as Ethereum’s Vitalik Buterin, who is a Thiel alum) who want to leave college to start a business.  1517 basically embodies this mission, but in a venture fund!

As an entrepreneur myself who didn’t finish college, this is a topic near and dear to my heart and I am proud to be an investor in 1517, which just raised their third fund.  I think you will enjoy hearing more about 1517’s untraditional and very successful approach.

I am also excited to announce Raging Capital Venture’s inaugural Ideas & Networking Conference on September 22, 2022 at the Standard Hotel – High Line in New York City.  So far, we have confirmed four outstanding speakers, including Mark Gerson, co-Founder of Gerson Lehrman Group; Brooks Gibbons, Managing Partner, Fintech Collective; Ailon Grushkin, CIO, Nano-Cap Advisors; and David Moehring, General Partner, Cambium Capital.

The event will start with lunch at 12:30 PM and conclude with cocktails on the High Line River Terrace starting at 3:30 PM.  See below for more information on the Speakers and Agenda and click here to register.  Space is limited — I hope you can attend!

Thanks again and enjoy the summer!

Best Regards,

William C. Martin

 

Topics in this Issue of An Entrepreneur’s Perspective:

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Interview with Michael Gibson, 1517 Fund

You and your partner Danielle Strachman were both early founders of the Thiel Fellowship, an innovative and provocative program that Peter Thiel founded to incentive young entrepreneurs to leave school early to start companies.  Can you tell us a bit more about the Fellowship and its genesis?

We started the fellowship on my first day of work with Peter, on September 27, 2010. I remember the exact day readily because it was my first day and Peter had hired me for other reasons. I was starting as a research analyst at his hedge fund, and I was going to help him teach a class at Stanford Law School on technology and politics. But the night before that day, Peter had flown back to SF from NYC and, on the flight, he came up with the idea of the fellowship. Then he surprised everyone by saying he wanted to announce it the next day during a media interview at a big conference, Tech Crunch Disrupt. So on my first day we were literally figuring out some of the details: a two-year program, $100k grant, and applicants had to be 19-and-under when they applied. A week later, Danielle came on board to bring some order to the chaos. The basic idea was that college had become this monolithic path to success and Peter wanted to support people who were willing to brave an alternative path outside of institutions. He also wanted to help them get started before they took on too much student debt.

A few years later, you came up with the idea to start the 1517 Fund in order to fund “Dropouts, Renegades and Deep Tech.”  Would you share your thesis for the fund (and why you named it after the year of Martin Luther’s Reformation!)?

After five years of running the Thiel Fellowship, Danielle and I had seen some truly incredible things come out of it. The most famous is Ethereum. We met 19-year-old Vitalik Buterin about a week after he wrote the original Ethereum white paper. We awarded him a fellowship and helped him launch the following year. So that’s become quite massive. There were some other early signs of success, too. We had backed Dylan Field, who launched Figma, which is now the top design tool for developers. So by 2015, Danielle and I were thinking, “Wow, we’ve been doing this as a non-profit, but we could launch a venture capital fund based on our thesis about finding talented young people and the uncredentialed.” When it came to naming our fund, I thought about how bad diplomas were becoming as a signal of skills or knowledge. And yet, despite that, the consensus view in American society is that you’re condemned to hell in life if you don’t earn a diploma. It’s Yale or fail. That low-quality signal being sold by a powerful, preachy institution reminded me of the role of indulgences in the Catholic Church during the 16th century. 1517 is the year Martin Luther wrote his ninety-five theses against the sale of these pieces of paper. We thought we’d name our fund 1517 as a way to show we don’t believe in modern indulgences.

Since then, you’ve done an amazing job of backing great, young entrepreneurs and you also recently closed on your third fund – congrats!   Please tell us how things have progressed with 1517 so far and what you’ve learned along the way?

Thanks! We’re excited to expand on our mission. Our first fund was $20m. Our second about $25m. Our third fund is $80m, so we’re going to be making more investments and writing larger first checks into companies. Based on our track record, we’ve grown stronger at identifying talent early and in helping it to grow. So we’re going to pilot some new ideas. One new program is something we call our “Invisible College.” These are $50k – $100k checks into companies that are really early in the R&D phase on the frontier of a deep technology. A good example is the Zeno Power Systems team. They were three guys who had some ideas for how to commercialize the next generation of nuclear batteries. We wrote them a $50k check and helped them get to those first few milestones, SBIR grants and the like. Based on those early wins, they were able to raise more substantial seed rounds and now Series A. They’ve won a $15 million contract with the U.S. military. So one of our key learnings has been to see that these step-by-step paths are possible. Now it’s one of our main fund strategies.

Luminar (NASDAQ: LAZR) and its young entrepreneur Austin Russell are probably your highest profile success so far.  Tell us a bit more about Austin and what made him and Luminar special?  Where do you see Luminar in five or ten years?

Austin is a tall, lanky Southern Californian who has a big belly laugh like a surfer but then he talks like a physicist with the utmost rigor. We see this unity of opposites in a lot of creative startup founders. They tend to be both insiders and outsiders at the same time. A bit of a paradox. So, for example, Austin had spent time as a teen monkeying around in the photonics labs of UC Irvine, near where he lived. He had some exposure to the inside. But then he was an outsider because as a teen new to the field, he had some unorthodox ideas about how to increase the performance of the lasers used in lidar systems. We met Austin in 2013 when he was 17-years-old, and after he told us about this new laser he invented, we weren’t sure if he was crazy, or crazy awesome. We dug in on the diligence. He was far out there, but not bananas, so we awarded him a Thiel Fellowship. Over the subsequent years, we mentored Austin as he formed Luminar Technologies and grew the company and refined the technology. It’s rare to meet a technical founder who can grow into being the leader that the company needs at each stage of its growth. Austin’s done that at every step of the way. We’re still very bullish on the company. On a relative basis, it’s performing very well against both other public lidar companies and against the whole batch of companies that went public via a SPAC in 2020. Their product roadmap is still impressive. The customer base is expanding. And I’m excited to see Luminar’s sensors in Volvos next year.

What differentiates an Austin Russell from so many of the other entrepreneurs you meet with?  What are some of the key traits you’re looking for when backing young talent?

That insider-outsider trait is something we keep an eye out for. Another is something we call “Friday Night Dyson Sphere.” A Dyson Sphere is this idea the physicist Freeman Dyson had about a giant sphere of solar panels that could absorb all the energy emitted by the sun. That’s about as ambitious a project as you can get. We love when we meet people with that kind of vision. But the vision has to be matched by dedication and execution. That’s where Friday night comes in. When we hear somebody tell us about their company, we love to hear that it’s the most exciting thing they love working on, even on a Friday night when everyone else on campus is out partying.

Now we obviously look for intelligence and grit, but the best of the bunch combine those traits with a feeling for the edge of risk. They’re not thrill-seekers, like skydivers, but they do love probing that line between chaos and order, the known and the unknown. And not just once, but day in and day out.

On the downside, I’m sure the young entrepreneurs that you back are often very green.  What are the common foot faults and errors that come across?

We have this analogy we make on this point. Imagine a car race where any kind of car can enter the race. The Harvard MBA seasoned manager we understand to be the best driver in the league. But because the MBA is operating a big company with old tech, his car is average. Whereas our people are the worst drivers, but they have rockets for engines. Often the engine is what will win the race, not the driver. As long as the driver can learn!

To be honest, it’s hard for us to know if first-time founders fail for similar reasons that are different from those more experienced people don’t seem to have trouble with. Over the years we’ve seen a lot of awful pitches from older people, and have seen supposed adults act like infants in temper tantrums at companies. Startups are hard even for the experienced!

Loom has been another winner that really benefited from Covid.  Can you tell us a bit more about the company and why you backed it?

Loom is a tool for recording videos of computer screens and mobile screens for feedback, explanation, and instruction. It’s one of those tools that’s hard to describe but wonderful to use once you see it. Since Loom helps teams communicate effectively it’s been a boon to remote teams during Covid 19. Their growth has been consistently strong. Last year Andreessen Horowitz led the company’s Series C round of financing, investing $130 million at more than a $1 billion valuation. We were the first investors to put money into the company back in 2016. When we met the three founders, they were all living and working in a crammed apartment, surviving on one burrito a day from Chipotle. They were a week away from bankruptcy when we invested. We just loved the team and how gritty they were. They had to pitch us three times before we invested and in between each meeting they made a ton of progress. That really won us over

As an investor in 1517, I’m personally excited about your investment in Lambda Labs and its specialty cloud offering.  Can you share a bit more about Lambda and any other investments you’re really excited about?

We are too! Lambda has become one of the most trusted and respected brands in hardware for AI, or more specifically, for anyone running machine learning or deep learning. They’ve dominated the market for running this type of computation on-site. Now, as you mention, they’re expanding their cloud service. The consensus view in computers for years has been that the goal is “general artificial intelligence” which means one program that does many things incredibly well. But what we’ve seen instead is increasing specialization, both on the hardware and the software. It turns out these deep learning algorithms are great at learning one thing really, really well. The chips that run the algorithms, the GPUs, also tend to be very specialized as well. So even though AWS and Microsoft Azure offer a cloud product, they tend to be too general to meet the specific needs of a lot of the market. Lambda has shown they’re able to satisfy the demand with higher quality compute. Competition is going to be fierce in this space, but I’m confident in the team.

Another company of ours in the field of computation is Atom Computing, a quantum computing company. Quantum computing is mind-boggling and difficult to understand, but basically it takes advantage of the weirdness in the behavior of particles. Different companies seek to exploit different quantum systems, whether that be photons, ions, or superconducting materials. Atom uses whole atoms. The challenge is to keep enough of the particles in a state of coherence where they can run calculations. Atom recently set a record for performance on this fundamental task. It’s very exciting to them pushing the frontier.

Michael, your new book, Paper Belt on Fire, makes its debut in October.  Can you tell us a bit about this book?

Since Danielle and I are unusual fund managers pursuing this unlikely strategy, I thought it’d be fun to tell a behind-the-scenes story about the Thiel Fellowship and our fund. I use some of our stories as a springboard to talk about issues like the problems in higher ed. I think it’s fun, but I hope other people enjoy it as much as I do. I’m obviously biased! But the book comes out on October 25th. You can pre-order on Amazon now.

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Ideas & Networking Conference – Speakers & Agenda

 

 

EVENT DETAILS

THURSDAY, SEPTEMBER 22ND, 2022 – 12:30 PM
THE STANDARD HOTEL – HIGH LINE, NEW YORK CITY

THE HIGH LINE ROOM – 3RD FLOOR

LUNCH, SPEAKERS, & COCKTAILS ON THE RIVER TERRACE

 

HOST

William C. Martin, Raging Capital Ventures

Bill will guide you through an exciting day of thought-provoking speakers and interactive discussion. Learn more about emerging trends in technology, capital markets, philanthropy – as well as hear a few investment ideas! You can view Bill’s bio here.

 

AGENDA

12:30 PM // Meet and Greet

1:00 PM // Welcome

1:30 PM // Guest Speakers

3:30 PM // Cocktails on the River Terrace

 

Register Now!

 

GUEST SPEAKERS

(Additional Speakers will be announced in the coming months)

 



Brooks Gibbons, Co-Founder and Managing Partner, FinTech Collective

Hear about emerging trends in payments, crypto/DeFi, capital markets, and much more from a leading-edge, NYC-based fintech VC.

Prior to becoming a venture capitalist, Brooks had a successful career as an entrepreneur and global operating executive in capital markets, payments, and enterprise tech. He was a key executive and officer at New York-based Multex, which successfully IPO’d and exited to Reuters; London-based Serverside, which successfully exited to Gemalto; and Oslo-based FAST, which successfully exited to Microsoft for over $1b. Brooks began his career as an enterprise software developer.

 

Mark Gerson, Co-Founder, Gerson Lehrman Group

Enjoy a fireside chat about business, philanthropy and politics between two longtime friends, William C. Martin and Mark Gerson.

Mark Gerson is a successful businessman, philanthropist and writer. He is the co-founder of Gerson Lehrman Group (GLG), the Interesting Investment Institute (III) and several other companies. He is also the co-founder and Chairman of United Hatzalah of Israel — the world’s first and only national system of crowd-sourced volunteer first response, that enables victims of trauma (heart attacks, choking, bleeding, strokes) to be reliably treated well within the three minutes that separate life from death. He is also the co-founder and Chairman of African Mission Healthcare, which partners with Christian missionary doctors in Africa to provide clinical care, infrastructure and training all in support of providing care to the poor. Mark is the author of, “The Telling: How Judaism’s Essential Book Reveals the Meaning of Life,” and teaches Bible each week through Eagles Wings to primarily Evangelical leaders. He and his wife, Rabbi Erica Gerson, live with their four children in New York City.

 



Ailon Z. Grushkin, Founder & CIO, Nano-Cap Advisors

Ailon will share his thoughts about a range of public companies and commodities that are leveraged to emerging technologies, among other topics.

Mr. Grushkin has successfully managed Nano-Cap Advisors (and a predecessor), the General Partner to a pair of investment partnerships focused on investing in 1) commodities and commodity-related equities, and 2) small and micro-cap equities with a focus on emerging technology, biotech, semiconductors, and optical communications, since 1996. He started his career as a commodity trader. Mr. Grushkin is a graduate of the John M. Olin School of Business at Washington University in St. Louis with a Bachelor’s of Science in Business Administration.

 


David Moehring, Co-Founder & General Partner, Cambium Capital

Learn about trends and opportunities in next-generation computing, including quantum computing, memory and semiconductor tech, machine learning/AI, and wireless communications.

David Moehring, PhD is co-founder and Partner of Cambium, where he focuses on deal sourcing and diligence, and assisting portfolio companies on business and technical strategy. Prior to Cambium, David was the founding CEO of IonQ, where he led the development of its general-purpose quantum computers. Prior to IonQ, David was a Senior Program Manager at the Intelligence Advanced Research Projects Activity (“IARPA”), an organization responsible for leading high-risk, high-payoff research and development relevant to the United States Intelligence Community. Prior to IARPA, David was a Senior Member of Technical Staff at Sandia National Laboratories and an Alexander von Humboldt Postdoctoral Fellow at the Max Planck Institute for Quantum Optics. David received his Bachelor’s Degree in Applied Physics from Purdue University and his Masters and PhD in Physics from the University of Michigan. President Barack Obama awarded David with the 2014 Presidential Early Career Awards for Scientists and Engineers.

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Voting Choice for Passive Investors is a Key Issue

In this era of passive investing, one of my big concerns is the proliferation of proxy voting power in hands of a small number of major institutional investors, namely BlackRock, Vanguard, and State Street.  According to analysis by Bloomberg Intelligence, passive market share accounted for 54% of the total U.S. stock market and over 40% of international markets as of Q1 2021.  This trend has trickled down to even the smallest of companies, where often 5 or 6 of the top ten holders are passive in nature.

Inherently, passive investors lack the urgency and incentives that a hedge fund or more active manager has when it comes to driving management change, operating improvements, optimizing capital allocation, unlocking value, et al.  Further, while many of these firms consult with independent proxy advisors or internal teams to evaluate how they will vote their shares, they rarely seek to roil the waters and often seek to “split the baby” when there is a proxy dispute.  This serves to protect underperforming and entrenched management teams and board members.

On top of this, ESG, diversity, justice and other political agendas have increasingly become key litmus tests for how these passive firms choose to vote their shares.  Larry Fink at BlackRock has been particularly outspoken on this front, particularly on the environment, climate change and energy investments.  While certainly well-intentioned in his own mind, it is scary to think that Larry Fink and/or just a small handful of investment firms now have the power to significantly influence or even control the boards of directors of most public companies, giving them massive power to promote whatever social or political agendas that they may have.  This concentration of voting power is unprecedented in our system with profound implications for society, politics, and the healthy workings of a capitalist economy.

It has long been surprising to me that this issue has not gotten more attention, but perhaps many are afraid to speak out for fear of losing their public directorships!   That said, I was recently pleased to see that a group of Republican Senators propose a bill to require large money managers to give their passive fund investors a way to vote their proxies.  BlackRock also recently introduced a “Voting Choice” tool for a portion of their institutional investors that allows for direct proxy voting.   Although not perfect, these initiatives would be steps in the right direction.

It is important to watch how these efforts evolve, and I would encourage you to ask your passive money managers for this type of voting power and to lobby your legislators.

Lawmakers Seek to Curb Passive Voting Power:

https://www.sullivan.senate.gov/newsroom/in-the-news/article-lawmakers-seek-to-curb-voting-power-of-blackrock-vanguard-and-other-big-asset-managers

BlackRock Offers Big Investors Ability to Vote on Shareholder Proposals:

https://www.wsj.com/articles/blackrock-gives-big-investors-ability-to-vote-on-shareholder-proposals-11633617321

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The Arrival of “Artificial Intelligence”

DALL-E mini: A Free, Open-Source AI to produce images from Text Inputs

It is worth playing with this tool, which creates images based on your text inputs: https://huggingface.co/spaces/dalle-mini/dalle-mini.  For some good examples of the output, see some of Josh Wolfe’s (@wolfejosh) outputs below.  Notably, my family and I were recently in Madrid, Spain, where we saw Bosch’s mind-blowing Garden of Earthly Delights painting at the Prados Museum, so Josh’s ruminations were timely for me!

See Josh’s full Twitter post here: https://twitter.com/wolfejosh/status/1541463870077796353

 

Learning to Play Minecraft with Video PreTraining 

Similarly amazing, a neural network was trained to play Minecraft by essentially having a computer algorithm “watch” 70,000 hours of online video of real people playing Minecraft.  This enabled the computer to “learn” to play Minecraft, including learning the skill of crafting diamond tools, a task which takes a proficient human roughly 20 minutes and 24,000 actions to complete. 

https://openai.com/blog/vpt/

 

The Google Engineer Who Thinks the Company’s AI has Come to Life

This story got a lot of knee-jerk headlines, but, at a minimum, it is worth reading the actual interview, “Is LaMDA Sentient?” (https://cajundiscordian.medium.com/is-lamda-sentient-an-interview-ea64d916d917), to see the power of conversational AI.  Some examples of the conversation are also included below.

https://www.washingtonpost.com/technology/2022/06/11/google-ai-lamda-blake-lemoine/

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Favorite Books & Media

Ted Weschler on Working for Berkshire Hathaway

Although the interviewers were not the strongest, it is rare to hear Ted Weschler speak openly and it is worth listening to hear more about his background, investment approach, and relationship with Warren Buffett.

https://open.spotify.com/episode/71pMaMiLZSFZWkgIpqiV1i

 

Jim Chanos on Parts of the Market with Downside Risk

A compelling interview with short seller Jim Chanos that covers a wide range of topics, including short selling during the COVID bubble, his thoughts on crypto (and past historical analogs), and insights on the parts of the market that are still overvalued and exposed to downside risk. 

https://podcasts.apple.com/us/podcast/jim-chanos-on-why-some-of-the-worst-hit-parts/id1056200096?i=1000566614549

 

Invest Like the Best: Greatness Without Goals

Patrick O’Shaughnessy interviews Computer Science Professor Ken Stanley and discusses why too much goal-setting can hamper true invention, including empirical evidence that he provides from his own machine learning study involving the “breeding” of photo images.  In a fascinating discussion, Stanley discusses the importance of serendipity, unrelated innovation, and the importance of “stepping stones” that create the environment for innovation.

https://open.spotify.com/episode/34gfbyX5h6OoCk1AhRa7XK

 

Anduril: Building the Future of Defense

Patrick O’Shaughnessy interviews Brian Schimpf, the CEO of Anduril, a leading “next-gen” military tech company.  This timely discussion looks at the rapidly evolving state of defense, with the rise of drones, autonomous capabilities, space tech, AI/ML and more.  This interview was a good follow-up to our newsletter interview with Raj Shah, General Partner of Shield Capital, which is available here: “Investing in the Battlefield of the Future.” 

https://www.joincolossus.com/episodes/95062882/schimpf-building-the-future-of-defense?tab=blocks

 

Ashvin Chhabra – The Aspirational Investor

Ted Seides interviews Ashvin Chhabra, the CIO of Euclidean Capital, which is the family office for Jim Simons of Renaissance Technology.  Ashvin was previously the CIO of the Institute for Advanced Studies here in Princeton NJ, as well as the CIO of Merrill Lynch Wealth Management.  Ashvin shares his unique approach to structuring investment portfolios, as well as his views on a wide range of subjects ranging from bitcoin to Warren Buffett.

https://podcasts.apple.com/us/podcast/ashvin-chhabra-the-aspirational-investor/id1223764016?i=1000568713424

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A Selection of Recent Tweets from @RagingVentures:

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Happy Belated Anthony Bourdain Day

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