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If someone offers you “feedback,” your Spidey sense might start to tingle. Feedback isn’t often part of a warm and fuzzy feeling.

“Advice” is better. If you ask someone else for advice, you’re engaging them in your journey.

But, as Peter Shepherd points out, “noodling” is the best of all. When we start noodling over an idea, we can be sure that no one is going to get injured.

They didn’t reject you.

They rejected an application. They rejected a business plan. They rejected a piece of paper.

They don’t know you.

The “freestanding insert” was a multi-billion dollar business. Printed in bulk, then handed over to newspapers that would insert it into their Sunday paper, it was filled with coupons. In fact, the coupons were the entire point.

And the coupons worked.

They worked for two reasons:

1. It gave big companies a chance to treat different people differently. If a consumer cared about saving money more than time or hassle, they could clip the coupons, bring them to the store and pay a different price than people who couldn’t be bothered. In essence, there were two prices for these products, based on how much the consumer wanted to spend and how they chose to allocate their time.
2. Clipping the coupons, which began as an economic choice, became an identity and a hobby. The people who got really into it actually found happiness and esteem in the game. And it was a game.

As commerce moves online. the activities are changing, the middlemen are as well, but the two pillars remain. Priceline was a pioneer in this, giving travel shoppers a way to sign up for hassle, inconvenience and insecurity (you didn’t know which airline until after you bought your ticket) as a way to signal to airlines that they cared a great deal about price.

Mark Fraunfelder brings us this 200-year-old quote:

“Money is the best bait to fish for man with.” — Thomas Fuller, Gnomologia (1732)

I’m not sure that’s true. I think our story about money ends up being even more important.

[PS I just subscribed to Mark’s brand new newsletter. He’s been writing for and with the net forever, and I’m excited about Magnet. It’s not free, which is another story about money worth exploring.]

Great non-fiction helps us see the unseen, plants and nurtures ideas that matter, and, sometimes, can leave us better than we were.

Isabel Wilkerson’s new book Caste does all of those things. It uses language, analogy and history to pull together disparate threads into a coherent, devastating whole.

Highly recommended.

We don’t pay surgeons by the hour.

And if the person who cuts the lawn shows up with a very fast riding mower, we don’t insist on paying less because they didn’t have to work as hard.

Often, what we care about is the work done, not how long it took to do it.

And yet, some jobs, from law to programming, charge by the hour.

When you sell your time, you’re giving away your ability to be a thoughtful, productivity-improving professional.

Sell results.

[Today’s one of the last days of 2020 to enroll in The Creative’s Workshop. I hope you can check it out.]

Well, that sucks.

In the face of unprecedented economic devastation, investors were expecting a very challenging 2Q20. Au contraire. Domestic equities crushed it: the Russell 3000 Growth and Russell 3000 Value were up 28% and 15%, respectively – admittedly on the heels of a dramatic 1Q20 downdraft. The broad U.S. bond market unexpectedly increased 2.9%. Price of gold increased 12.5%. According to Refinitiv, through 1H20, venture capital performance was up 26%. Does this mask deeper concerns?

Venture investors for the first time this past quarter invested more in Later Stage than Early Stage deals, highlighting the desire to invest in what is familiar and arguably more “de-risked.” Similarly, VCs invested in more follow-on opportunities than first time financings. Notably, 37.5% of Early Stage investments in 1H20 were greater than $10.0 million, which was also a highwater mark. In fact, 15.0% of Early Stage investments were greater than $25.0 million which is somewhat oxymoronic.

Given that the first part of 2Q20 was spent triaging existing portfolios, not unexpectedly the level of venture capital activity was down across all stages. According to Pitchbook and the National Venture Capital Association, the number of deals declined by 23.2% to 2,197 with $34.3 billion invested, which is still a robust pace, in large measure due to the prevalence of “mega” financings. In 2Q20, there were 57 venture rounds greater than $100.0 million.

Round size is closely watched by industry analysts. When economic times are good and capital is plentiful, round sizes tend to drift upwards as investors are flush and entrepreneurs are eager to exploit new market opportunities. Year-to-date median round sizes have stayed consistent with 2019 levels – Early Stage at $6.0 million and $8.8 million for Later Stage in 2020.

A potential warning sign involves the level of exit activity which was at a decade quarterly low of $21.2 billion across 147 transactions. At $45.3 billion year-to-date, the venture industry is on pace to have the lowest level of exit activity in the past five years. Of greater importance are the valuations realized upon exit which remained reasonably strong: the median acquisition, buyout and IPO valuations were $82.5 million, $120.0 million, and $636.0 million, respectively. According to Pitchbook, the number of U.S. M&A transactions in 2Q20 declined 24% while the overall transaction values dropped 41% when compared to 1Q20. Capital efficiency becomes even more critical to generating compelling returns when M&A outcomes are below $100 million.

Significantly, 2019 was the first year in the last decade when limited partner contributions to the venture capital was greater than distributions made by venture capital funds. The robust exit environment and strong returns over the last handful of years facilitated the raising of larger and larger venture funds. In 2Q20, there were 148 funds which raised $42.7 billion. Year-to-date there were 24 funds raised by established firms that were greater than $500 million causing the average fund size in 2020 to be slightly larger than $300 million (median fund size is $101 million year-to-date).

The theme of concentration, be it around fewer established venture firms or fewer Later Stage companies, is echoed in the global data as well. Preqin tabulates that $61.3 billion was raised by 292 firms in 1H20 which is 35% fewer firms than in 1H19. Globally, $112 billion was invested in 6,379 deals, which while a modest 2% decline in invested capital, it is a 20% reduction in the number of companies. In 1H20, 31% fewer private equity firms (552 firms) raised $259 billion, which was only 4% less than was raised in 1H19.

Analysts estimate that there is approximately $120 billion of “dry powder” managed by U.S. venture capital firms. Much of this capacity is a function of recent venture capital performance, particularly when compared with private equity which was quite exposed to the early 2020 downdraft. According to Refinitiv, through 1H20 venture capital performance was up 26% while private equity was down 11%. Venture capital benefited from the strong performance from the healthcare and technology sectors during the early days of the pandemic. Interestingly, Preqin estimates that there is $1.45 trillion of private equity “dry powder” globally but that approximately 85% of it is held by funds raised between 2017 – 2019, which would not be able to bail out older struggling leveraged portfolio companies – expect the number of busted LBOs to spike.

The economic uncertainties in 2Q20 caused more than 40% of the companies in the S&P 500 Index to withdraw full-year earnings guidance. Corporate earnings in 2Q20 are estimated to have decreased 44% which would be the largest quarterly decline since 4Q08 (69% decrease) which was the depths of the Great Recession. In 1Q20 net profit margin for the S&P 500 Index was 7.1% which is meaningfully below the five-year average of 10.6% and the lowest since 4Q09 according to FactSet. Paradoxically, in the face of falling (collapsing?) earnings the public equity markets keep surging.

While the merits of causing such deliberate economic devastation at the pandemic outset might be debated, it is instructive to look at other parts of the world, specifically China, to see how the approach to dramatically locking down the “hot zone” around greater Wuhan to arrest the spread of COVID-19 allowed the economy to recover more swiftly. In 2Q20, China’s GDP rose 3.2% year-over-year, after “only” decreasing by 6.8% in 1Q20. SMH…shaking my head.

All things considered, U.S. IPO activity in 2Q20 was reasonably strong with 62 offerings that raised $18.5 billion, which was an increase of $8.7 billion from 1Q20 but $14.2 billion lower than the 2Q19 level. In June 2020 alone, there were 28 IPOs that raised $13.5 billion, pointing to a strengthening market heading into the summer. Much of this activity was driven by the explosion in SPACs (Special Purpose Acquisition Company) or “blank check” companies.

According to SPACInsider, there were 48 SPACs which raised $18.6 billion in 2020, which easily beats the $13.6 billion raised in all of 2019. In 2Q20, there were 24 SPAC IPOs which raised $7.2 billion or nearly 40% of all IPO proceeds. Of the 318 SPACs ever created, there are now at least 108 trolling around for something to acquire (recall that SPACs have a pre-determined amount of time to close an acquisition or they are liquidated). In 2020, the average SPAC IPO was $400 million in size.

Of course, financial alchemy in the pursuit of investment returns often turns out poorly, and now it is further complicated by a pandemic, recession, and disruptive national election cycle. Through 2Q20, the number of corporate defaults globally equated to the entirety of 2019. So, while investors seem cautiously enthusiastic about the “recovery” since 1Q20, there are a number of flashing warning lights, not least of which how quickly it all can be reversed as witnessed in March 2020.

Source: S&P Global.

[This probably impacts every person reading this, but few of us get to decide to fix it. I figured it was worth sharing so you can share it…]

Don’t require special characters (like ! or worse, ‘) in the passwords created in your app or on your site. You’re simply training people to either forget them or to write them down in an unsafe location. Instead, require long passwords.

When you set up a wifi password that others have to use, there’s really no reason to use capital letters, special characters or anything that’s a hassle to type on a phone. Try a phone number instead.

Don’t use ‘0’, ‘O’, ‘o’, ‘l’ or ‘1’ in any context where they have to be distinguished–like room numbers, serial numbers or the names of children. This is why zip codes are easier to use than postal codes, and why mixed letters and numbers are worth avoiding.

If you’re requiring 2FA (a good thing), don’t rely on email or texts, use an app instead. And don’t make the text code 7 digits (as my former bank did in an effort to pretend that they cared). 6 is more than enough.

Instead of serial numbers, companies should consider using three words mushed together, like hey-zebra-fun. This is way easier to read and communicate to others. Imagine how easy it would be to deal with your VIN or computer serial number if you could simply say three words. All the company will need is three lists of 300 common words, which, when juxtaposed, give us plenty of combinations.

And a password manager is a worthwhile program to install. If you haven’t, today’s a great day to start.

BONUS: It never hurts to say ‘please’ in your forms and other online communications. It’s free.

Thanks.

PS all of this advice is on the path to obsolete once computers can talk and think and interact just a little better than now. Which is happening. Here’s my recent podcast about it.

Marketing bonus: A fun summary of my work from Brendan.

It became clear to me during July, when coronavirus cases spiked at precisely the time they told us it would take a break, that school would not start in September. 

Realizing this, I started floating the idea of creating a “microschool,” a concept that sits between two of the most polarizing points on the education spectrum: private school and homeschooling.

Many consider the flight of the rich to private school, combined with the recently uncovered hacking and corruption at elite colleges, as a fundamental breakdown of the fellowship of the American public education system. 

[Click to Tweet (can edit before sending): https://ctt.ac/04y9r ] 

Every conversation I’ve ever witnessed about homeschooling went to the same place: with people marginalizing it as a wacky, hippie-dippie pursuit that created smart but socially weird kids. 

A “microschool” sits between these two options, because in the model — as defined by me — you have a teacher at your home with multiple students. 

A microschool, by my definition, achieves the following:

1. You remove the social isolation concern of homeschooling.
2. You drop the class size dramatically, from the standard 20-30 students down to four to 10.
3. During a pandemic like coronavirus, I would guess that every logical person of science would state that smaller is safer (you can research this yourself online).
4. You drop the cost of a private school from $30-50k a year to $5-10k.

As an investor in highly disruptive companies, that last point is the one that got me in hot water with the hysterical Twitter mob this past week. 

In my blunt, capitalist fashion, I tweeted that I was looking for the best teacher for my microschool. I would beat their current compensation and give anyone who referred me this person a $2,000 gift card to UberEats.

As an early investor in Uber, this last part was considered extra elitist to the salty, radical left on Twitter. That contingent doesn’t give anyone the benefit of the doubt, instead, immediately they make everything about class, wealth, politics, identity politics, and generally dunking on anyone who is easy to hate (which, I’m self-aware enough to know, I am). 

So, I wound up on TMZ, the New Republic, and the DailyMail, which is something I never expected in this lifetime, as well as talking with an ABC news reporter. 

Dr. Phil’s producer has asked me to come on (debating that one), and essentially I went viral for 48 hours.

It was a level of attention, for what is a super pragmatic idea, that I didn’t expect, but in reality this flareup feels akin to about 20 minutes and 20 seconds in the life of Kanye West and Trump, respectively. 

The punch line of all of this is that the concerns folks had, that I was “stealing” a teacher from other students, and that this was another example of the growing chasm between the rich and poor, flies in the face of, well, math!

First, 95% of the people applying for the position were out of work. Making this $60-70k position with benefits a net new job created in the world. 

Second, we elected to give 50%+ of the slots in the school to folks who wouldn’t be able to afford private school.

Third, we are currently in public school. Everyone just assumed because I had some success in the second half of my life that I was an elitist in some $50,000 private school — wrong! 

Fourth, and most stunningly, microschools are the opposite of elitist — they are socialist and capitalist at the same time. 

Basic Math:

1. Ten students
2. $50,000-$75,000 teacher (all-in cost with benefits, based on the average salary — do some Google searches, teachers are underpaid)
3. That’s $5,000 to $7,500 per student, which over 40 weeks (200 days) of school is $25 to $37.50 per student, per day

This model assumes the 10 parents manage the teacher, live in a reasonable distance of the school, and at least one of the 10 families has a backyard or extra space for the students. Even if you add $12-$24,000 to the total cost, say if you wanted to rent a space, you are still at 10% to 20% the cost of a private school.

So, today parents have three options:

1. free public school
2. homeschooling
3. $35,000 to $50,000 a year private school 

This changes the competitive landscape for education into four options:

1. free public school
2. homeschooling
3. $5,000 to $7,500 for a microschool
4. $35,000 to $50,000 a year private school 

Does anyone believe that inserting a 4th option to schooling options is a bad thing?

Only one group seems to think this is a horrible idea, and it’s not parents or students, it’s the teacher’s unions and the administrators at public schools. 

Consider the big picture: 

1. U.S. outspends every other country in the world on education.
2. U.S. trails countries that spend less than us.
3. The average American gets paid ~$25 an hour. 
4. Based on our average hourly wage in America, sending a child to private school is ~2,000 hours of work.  In this model, sending one child to a private school would eat up a parent’s entire salary.
5. In the microschool model, a parent would have to work — paradoxically — one hour for every day their child went to school (on average). If you made $10 an hour, obviously you would need to work about three hours.

I’m not an expert on education, but I am an expert at identifying and investing in disruptive models — and microschools feel really, really disruptive in the best of ways.

We all want what is best for all of our kids, and we all know that school ain’t starting in September. 

Given these universal truths, I suggest we all start thinking creatively and share our learnings while ignoring the crazy, vocal minority of virtue-signaling communists who hate innovation and want their lives run by our dysfunctional government … you know, the same government that has us spending more and getting less from education today, and which is performing in last place when it comes to dealing with the crisis. 

Our politicians and institutions are failing us right now, so while we slowly work to fix our broken system my best advice is to be as radically self-reliant as you can — and that’s what #microschools are.

Best, Jason 

PS – There is a pandemic pod hack that drops these numbers down even further, which I will write about tomorrow. 

For now, if you could hit reply (or comment) and give me your most deeply considered feedback on:

1. How to make a microschool more available to more students. 
2. How to run a microschool better. 
3. How you are addressing the 2020/2021 educational year. 

I started a Slack room called #microschools in my podcast’s Slack, which you can join at:

http://thisweekinstartups.com/slack

The post A fourth option: how #microschools will save our children appeared first on Jason Calacanis.

Things rarely turn out precisely the way we hoped.

Sometimes, if we’re lucky, we can figure out why.

If we find the lesson and learn from it, it might be even more valuable than if we’d simply gotten lucky.

One of the most difficult things to do in skateboarding is to learn to ‘drop in’. This is the commitment at the top of the ramp. One moment, you’re standing still, at the abyss, and the next you’re committed, fully engaged with gravity.

The worse thing you can do is half.

When you sort of commit, you’re likely to fall.

The rule is pretty simple: If you’re going to bother going skateboarding, then you’ve already decided. In this moment, you’re not making a new decision. You’re simply acting on what you said you wanted to do in the first place.

Decide once. It’s fine to opt-out. But once you decide, there’s no upside in re-litigating your decision, particularly when it leads to needless risk and wasted effort.

And of course, you may have realized all the moments in our lives where our hesitation to drop in is precisely at the heart of the challenge.

[Skateboarding details here. Worth noting that “dropping in” while surfing is a very different thing, and the opposite rules apply.]

Your skills.

Your reputation.

The noise in your head, your attitude, your personal passions…

But after that, it starts to diverge.

Some own real estate. Some own machines. Some own trademarks, or the permission asset of being able to interact with people who want to be interacted with.

If you want to build a career as a freelancer, or a business as an entrepreneur, it helps to own something. Really valuable public companies are worth so much because of the assets they own and the market position they can defend as they grow. A hard-working but disrespected worker (whether an online freelancer or an actual factory worker) struggles because they’re not seen as owning enough. People have choices, and they often choose to hire and do business with entities that own something that they want to use or leverage.

As you seek to make a difference and to level up, it helps to come back to that key question: what do you own?

We act differently when we know we’re about to be on display.

Aim a camera at someone and they tense up. I guess we call it “taking” a picture for a reason. We feel defensive.

Social media multiplies this by counting “likes” (which doesn’t mean someone actually likes us) or “friends” (which doesn’t mean that someone is actually our friend.)

The irony is that the people we’re most likely to want to trust and engage with are the ones who don’t pose. They’re consistent, committed and clear, but they’re not faking it.

Figure out what you want to say, the change you seek to make, the story you want to tell–and then tell it. Wholeheartedly and with intent.

Posing is unnecessary.