2/18/23 - The Itinerant Weekly - #35

TL; DR - This week’s round-up covers: signals of a large debt crisis upcoming; Social Capital founder Chamath on all things investing, careers and life, Ray Dalio on how he addresses failure; an empirical analysis of why some startups succeed; future healthcare market segment breakdown; side hustles vs startups – what’s the difference?; an AI resource from Stanford that you need to bookmark; an empirical guide to optimal angel investment portfolio construction; biohacking clinical trials in a futuristic city in Honduras backed by Peter Thiel; and an overview of 2022 investment trends in Quantum computing.

EBP Research [Video] – Yup, Another Debt Crisis is Coming

  • Another, larger, debt crisis is coming. Corporate profit margins have hit the historical ceiling, and there is no room for them to go higher on their own. However government has recently been willing to take on debt to help support corporate profits, and effective corporate tax rate is declining which in effect shifts the debt burden back to government sector. When we think about the next crisis, we shouldn’t do so through prior frameworks. The household and banking sectors, though not healthy financially, are slowly decreasing their debt burden. But the government and business sectors have picked up the tab and are now massively overleveraged. There are still things the government can do to raise the debt ceiling. But this means that unless the government is willing to go even further into debt, the next recession will fall very hard on the business sector. Look for cracks forming in highly-leveraged corporate balance sheets.

Chamath Palhapitiya [Video, 1:50:01] – Wharton PE/VC Club Fireside Chat 

  • An outstanding, candid sit-down with Chamath (Facebook, Twitter, SocialCapital) about all things tech, silicon valley, and life. Key takeaways include: finding a hobby you enjoy, that has value-addition to your day job (i.e., poker -> investing); energy and computation are the areas of greatest opportunity these coming generations.

Ray Dalio [Video 3:35] – How I Changed My Reaction to Pain and Failure

  • Ray Dalio has no doubt moved on to the ‘legacy building’ portion of his life, evidenced by the flurry of online activity around his book “Principles”. If you’re intrigued by how he built Bridgewater Associates into what it is today, and how he lived his life, this is a quick video worth watching. Lots of good learnings here including: have confidence but doubt yourself at the same time, ask “how do I know I’m right?” and think more systematically through the risks. Pain + reflection = progress. Consider, “What would I do differently in the future to produce a better outcome?”

Bill Gross [Video, 6:40]The single biggest reason why start-ups succeed

  • A systematic approach to analyzing startup success/failure identifies something counter-intuitive at face value: the number one driver behind success/failure (42% of the difference) is market timing; 32% is the team/execution; 28% is the idea; 24% the business model, and 14% the funding.  Be self-critical and really assess whether consumers are actually ready for the idea you have to offer them. While counterintuitive at face value, another way of saying this is product-market fit is the #1 driver. Said that way its not too unique an insight. Still important for both investors and operators to keep in mind.

McKinsey [Video] Future Healthcare Profits To Be $513B Per Year  

  • $57B EBITDA – payer; $62B EBITDA – Rx services (i.e., PBM); $68B EBITDA – healthcare services and IT; $326B EBITDA – Providers – largest opportunity is in the provision of healthcare. Dwarfing all others. Saying more than 50% will come from outpatient services.

Forbes [Article] 5 Ways Side Hustle Success Metrics Differ From A Full-Time Startup Business

  • Side-hustles are intentionally different from startups. Here’s how: (1) they can/should be fun, something you otherwise wouldn’t do, but still brings in at least enough money to pay for yourself. Startups have a very different profit expectation. (2) side hustle growth expectations are much lower (5% p.a. vs 20% p.a.) and aren’t expected to require outside capital to grow quickly.  (3) most side-hustles don’t have a formal planning structure like a startup does, but they should if they want to be successful. (4) most side-hustles don’t have an anticipated end point like a startup does – they can continue long into retirement. In conclusion, while a side-hustle is a business and progress should be measured in some similar ways, there are many unique aspects about successful side-hustles. Often it’s the magnitude of the intended impact and the expectations around the opportunity that are the most different.

AI Index Report [Resource] – Stanford School of Engineering – AI Index

  • If you want to stay on top of all things AI/ML, bookmark this page by Stanford. It’s a goldmine.

Moonfire [Article] – How to design the optimal venture portfolio

  • The author ran nearly 1 trillion fund simulations to identify the optimal design. They identified a few key elements you might consider in your own portfolio creation: (1)  individual decision-making quality/process; (2) portfolio size – once 200+, probability of at least returning 1x becomes extraordinarily high; yet with more than 110 companies, its almost impossible to 10x your investment; (3)  ticket size; (4) follow-on rate and depth; (5) upper limit potential on a single investment.

MIT Technology Review [Article]Biohacking startup using a crypto city in Honduras to test controversial gene therapies

  • Minicircle, a biohacking startup, is recruiting participants for a self-administered gene therapy clinical trial to be run in the experimental crypto city of Prospera, Honduras. Participants to be paid for participation in crypto. Questions arise about existence of proper oversight to assure ethical outcomes and patient safety. Peter Thiel and Marc Andreessen have supposedly invested in the city of Prospera.

QuantumInsider [Article] – 2022 Quantum Investment Update

  • Despite a slight decrease in fundraising compared to the previous year, with an estimated $2.2 billion invested in quantum in 2022, the private quantum company market has proven relatively more resilient to funding shortfalls in other tech sectors. Last year significant advances were reached, including recognition by both a Breakthrough Prize and a Nobel Prize.