For over ten years, huge swaths of the country had TDS: Trump Derangement Syndrome. TDS has now turned into Tech Derangement Syndrome, which is somehow more stupid and far more damaging. Flock Safety is good for America. Data centers are good for America. The average American, not just the 1%, is safer and richer because of the tech industry. Silicon Valley types are terrible communicators, and unfortunately have nobody but themselves to blame for the new TDS gripping the country, but it’s terrible nonetheless and shows absolutely no sign of slowing down.

Credit markets drive equity markets to be more attractive, as they increase RoE, driving more capital flows. The credit markets, especially IG capital markets, are among the biggest reasons the equity of US companies is so attractive. Amex equity is worthless without credit card securitization, auto companies are worthless without auto loan securitization, intel can’t build a fab without Apollo/Athene, etc.. This was always true in technology too, but a secular decline in rates confused people around what matters. It is now clear: tech equity is also worthless without intelligent capital structure. Regardless of what your mark says, if you can’t get liquid on it, it is likely worthless. The rise of passive investing in public markets is used too often as a convenient excuse for people to shrug their shoulders around the liquidity question facing the private markets. The real culprit is a lack of imagination and “capital entrepreneurship” from private market participants to design capital products that take advantage of the IG capital markets that are dying for steady yield. The west has a retirement income crisis, no coincidence that Athene has over $20b per quarter of inflows it needs to put to work in IG assets. It is embarrassing that $1T companies don’t know how to tap IG capital markets without a backstop.

American hegemony and the continued success of the American project rely on our ability to solve the multi-trillion-dollar liquidity problem in private capital markets. We are indisputably the greatest country in the world. There are many reasons why. The strength of our capital markets is an important one. First-world American infrastructure and many of the products and services that make our standard of living so high are products of deep, investment-grade credit markets. Our roads, bridges, buildings, airlines, hospitals, utilities, supply chains, etc. could not exist at the quality and scale they do without robust IG credit markets. Our equity capital markets may be even more important to American hegemony than credit ones: a culture around risk and business-building, and the capital formation apparatus that enables it. It’s powerful to have so many decentralized, deep pockets of capital eager to finance ambitious people building new things, even with a high risk of failure, and to finance people who have failed before but want to try again. And it’s powerful that in places like Silicon Valley, people trade short-term cashflow for a stake in what they’re building: an equity culture that incentivizes a long-term spirit of creative generation. This fundamentally differentiates us from China, where the government de facto controls who -- and what -- is financed: “how can we bestow government favor upon someone in exchange for his sacrificing control?” And it differentiates us from Europe, defined by an anemic culture around risk and a fetish for poverty: “how can we make ourselves poorer, weaker, less relevant, less safe?” In America, we ask: “how can we channel risk capital to those most likely to change the world?” But the decentralized, risk-on culture that has made us great relies on an expectation of liquidity, on an understanding from the people who have traded their capital and time for ownership that they will generate real, dollar returns rather than paper ones. When that breaks, capital and talent stop flowing to all but the tiny number of businesses that reliably generate liquidity. And the expectation is indeed breaking: there are trillions of dollars locked up in private companies that sit outside the cone of consensus and programmatic capital flows, with no expectation of liquidity. As financing the American innovation economy has largely moved into the private capital markets, the illiquidity problem is especially salient. American economic, technological, and cultural hegemony won’t last unless we fix it.

Nearly every challenge facing scaled private and public companies today can and will be solved by better, more thoughtful capital formation. The health of the American economy and continued success of the American project depends on it.

The narrative momentum around this business is remarkable. Bending Spoons is symptomatic of a market failure; an aggressively levered Italian business is not the buyer “of choice” for American companies so much as the only buyer. There need not be a “buyer” (in the traditional sense) at all. What we need are deeper, more patient capital markets that enable entrepreneurs to compound within their life’s work -- markets that provide them with the capital they need to invest in growth and to deliver liquidity to shareholders who demand it on timelines that don’t align with the entrepreneurs’ own. Airtable and Miro took the Bending Spoons path not solely because AI ruined their long-term prospects and the entrepreneurs wanted to “start over.” AI disintermediation is the easy-to-blame culprit, a bogeyman that allows Silicon Valley to avoid addressing a more fundamental challenge. It’s entirely normal for great businesses to encounter meaningful challenges that force them to adapt and compound in new directions. Progress is not a monotonic function of time. Many of the largest, most durable, most profitable businesses -- technology or otherwise -- attest to this. In reality, Airtable and Miro are victims of a capital markets problem. “Venture capital” as we know it is simply the wrong product to finance anything but the narrowest universe of companies and the narrowest set of risks therein. This is true for many reasons -- the rest of my X feed outlines them all -- the most salient of which is venture’s impatient liquidity timeline. A company that is “venture scale” or “power law” is one that must become very large within ten years and deliver an “exit” (which is distinct from “liquidity,” to be clear) over that same timeline. Many incredible businesses can’t deliver an “exit” on a timeline that satisfies their VCs: there’s no bid in size for their shares. In the private markets, narrative mirage and structural fund size challenges concentrate capital in a tiny number of companies; in the public markets, the same narrative mirage and structural, valuation-agnostic capital flows do the same. Thus, we have Bending Spoons and its playbook. Identify entrepreneurs whose ambitions are constrained (explicitly or otherwise) by their investors’ liquidity shackles. Provide a “soft landing” and “return the pref.” Gut the cost structure, hike prices, and soak the price-inelastic cohort that remains. Harvest the cash flows. What if there were something more aspirational? Consider a structure that uses the exact same cash flows that Bending Spoons harvests, but instead serves the entrepreneurs’ long-term interests. Entrepreneurs could deliver cash-flow-driven liquidity, divorced from “exits,” for investors whose timelines demand it and in doing so own a greater share of their own future. And just as importantly, they could access the ammunition they need to invest in a new direction, inside their life’s work, without completely starting over. Bending Spoons will claim that permanent capital affords it a long-term view in the same breath that it claims founders need not be a part of their companies’ future. Bending Spoons decouples the horizon from the person. I believe that entrepreneurs building their life’s work deserve a structure that allows them to compound for their entire life, literally. And I believe that whether they can is a question of better capital markets. This capital markets solution isn’t Bending Spoons, and it’s certainly not “venture capital.” It’s patient, aligned capital that sits entirely outside the venture system’s artificial timelines, supports entrepreneurs as they invest over decades, and generates liquidity for investors who need it along the way.

The AI era, at least thus far, has proven exactly the opposite: that Berkeley EAs can build extreme intelligence but remain reliant on normal, socially well-adjusted people in Manhattan and the Marina to successfully sell and deploy that intelligence into the real economy

This misses the critical distinction between “capital” and “venture capital.” There are plenty of businesses that might require only a small amount (or even single round) of up-front, very expensive risk capital (“venture capital,” properly defined) and then scale to become extremely valuable companies that deliver incredible returns to their early VCs. A business in this mold will likely need and raise additional capital over time, especially if pursuing its universe of investable, accretive opportunities requires more capital than re-investing its own FCF can support. But most of what the business will fund with those dollars -- structured risks -- does not demand expensive, dilutive equity. Some of the most valuable companies in the world raised only modest amounts of venture capital and later raised enormous amounts of other “capital” (largely corporate and asset-backed debt) to accomplish their goals. A company that needs only $3M of risk capital but can scale by reinvesting the money it earns and/or issuing debt is absolutely the type of company the “venture model” was built to fund. I think a founder pitching something like this knows exactly how venture works. Whether the purist perspective on how to finance an early-stage business fits into the incentive structure for most funds is unfortunately a separate question.

Dunking on Phoebe Gates is easy because it aligns with popular narratives. I'd like to see the business media -- and the timeline -- show as much rigor in identifying, investigating, and commenting on the enormous amounts of fraud and abuse committed by founders who aren't easy nepo-baby targets. For every Phia, there are 100 companies run by Kumon Striver loser types defrauding both their investors and customers in order to earn their gold star.

This sounds good in theory but unfortunately assumes a much greater overlap between executive competence and electability than exists today. Despite being economically illiterate, people like Zohran win elections because they’re charismatic and understand how to effectively communicate to the electoral demographics we have. That Zohran thinks demand curves slope upwards is a feature to many NYC voters, not a bug. The sort of people we’d attract to public office with high salaries are the sort of people who can win like 2% of the vote. Paying elected officials competitively is more likely to make people like Zohran rich than it is to create a more competent government. I think a better approach to improving the overall competence of our leaders is to move in the exact opposite direction: reduce elected official salaries to zero, make it prohibitively expensive for the economically illiterate theater kids to play government, and encourage people who are independently wealthy because they’ve actually built something to run for office instead.

I’m fascinated by Silicon Valley’s recent interest in debt given how frequently VCs tell me that “the best companies use only equity.” They usually say so smugly. And notwithstanding how self-serving it is (shocker, the local equity shill wants you to buy some equity), the comment is hilariously wrong on its face. The greatest, most powerful technology companies in the world today are issuing debt, in amounts that match the GDP of entire nations, to finance their data center buildouts. The most successful fintech companies do large securitizations and use massive warehouse lines (among other strategies) to fund their credit card receivables. The best CPG brands have large inventory finance facilities to optimize their working capital dynamics. The next-gen DEI startups protecting our freedoms and revitalizing our country’s industrial base use all sorts of debt to fund their hard assets. Almost every startup, growth-stage business, and publicly traded giant uses leases to finance its office needs. These choices are obvious. All successful technology companies are extremely thoughtful about matching their sources and uses of capital to ensure that they have the right risk, cost, and duration-matched capital to fund each different part of their businesses. Founders building extraordinary companies have correctly concluded that handing over a permanent stake in their life’s work — the most expensive trade they can do — to fund something as steady as a GPU, or a credit card receivable, or inventory, or equipment, or office space is textbook value destruction. Why should it be any different for S&M spend? If you’ve achieved such strong PMF that you can spend a dollar, acquire a customer, and predictably earn far more than a dollar from that customer over time, why would you ever sell shares to fund CAC? Customer cohorts are “assets” and S&M expenditures are “investments:” considered from first principles and ignoring the quack voodoo science peddled by most VCs, using equity to finance growth spend simply makes no sense. The best companies in the world use debt, in various flavors, to fund different parts of their businesses. Every growth-stage startup with ambitions to build something just as great should do the same.

7:52am wake-up feels late for a founder building something as consequential as the modern-day Manhattan Project

The Silicon Valley I came to in 2016 -- once a low-status refuge for weirdos, naive tinkerers, and missionaries -- has been overrun by input-maxxing Kumon striver types. Company-building for this class of “entrepreneurs” is an exercise in performative escalations between startups touting their inputs: who can burn the most tokens, who can work the most hours, who can get the most views on an over-produced launch video. This is why even “ARR,” which should be (and once was) an output of an excellent product and sales engine, has become a noisy, somewhat fake input -- into a machine designed to capture the zeitgeist for 15 minutes, dupe VCs, and maximize fundamentals-agnostic capital flows into a business. Actual company-building is a sideshow for the “cracked” YC-backed founder-striver. When you talk to many of these people, they have no idea why they’re building what they’re building in the same way that a 16 year old doesn’t really know why he joined 12 clubs or took 15 AP classes -- only that they desperately want to maximize their visible, measurable inputs, tell you about it, and collect their gold star. It’s easy to place the blame on YC, and they surely deserve plenty of it, but YC’s turn towards performative, low-stakes, incrementalist entrepreneurship is really just another symptom of the broader problems plaguing Silicon Valley: the inevitability of industry maturation and the playbook-ization of startups, demographic change, financial nihilism downstream of bad policy and psychopathic rhetoric coming from some leaders, etc. The real progress being made amidst all of this is astounding, but the increasingly absurd shenanigans won’t stop until the culture punishes bad behavior and we prosecute, literally, some of the criminals running these companies.

Contrast the cultural frenzy around structural mass unemployment and a coming “permanent underclass” with the way smart money is investing. Thrive agreed to take a minority stake in a sports team. The AGI themes around scarcity, leisure, live entertainment, etc. are obvious. But this doesn’t strike me as a deal one makes if they expect mass unemployment in a post-AI world. Franchise values depend on lucrative TV deals, which depend on brand/advertiser willingness to pay, which is inherently a bet on strong American consumers, not ones reliant on meager UBI checks. LLMH announced a take-private of a corporate travel management business. The opportunity to infuse AI and deliver better customer experiences at higher margins is exciting. This deal, too, seems bullish for labor in a post-AI world. Corporate travel management is not particularly valuable if you believe mass unemployment is coming and humans will be replaced by agents; our little French colleague Claude doesn’t need an EWR-SFO ticket and a room at the 1 Hotel.

In the months following ChatGPT’s release, many people thought AI would be a sustaining innovation in software markets — that is, that value would largely accrue to incumbents rather than new entrants given the former’s large distribution and proprietary data advantages. Those advantages were very real. They still are. Unfortunately, pre-AI incumbents have an enormous capital problem. For years, they relied on equity alone. Equity has always been a deeply inefficient, expensive instrument to finance many of their expenditures, but perhaps more importantly, equity is very fickle — and these companies’ reliance on something so fickle has been their undoing. While AI-native competitors have access to unlimited equity from VCs (at least for now), public software incumbents trade at their lowest NTM revenue multiple in the last 10+ years and private ones (save for just a few) have tepid (or zero) investor interest. This capital problem is aggressively pro-cyclical: access to equity has dried up at the very moment that incumbents need it most. While AI-native startups have ample resources to invest heavily in R&D and growth, pre-AI businesses must pull back, leaving enormously accretive opportunities on the table — opportunities that their built-in distribution and data advantages make them best equipped to take advantage of. The capital problem is also self-fulfilling: eventually, well-funded startups that have firepower to invest will overtake incumbents that could have won but didn’t have the resources to step on the gas. It doesn’t need to be this way. Founders have powerful ideas to transform their businesses in the AI era, but they’re constrained by their own balance sheets, by too narrow a view of what “capital” is. They need a solution. That solution is not “hope.” VCs and public market investors are unlikely to change their tune, and even if they did, it’ll be too late. This only reinforces the broader point: companies shouldn’t roll the dice and leave their success to the whims of the market. The right solution is everything that equity is not: a low-cost product available exactly when companies need it, in whatever quantity they can productively deploy it, based only on the fundamentals of their businesses rather than the unpredictable appetite of VCs and public market shareholders. True capital at scale.

Venture capital evolved from featuring savvy research analysts like Mary Meeker and Bill Gurley to people who can’t define FCF because technology companies (for better or worse) generally rewarded the latter over the last few decades. Consider the two big waves where VCs made most of their money in the last 15-20 years: mobile-first consumer social/internet and SaaS. Mobile/social companies operated in largely permissionless markets that inherently favored young founders, who naturally are not particularly financially sophisticated. SaaS markets, while they generally favored slightly older and more mature founders, similarly didn’t reward financial sophistication; product and GTM chops were far more important. Both internet and SaaS businesses ran relatively capital-light business models with high gross margins, which gave companies a lot of wiggle room. Financial optimization was just not a key driver of success. And these companies were all built against the backdrop of an enormous bull run and low interest rates post-GFC. Companies could generally raise cheap equity, and most felt like they just didn’t need to think too deeply about how to properly capitalize their businesses. Silicon Valley became a place where engineering/design/product/sales skills were rewarded and finance was not. “Wall Street” was looked down upon, and people who cared about finance were derided as being slow, bureaucratic, extractive, negative-sum, etc. These dynamics have obviously changed. The frontier AI labs are extraordinarily capital-intensive. Some of the hottest applied AI companies have negative gross margins, where optimization on that front over time will make or break their businesses. The asset-heavy aerospace/defense/industrial companies in El Segundo naturally require capital structure sophistication. Technology as a broad industry has matured, and many winning founders are no longer whimsical Stanford types who spent their summers writing code, but Wharton grads who cut their teeth at banks and buyout firms. And, whether companies will admit it or not, the equity capital markets are essentially shut for all but a very small handful of companies, whose success will now depend on their ability to think even slightly outside the box on capitalization. Finance is now a first-class citizen in Silicon Valley.

What does a reset even look like? The people who built Silicon Valley had a shared set of underlying values that manifested in the startup maxims we all know and positive-sum, long term-oriented culture that defined the industry. That shared value system doesn’t exist today, and there’s no easy fix. In many ways, Silicon Valley is just a microcosm of America as a whole — Delve, fake SPVs, and widespread ARR bullshit are not too different in the abstract from, say, Somali welfare fraud.

The fact that VCX trades at a ~16x premium to NAV while Robinhood Ventures trades at a small discount makes it clear that retail cares about an even narrower set of companies than institutional capital. It’s not “the most important companies being built right now.” Robinhood holds Databricks, Mercor, Ramp, and Revolut. These are all VC darlings that get a shoulder shrug from retail, which seemingly cares about only OAI/Anthropic/SpaceX. And Robinhood doesn't give them access. There are very good reasons why the best companies increasingly stay private. But I do worry about the economic, social, and political consequences of locking Americans out of sharing in the upside of the companies making daily promises to kill their jobs.

Any business reliant on the external capital markets to survive is inherently fragile. The model labs, despite their power, are highly fragile companies reliant on constant access to capital at eleven-figure scale. Their fragility is accentuated by the amount of leverage (explicit or otherwise) tied up in their relationships with capital providers, customers, and suppliers. Most software companies are fragile businesses too, because growth is very capital-consumptive. You’re subject to the unpredictable whims of investor sentiment, and your access to capital often evaporates at the very time you need it most -- to invest aggressively when competition is most fierce and the future most uncertain. That’s where we are today. Your relationship with capital is a liability. How can you transform it into an asset? Profitability is one way. But profitability alone doesn’t necessarily make you anti-fragile. Your ambitions are still constrained by the size of your cash flows, and you can still be out-competed by businesses with consistent access to capital in size greater than your own profits. What’s better than optimizing for short-term profitability is ensuring access to low-cost, aligned capital at whatever scale you need to achieve your ambitions. That’s how you not only become anti-fragile, but also give yourself a structural advantage against your competitors -- and turn moments of peak disruption and fear into an opportunity to aggressively invest while everyone else pulls back.