Complacency Rising
Volatility, represented by the white line, has been low and steady for some time. This is in stark contrast to the fourth quarter of last year when talks of a recession were gaining momentum. While no indicator on its own has predictive power, we did want to highlight the increasing amount of complacency among investors today.
Blackstone CEO, Stephen Schwarzman, gives advice on attracting and assessing strong talent, making smart decisions, and how to press forward when the chips are down.
Since the September launch of his new book, there have been several interviews with Stephen. Given his incredible track record we recommend listening to his thoughtful discussion with Farnam Street:
“Believe in something greater than yourself and your personal needs. It can be your company, your country, or a duty for service. Any challenge you tackle that is inspired by your beliefs and core values will be worth it, regardless of whether you succeed or fail.”
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This is a great piece (at least to skim) for anyone interested in technology and venture capital. Over the last decade, the change and evolution that has taken place in seed investments is astounding:
The number of “Seed” Funds has grown 24x from 33 to ~800 since 2010
Those funds are also 4-24x bigger
This has led to Series A rounds now sitting between $8-20M
This speaks to the growth of private markets, but also to fears that the trend is overdone – i.e. there may be more opportunities, but are there that many more?
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We have been wondering for years when the subsidized life of consumers would come to an end – to be clear, it hasn’t yet. Nonetheless, investors are beginning to ask harder questions about the viability of businesses that sell their product for less than the cost of delivery or production.
While subsidizing products to acquire customers can be a viable long–term strategy, subsidization into perpetuity is (obviously) not a practical approach – more and more investors are starting to realize that is the case. Eventually, companies need to make money. What this inevitably means is there will be price discovery at some point with the market ultimately determining which businesses are feasible and which aren’t – something we are seeing play out in the public markets with many of the most recent IPOs.
© 2019 Derek Thompson, as first published in The Atlantic.
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A fascinating piece on the effectiveness of online advertising. We would call this a piece to take with a grain of salt, as we don’t think anyone would argue strongly against the value of online advertising in building an emerging brand. There is, however, some interesting data on larger campaigns though:
Luckily there is a way to measure the unadulterated effect of ads: do an experiment. Divide the target group into two random cohorts in advance: one group sees the ad, the other does not. Designing the experiment thus excludes the effects of selection.
Economists at Facebook conducted 15 experiments that showed the enormous impact of selection effects. A large retailer launched a Facebook campaign. Initially it was assumed that the retailer’s ad would only have to be shown 1,490 times before one person actually bought something. But the experiment revealed that many of those people would have shopped there anyway; only one in 14,300 found the webshop because of the ad. In other words, the selection effects were almost 10 times stronger than the advertising effect alone!
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