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TIP693: The Power Law: Unlocking Venture Capital's Secrets w/ Clay Finck
01:19:52
Clay explores The Power Law by Sebastian Mallaby and uncovers the secret behind venture capital’s astonishing success.
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Clay Fink
You're listening to tip. Hey everybody, welcome to the Investors Podcast. I'm your host Clay Fink. On today's episode I'm going to be chatting about this book called the Power Venture Capital and the Making of a New Future by Sebastian Malaby. Buffett and Munger have long taught us to be skeptical of the world of venture capital and private equity, but this book really helped me shape my view on the critical role that venture capital plays in our modern day economy and how venture capital is helping shape the future of technology. The book outlines the history of the venture capital industry and the investing strategies of the top performing venture capitalists such as Peter Thiel and Sequoia Capital, as well as the importance of the Power Law in generating returns for shareholders. Without a fundamental understanding of the Power Law, you are doomed for failure in the world of vc as just a few companies are bound to generate a lion's share of the returns for the top funds. During this episode I'll cover the early days of venture capital, a deep dive into the Power Law phenomenon, why venture capitalists actively look to invest with the oddballs and misfits, how the founders of Google helped shift the bargaining power from the venture capitalists to the founders in negotiating terms, Peter Thiel's investing philosophy in the Founders Fund, why early stage companies have been delaying the process to enter the public markets and so much more. With that, I really hope you enjoyed today's discussion on the Power Law by Sebastian Malaby. Since 2014 and through more than 180 million downloads, we've studied the financial markets and read the books that influence self made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host Play Fink. So on today's episode I'll be reviewing the Power Law, Venture Capital and the Making of a New Future by Sebastian Malaby. This book of course talks about the Power Law and interestingly, how most innovations don't come from the traditional experts. Elon Musk was not an electric car person before he started Tesla. Nor would any rational person had expected space innovation to come from SpaceX. Media innovation did not come from Time magazine or CBS. It came from YouTube, Twitter and Facebook. Retail innovation did not come from Walmart, it came from Amazon. Now our show largely focuses on value investing and I wanted to cover this book to help cover our blind spots as value investors. Many value investors tend to focus on stable businesses with established business models, but we now live in the age of disruption. Businesses that we thought were totally indestructible are now seeing New businesses launched overnight start to compete with them. Understanding power laws can help us better understand that the new up and comers in an industry can look totally different from the incumbent players and we need to be open minded to the future looking much different than the past. If we're open minded to the potential that emerging players could reach, then we won't be surprised when the next Tesla's or the next Amazons of the world with the brilliant CEO burst onto the scene while all other value investors ignore or quickly dismiss these companies. The first venture capitalist that's mentioned in the book is Vinod Khalsa, who's one of the top venture capitalists in Silicon Valley. Kholsa is a billionaire who ran Kholsa Ventures and he was interested in environmentally friendly clean tech projects. He also believed that most social problems could be solved by technological solutions if only investors could be motivated to pursue such strong ambitions. Kolsa has said all progress depends upon the unreasonable man, the creatively maladjusted. Most people think improbable ideas are unimportant, but the only thing that's important is something that's improbable. Kolsl was someone who actively looked for radical dreams. The bolder and more improbable the better. Typically, Kolsa's VC investments were moonshot bets. Odds are that 9 out of 10 of his investments would lead to failure. But the hope was that that gain from that one winner out of 10 would far outweigh the other nine losses. There was no point in gambling for success unless that success was worth having. As a successful venture capitalist, Kholsa understood the Power Law probably as well as anybody. Furthermore, his risk appetite, his love of hubris and his quest for improbable ideas made him a living embodiment of the Power Law, which is the most pervasive rule in venture capital. Many phenomena in life are normally distributed in a normal distribution. Most data points are around the average, and there are an equal number of data points above and below the average. For example, the average height of an American male is 5ft 10 inches, and 2 thirds of Americans are within 3 inches of that average. When you plot a normal distribution on an XY axis, you'll see a bell curve. The more the height moves away from the average, the lower the probability of any man being that height. But not all phenomena follows a normal distribution. If we look at the wealth of Americans rather than height, it looks much different. It has more of what we can refer to as the Power Law distribution, where the wealthiest people are disproportionately wealthier than the average person. Because the wealthiest people are numerous enough and wealthy enough to impact the average wealth of the nation, the average is pulled to the right unlike the normal distribution. If we had a movie theater of 100 people and the tallest person who's a 7 foot NBA player walks out of the room, the average height of the room actually doesn't change that much. In this example, the average height in that room goes from 5ft 10 inches to 5ft 9.9 inches. Hardly a difference at all. But if we measure the average wealth and Jeff Bezos walks out of the room, the average wealth would fall off a cliff because his wealth is just so far above the average. This skewness also ties in well with the Pareto principle, which refers to the 8020 rule. The idea is that 80% of the wealth comes from 20% of the people. 80% of the people live in 20% of the cities, or 80% of your work output comes from 20% of the hours. There's nothing special about the numbers 80 and 20, but it essentially outlines how most of the results come from a small number of the inputs. This is also important to understand as an investor. Malaby also brings up the great point that success tends to beget success. Once Jeff Bezos achieved a high level of wealth, he was presented with more opportunities to do business and make investments, which led to more creation of wealth. Some investors just tend to advance at an accelerating or even an exponential rate. Anytime you have outliers whose success multiplies success, you switch from the domain of a normal distribution to the land ruled by the power law. From a world in which things vary slightly to one of extreme contrasts. And once you cross that perilous frontier, you better begin to think differently. In the world of venture capital, Horsely Bridge found that 5% of their capital invested accounted for 60% of their returns over a 30 year time period. Y Combinator found that returns were even more skewed in 2012. They calculated that 75% of its gains came from just two out of 280 companies, which is just 0.7% of the total number of companies. Even the podcast you're listening to has benefited tremendously from the power law. By our estimates, we're in the top 0.1% or top 0.01% of podcasts in terms of downloads and revenue generated. While the average podcast receives around 1,000 downloads per month, we study billionaires averaged 1.4 million downloads per month in 2024. And my best guess is that the average podcast makes less than $10,000 in revenue per year. TIP generated roughly $1.7 million in profit before tax, and TIP is by no means the biggest podcast out there. Joe Rogan signed a nine figure deal with Spotify, which makes TIP look like nothing in comparison. What people tend to forget is that to be in the top 0.1% of podcasts, big sacrifices are necessary. While I didn't personally start the show, I was an early listener. Preston Pysh and Stig Broderson co hosted the podcast together, and they went at least three years of making practically no money and producing one episode every single week. I'll turn the discussion back to how this relates to venture capital, but if you'd like to learn more about the story of Tip, you can check out episode 481 where I interviewed Stig about the story. Peter Thiel had said the biggest secret in venture capital is that the best investment in his successful fund is equals or outperforms the entire rest of the fund. And Bill Gurley had stated, venture capital is not even a home run business, it's a grand slam business. What this means is that venture capitalists need to be ambitious to be successful. Many value investors would be happy to double their capital over five years, which is essentially a 15% average annual return. But if venture capitalists sought after those same returns, they would almost guarantee failure. Because the Power Law generates relatively few startups that will double in value in five years. Most fail and have their equity values go to zero, while a handful of outliers hit the proverbial grand slam. The only thing that matters in venture capital is to own a piece of those winners. Venture capitalists also have to strike some sort of balance. If they invest in a project that is literally impossible to achieve, then they're just simply wasting their precious capital. But if they invest in something that is easy for others to replicate, then it will be difficult for the firm to extract profits. So they have to invest in the moonshot entrepreneur reaching for the near impossible. That's also somewhat crazy enough to think that they might actually be able to pull it off. Vinod Kholsa had a number of big payouts throughout his career in venture capital. His first jackpot was an investment in Juniper Networks, which built Internet routers. He invested $5 million and reaped an extraordinary $7 billion for the Kleiners Fund, multiplying his initial investment by 1400 times. He not only entered a mega grand slam investment, but he also sold out in August of 1999 at the Perfect time. Recognizing that the buyout price that was offered by Cisco was very, very generous. Malaby shares the idea that venture capitalists must view the world through a different lens and reimagine what the future could look like. While value investors tend to find something stable and predictable and forecast the future based on the recent past, venture capitalists that are investing in these big disruptors simply can't predict the future based on past data because such innovations are so thoroughly disruptive. Malaby writes here, mature, comfortable societies dominated by people who analyze every probability and manage every risk should come to terms with a tomorrow that cannot be foreseen. The future can be discovered by means of iterative venture backed experiments. It cannot be predicted, end quote. As I alluded to at the start of the episode, experts may be the most likely to create these incremental advances in technologies and in society, but radical rethinks tend to come from outsiders. The Elon Musk's, the Jeff Bezos and the Reed Hastings of the world. What's also interesting about venture capital is that in order to be successful you need to understand how businesses operate and what types of people will be able to scale a business from zero to a multi billion dollar organization. While much of Wall street is trading millions of dollars in paper assets in the blink of an eye, venture capitalists are taking stakes in real businesses and holding onto them for a number of years. I also think it's important to study venture capital because they will be funding much of what the future will look like. As I recently discussed with Adam ziesel On episode 686, technology companies are becoming more and more prevalent in the stock market and these new business models are important to understand and keep an open mind to. I recall owning shares in Tesla back in college because I really admired the future that Elon Musk had envisioned and I thought his vehicles really had the potential to gain steam globally. Then I started learning more about value investing and I realized that Tesla was likely significantly overvalued relative to other carmakers and it was tough to justify their steep valuation based on the number of cars they sold and the intense competition that was sure to come very soon. That was back in 2016 and since then shares of Tesla are up nearly 30 times. It's a harsh lesson that the most innovative companies can become much, much bigger than we might initially forecast. I thought a market value of $50 billion for a company like Tesla, which made no profits, was way too high, and it's also in a very capital intensive industry. Looking back I think I should have viewed it more like a venture bet where it would start out as a small percentage of my portfolio. And if it ended up working out, then I could be hanging on to a multi bagger, you know, make five or ten times my money. And if it didn't work out, then I might lose anywhere between 50% to 100% of the initial capital I put in. So chapter one of the book gets into the foundational roots of Silicon Valley. Malaby argues that the genius of Silicon Valley is not their capacity to innovate, but lies in their capacity and willingness to capitalize on such innovations. The first precursor of the World Wide Web started in Minnesota. The first web browser was developed by Marc Andreessen at the University of Illinois. The first search engine was invented by Alan M. Taj at McGill University. And the first Internet based social media site was launched by Andrew Winrich in New York City. All of these inventions lie outside Silicon Valley. Malaby also highlights the counterculture in the valley of hippies who thought differently and were more willing to question conventional norms. Steve Jobs is someone who's mentioned a number of times in the book. Malaby writes here about Jobs. Steve Jobs was among the many who embodied both sides of this contradictory culture. He was too modestly egalitarian to demand a boss's reserve slot in the company parking lot, but too arrogantly entitled not to steal the space designated for disabled drivers. He was a communalist collaborator, sharing his intellectual property freely with rivals. He was also a capitalist competitor, paranoid and controlling. It was this combination of laid back creativity and driving commercial ambition that truly defined Silicon Valley, making it the place where flights of imaginative fantasy begat businesses that shaped societies and cultures. Venture capital, in the grand scheme of things, is a relatively new industry. After the Great Depression, post 1929, the big investment firms were much more interested in preserving capital rather than putting any of it at real risk. It was in the late 1940s that funds started to emerge and invest in early stage companies that dreamed big. It was actually the Rockefeller family who was one of the early pioneers of the VC industry. And apparently they got into it not for financial reasons, but because they felt like providing capital to projects that needed it would help make the world a better place. Lawrence Rockefeller didn't feel that it was right that capital would only be provided to opportunities that were perceived to be very safe. And it was sort of mind blowing to read about this given that today we have so much capital chasing all these fairly risky projects. While in the 1940s many companies traded at around their net asset value. Today's safe companies are perceived to be the Apples and Microsofts of the world, which trade at PE multiples of 35 to 40. The Rockefellers ended up underperforming the broader stock market, one reason likely being that they weren't necessarily looking for strong economic returns on their investments. Reed Dennis was also an early venture capitalist who saw promise in the tape recorder industry. He bet on a company called Ampex, a maker of tape recorders, as he believed that the technology was going to be useful for a lot of things in the future. His $15,000 investment in 1952 turned into $1 million by 1958 when the company went public. So that was a 67x return. Georges Doriot founded one of the world's first venture capital firms, and he was regarded as the father of venture capital. In his lectures, he shared his belief that the greatest rewards were to be found in the most ambitious and least projects. The investors would have to wait patiently for returns to mature over the long term, and that the best prospects involved advanced technology, not orange juice or fishing in Asia. He also understood that a venture capitalist's role wasn't just to provide capital, but also to provide managerial counsel, assistance with hiring, and tips on everything from marketing to finance. But over time, Dariot did make some key mistakes. Instead of just raising capital through a partnership, he took his firm public, making him subject to strict regulations. He also made poor use of financial incentives within his company and told his employees that they were in the business not to make money, but to serve their country. Additionally, he would never abandon underperforming portfolio companies, even if they hogged capital that could be more productively deployed elsewhere. Despite his faults, he still managed to make his original investors 30 times their money in 25 years, thanks to the help of the Power Law and some big winners far outperforming the S&P 500 over that same time period. The modern version of the venture capital profession was further cemented with two advancements in the 1950s. First, technology investors embraced the idea of an equity only time limited fund, rejecting various rival formats. And second, technology investors devised a new kind of risk management better suited to a venture portfolio. Venture capitalists can no longer diversify their risks across stocks, bonds and real estate, which meant that lumpy returns and concentrated bets on a small number of technology startups were to be expected. Interestingly, in 1958, the US government encouraged the growth of a new kind of venture vehicle. After the Soviet Union launched the first man made satellite. Venture capitalists put Together what was referred to as a small business investment company, which could receive cheap loans and tax concessions. But to qualify for assistance, the fund couldn't be larger than $450,000, and no investment could be larger than $60,000. So this really targeted very small companies and investment allocations, but nonetheless it encouraged the growth of the industry overall. But since the industry was so nascent at the time, these really early funds could still get a sizable stake in a startup because these startups didn't really have any other option to raise capital. These SBIcs ended up not working well for the most part, because they had taken on debt that needed to be serviced. So if they needed to pay, say, 5% interest on a loan, they would need some sort of income to service that debt, which meant that they invested in companies that could pay a dividend, which meant that they really couldn't apply the VC approach that we know of today, where a lot of these companies simply aren't profitable. This led to the private limited partnership model that began in 1961. Arthur Rock and Tommy Davis launched a limited partnership by raising $3.2 million, which allowed them to be significantly larger than these SBIcs, and they weren't burdened to servicing any debt. Rock and Davis promised to liquidate the fund after seven years, which meant that they had a relatively long time horizon to invest in startups, but also had the urgency to really get capital deployed whenever they could find a good opportunity. They also had an incentive structure in place where Davis and Rock would be compensated with 20% of the fund's capital appreciat. And they also sought to provide equity to the employees of portfolio companies in order to align the incentives there as well. Generally, founders were able to keep about 45% of their company. Employees would get around 10%, and the venture capital firm would get the remaining 45%, which was split between the limited partners and the general partners. During the 1960s, modern portfolio theory was bursting onto the scene, which stressed the importance of diversification and owning a broad mix of different assets with uncorrelated risk profiles. Davis and Rock ignored this teaching and sought to make concentrated bets on a dozen or so companies. One benefit they had with their approach is that they would sit on the board of the companies they owned and had a say in the business's strategy. And they would only invest in companies that were ambitious and showed promise for high growth. They wanted to invest in companies that had the potential to increase their value by at least tenfold in five to seven years. While many would call these hurdles outlandish. Davis believed that it would be unwise to accept a less stringent hurdle, fully knowing that most startups failed and the few winners had to make up for a number of losers. He had stated that trying to play it safe in small companies is self defeating, and in their approach they acknowledged the logic of the power law. The way Malaby puts it, the best way to manage risk is to embrace it fearlessly. At this time, investors like Warren Buffett would assess companies based on price to earnings ratios or price to book ratios. And since companies seeking a venture investment had zero earnings and practically no assets, these ratios might as well have been useless. Davis's investment approach could be summed into four back the right people. He formed a habit of skipping through the financial projections they had sent and go right to the founders resumes. Brock had said the single most important factor in the long run for any company is of course management. I think these sort of statements tie in well to modern day value investing. Of course PE ratios and metrics like return on invested capital are important, but at the end of the day business is all about people. Rock referred to human talent as the intellectual book value. This is something that simply can't be measured. He wanted to understand their character. He wanted high levels of integrity and honesty and get a feel for how committed they were to the success of the business.
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Preston Pysh
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Clay Fink
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Clay Fink
All right, back to the show. Before they launched their fund, they decided that they did not want to invest in computer startups since IBM dominated that space. Davis heard from his consultant who went on and on about this mathematician named Max Pilefsky, claiming that this would be the most exciting proposition he had ever seen. Well, Max Palevsky, he was in the business of making computers. Davis decided to meet with Max anyways and he was really impressed by him. He went to the best university in Chicago. He studied logic there, which fit in well with computing. And with the advent of semiconductors, Max was now able to build his own machines that could outperform IBM's machines. Rock was pretty skeptical with this proposition as well but he was also impressed after he met Max. Rock had said that entrepreneurs with managerial magic cannot lose. If their strategy doesn't work, they can develop another one. So they invested $257,000 into Pilefsky's new company, Scientific Data Systems, which turned out to be a fast growing computer maker of the 1960s. By the time the partnership was shut down in 1968, that $257,000 grew to 60 million, an increase over 230 times their money. I think this goes to show that for many investments, the people are oftentimes just as important, if not more important, than the specific idea they are pursuing. At the time of the investment in 1969, Xerox would purchase SDS for $1 billion, making it the corporate sale of the decade. When the Davis and Rock partnership was wound down, their success was overwhelmingly tied to sds, but also to defense contractor Teledyne, which our audience is likely familiar with. The initial fund of $3.4 million grew to almost $77 million, generating a total return of 22x their money in just seven years. So that nets out to an average annual return of 56% per year over that time period. This would have been one of the first successful venture capital firms, which would then serve as a model for the funds that would be set up in the future. And of course, when a partnership puts up such mouthwatering returns, others are going to want in on that action. This was really an era where capital was now available to back startups with no assets, no profits, just talent and ambition. And this is a great transition to talk about. Sequoia Capital. Sequoia Capital is certainly one of the most well known VC firms. According to their website, they've compounded at 13.4% per annum since 1972. And that's relative to the S&P 500's return of 11.4%. An investment of $10,000 into Sequoia's fund in 1972 would be worth over $9 million today. Sequoia Capital and Kleiner Partners would pioneer a new form of venture that would be highly involved in the company's operations, including helping the founders determine who to hire, how to market and sell. And capital would be infused into the company and tranches based on milestones that the company was able to hit over time. Sequoia was founded by a man named Don Valentine. Don had an appetite for risk and control. Had he started an sbic, he would have had to take on debt, which is something he never really believed in. And he Wouldn't take money from pension funds because they weren't interested in investing in these riskier projects. In a year and a half, he was able to go around and raise $5 million for his first fund, primarily from universities and endowments. After a strong run in the economy and the stock market in the 1960s, the 1970s was a time to proceed with more caution with low growth and higher inflation. This allowed Valentine to be a bit more selective in the deals that he was investing in. One of the first deals he had his sights set on was Atari, which had just created the very popular game called pong. The business was run in a very unorganized manner. You know, it wasn't business people, it was really these software type people. So instead of investing, Valentine put together a business plan for them and was open to the idea of investing if they could get their business act together and implement that plan. Valentine had also connected them with Sears through his own personal connections. And Sears ended up placing an order for 75,000 home pong machines, which gave Valentine the green light that the product was desired by these big players in the market that could distribute it at scale. In June of 1975, he made a seed investment of $62,000. And by August, Atari had raised another million dollars, which Valentine participated in. This was amidst the background of the entire VC industry swindling to a mere $10 million. Atari needed larger capital infusions soon after to continue growing. So they would end up getting sold for $28 million in 1976. And this delivered a three times return for Sequoia in less than two years. This new venture formula delivered exceptional returns to Sequoia and Valentine. The first fund they raised, it put up returns of almost 60% per year by 1980, versus just 9% for the S&P 500. So when I think back to Atari, I was curious if Steve Jobs had worked there during this period. And he was there for a brief stint in 1974. And that is where Valentine first met Jobs, where he was a line engineer at the company. And then, of course, Sequoia would end up participating in Apple's very first fundraising round in 1978. This was a hugely successful investment for the fund. It would be easy to say that Sequoia's early success was purely due to luck, but they were highly influential in the company's success. So they brought their business experience to the table to help the founders work through these growing pains and create a viable business that could really scale. The way Malaby puts it is that by force of character and intellect, they stamped their will on their portfolio companies. End quote. In chapter four, Malaby shares venture capital's role in fueling the early growth of Apple so Apple was founded in 1976 by Steve Jobs and Steve Wozniak, and in many ways they were the picture perfect candidate for an investment from venture capital. Many insiders in the space knew that the personal computer would be a really big deal in the years ahead. Yet all of the big players decided not to enter the market initially, which aligns with the thesis of the innovator's dilemma laid out by Clayton Christensen. Xerox was worried that a computerized paperless office would harm its core photocopy business. Intel and National Semiconductor feared that making a computer would put them in conflict with existing computer makers, which were among their top customers. And HP thought that building a cheap home computer would undercut its premium machines, which sold for around $150,000. All four companies had too much at stake in the status quo to risk disrupting it. Despite this attractive setup, most VC investors who came across Apple thought it was a joke and likely for good reasons. One investor wondered what sort of use a computer would have at home. Jobs had pitched Stan Veidt, the owner of New York City's first retail computer store, to buy a 10% stake in Apple for a mere $10,000. Stan looked at Jobs as a long haired hippie and thought to himself that he would be the last person to hand over $10,000 to. There is one story of a VC investor being introduced to Jobs after he had just come back from India for some sort of meditation experience. And he came off as someone who hadn't showered for quite some time. So it's pretty easy to see why most people would have said no to this off the wall character. Nolan Bushnell, who had hired Jobs at Atari, was offered a third of Apple for $50,000 and he thought he was quite smart to say no. As a courtesy, he did give him an introduction to Don Valentine of Sequoia. After Valentine's experience with Atari, he established himself as someone who could handle working with young founders that were difficult to get a hold of and trust. Valentine was actually a good fit for a startup whose greatest challenge would be to convince unsuspecting consumers that they would want computers in their kitchens. Although Valentine was skeptical, he did want to try to help Jobs and see if an investment down the road would come to fruition. He connected Jobs with someone in his network named Mike Marcula, who had experience as an engineer and a Sales executive Marcoula arrived at the garage that Jobs and Wozniak were working out of. And after getting over the hurdle of talking with these unusual entrepreneurs, he realized that Wozniak was actually building something in his garage that was really impressive. The Apple II prototype was free of the standard mess of circuit board strung together with fiddly connectors. The whole machine worked on a single board, and there were slots for plugging in printers or other devices. So Markula was totally on board with this. He became an advisor at Apple. He wrote their business plan, and he served as the chief of marketing and the company chairman. He also invested $91,000 for 26% of the company. Marculo wasn't even a venture capitalist. He may have been the Valley's first, what we could call angel investor, somebody who had grown rich from the success of one startup and then they went and recycled that wealth into other startups. What was also great about Markula was his extensive network, which nowadays is an important part of the VC industry. When you get a VC investment, you don't just want the capital, but you also want access to an extensive network of people that can help you solve really complex problems, connect you with the right people in that network. Apple also secured another $300,000 investment from Venrock for 10% of the company, valuing them at $3 million in 1979. After Valentine saw the very early success of Apple, I think he was feeling a bit of fomo. And Markula made sure to get him involved, since having a top VC investor on board would help create further momentum for the company and further expand their network to tap into as well. Apple had started as something that was a company that nobody wanted to touch. And then word of mouth started to catch fire and the VC community really wanted to be a part of it, and it turned into something they sort of had to buy into simply because others were buying into it. I think the main takeaway with the early days of Apple with regards to VC is just how valuable the VC network can be to a startup. Had the VC network not been available to Jobs in Wozniak, then they likely wouldn't have been able to attract high quality talent to get them off the ground and establish a really viable business strategy. Valentine would actually sell out of Apple early. He sold a stake in 1979 for a quick 13x profit that boosted his first fund's returns. But then he missed Apple's next leg of growth. To the best of my knowledge, one early VC investor saw his investment go up by 378 times after Apple would go public in 1980, just four years after the company was founded. And at this point, the VC industry really started to have more legs for growth overall. So in 1978, Congress cut the capital gains tax from 49% to 28%, increasing the incentive to invest in venture capital. In 1979, the government relaxed its standards for pension funds, opening the door to invest in the VC industry. And in 1980, the capital gains tax was cut again to 20% when Ronald Reagan took office. These changes, alongside the few big winners that the industry saw, such as Apple, it encouraged more and more money to pour into the space. In the mid-1970s, the average amount of capital raised would be $42 million annually. And by 1980, the average inflows were nearly $1 billion. The book covers a few other VC deals in the years that followed, including Cisco Go, which would end up being a failed VC bet that left investors with practically nothing and Yahoo. But I wanted to jump to the story on Google. So Google was founded by Sergey Brin and Larry Page in Palo Alto In August of 1998, four years after Yahoo was founded, and saw incredible levels of growth, success and attention from venture capital. When Google was started, There were already 17 other firms offering Internet search services. But Bren and Page were confident that they could create the best offering in the market. Some investors were concerned that since there were so many players in search, it would end up being a low margin commodity business. Others believed that brand would be extremely valuable on the Internet and that a search tool would simply be a plugin on the most popular websites. Like the Yahoos of the world, they generated search results that were much more relevant for users since they put together a system for ranking websites based on how many other sites had linked to them. The co founders discussed with an engineer named Andy Bechtelsheim, who had success with his own startup and he enjoyed using the wealth he built to back other founders. So he was an angel investor. So after briefly discussing the business with them, he pulled out his checkbook and just wrote a check for a hundred thousand dollars. They hadn't even incorporated a company at this point, had no business plan, and had ruled out running banner ads and pop up ads on their site, which was a standard way for an Internet business to make money at that time. And these types of investments were becoming more and more common at the time. So these are of course angel investments. There were a number of entrepreneurs in Silicon Valley who had built vast amounts of wealth and they had a passion for backing other founders. So if you had $50 million from selling your startup, you probably don't care about losing, say $100,000 to back these co founders that you really like. And Maybe you write 20 of these checks and you really only need one to pay off to see a positive return on your investment. And there could be a number of unforeseen benefits from doing this as well. So, you know, you get to be a part of these different networks, be connected with these really interesting founders. So Google would go on to raise over $1 million in total from angel investors to get them kickstarted. One of the seed investors was actually Jeff Bezos. He invested $250,000. Bezos had later said that he had fallen in love with Slurry and Sergi after meeting them. Now there's some pros and cons to going into the angel investor route versus the venture capital route. With raising money from angel investors, you're likely giving up less equity. Angel investors won't be checking in on you each week because they're busy with their own projects. And you likely aren't going to get access to this extensive network of people to pull from. Whereas with venture capitalists, you're probably going to give up more equity. But you also get access to the extensive network and you're held to high standards in terms of the growth targets you need to hit and whatnot. In some ways, it's a way for founders to force their hand and really go all in on their business because you know, they have these funds backing them and at the end of the day, they need to deliver returns to their investor base. Although Google didn't participate in VC Initially, the VC industry overall was really booming. So the number of VC partnerships hit 750, up from 400 a decade earlier. And venture capital actually helped fuel the tech bubble in 1999 because venture capital just tends to be less sensitive to valuations. When hot money is chasing a new industry, they tend to pay the going price in order to get their capital deployed. And they always had the concept of the power law to fall back on. They may think that they're paying a nose bleeding valuation, but if just one company still reaches scale and achieves their growth targets, then it could still really pay off big time on the back end. I think at certain points falling back on this idea of the power law can lead to some investing just purely based on fomo if they aren't getting a handle on their emotions. Greed starts to kick in when you see an investor like John Doerr and the Success he had. So Door invested $8 million in Amazon in 1996 for 13% of the company. And by 1999, Amazon was a $20 billion company. Generally, the stock market isn't as generous in providing lofty valuations to businesses who weren't cash flow positive and were largely built on the back of a dream. The 1999 tech bubble is the first example of the overall market ceasing to be rational with this regard. So during 1999, people had the Internet to share ideas, and the mainstream media would pump these narratives on tv. And the power law concept had struck the broader public. Many speculators understood that if they owned just one big winner, it would make up for the many losing tech companies in their portfolio. It goes to show that even some of the best ideas in these laws of the universe can be taken too far as sometimes. So Google would go on to pitch VC investors and share their mission statement, which was we deliver the world's information with one click. When they would eventually go public. The IPO prospectus invoked the company's quote unquote responsibility to the world, which was to deliver free, abundant and unbiased information. At the time, Google was handling half a million searches daily. John Doerr figured that if Google could muscle its way into being the top tier search firm, it could potentially reach a market valuation of $1 billion. And then door had asked Paige how big he thought the company could get. And he believed that they could reach $10 billion in revenue, which would imply a market cap a hundred times larger than what Door initially assessed. Google ultimately decided to take on a venture capital named Ron Conway, primarily as a way to try and get Sequoia in the Door later down the line, which at the time was led by Doug Leone and Michael Moritz. When Leon heard about Google, he took a meeting with them. Almost immediately he saw that the Google search results were more useful than Yahoo. And at the time, Yahoo was even considering using Google's technology to power search on their website. And it's important to keep in mind the hindsight bias here. It's easy to say in 2025 that Google was a no brainer, but at this time you had a ton of different search companies. Maybe this would end up turning into a commodity business where there's no real moat. Things are rapidly changing with the Internet and companies are constantly being disrupted and running out of capital. The idea that Google would even eclipse Yahoo and Amazon in market cap terms was by no means obvious. On June 7, 1999, Google secured VC funding from both Kleiner and Sequoia, which displayed the huge bargaining power that they had at this time over vc. Given that typically one or the other of these big firms would lead the round of funding, this was nearly perfect timing to close around the funding with these two. Because in the year 2000, the VC window of capital infusion virtually just slammed shut. John Doerr's investment in Martha Stewart it lost 60% of its value in the first four months of the year. His investment in At Home had a market cap of 35 billion in early 1999. And in 2001 the company filed for bankruptcy. And as many in our audience likely know, from peak to trough, Amazon stock fell by 93% in the public markets at the peak. In 2000, new capital commitments to VC firms hit $104 billion and by 2002 they were down to around 9 billion. Between 2001 and early 2004, Silicon Valley lost 200,000 jobs, which is honestly pretty mind blowing. In the meantime, the venture capitalists were essentially begging Brin and Page to bring in an outside CEO who had more professional experience. It took them a while to come around to that idea, but they eventually did. Brin and Page were interested in poaching Steve Jobs who was of course not going to leave Apple. The man they found for the job was Eric Schmidt who had a computer science background. And Google was not an obvious choice for Schmidt since he wasn't really sure about the future of search. The backing of Sequoia and Kleiner would ultimately give him kind of that stamp of approval and confidence to join the company that was started by two guys in their 20s who still had full control of the company. Google was also one of the early pioneers in the dual class share structure which allowed the company to continue to raise capital in the public markets. But the founder would own the class of shares with more voting power so they could still maintain full control of the voting shares in the company's direction. Long term. Malaby shared a great point in the book here regarding the short term nature of the stock market. So Bren and Page they argued for the dual class share structure because they said that the stock market was too short sighted and it would lead to managers wanting to maximize near term profits at the expense of long term profits. Bren and Page believed that if they maintain full control then they would ensure that the company's going to focus on maximizing the long term shareholder value. The IPO prospectus stated we will not shy away from high risk, high reward projects because of short term earnings pressure. And this ties into the other bets division, which is so widely known today. Google would end up going public on August 19, 2004. The dual class share structure ended up working well for both types of shareholders, so that model would later be copied by Facebook. Later on in the first three years of trading, Google stock would quintuple. Google's success really signaled a turning point that.com companies could be extraordinarily successful in generating profits and creating value for shareholders. And the success of Google gave some startups a bit of an upper hand because Google went the non traditional route of not giving up control of their company and it was still a massive success. People like Paul Graham even suggested that founders should be wary of venture capitalists and be open to the idea of living on a shoestring budget in those early years.
- [47:53]
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Get an Expert now on TurboTax.com that's TurboTax.com only available with TurboTax live full service real time updates only. An iOS mobile app. See guarantee details@turbotax.com guarantees all right, back to the show. One interesting idea is that Internet companies weren't nearly as capital intensive as the other business models, or at least businesses of the past. So founders could be a bit scrappier in growing a startup with that limited initial capital base and have more bargaining power when negotiating because each venture capitalist is looking for the next Google. Venture capitalists are generally incentivized to convince founders that they needed all this money so they could get more equity and put more capital to work through their fund. So these founders needed to be a little bit careful that they weren't going to be taken advantage of by these venture capitalists. The book also gets into Peter Thiel's role in the venture capital industry. So Malaby referred to Thiel as a Silicon Valley maverick. He had two degrees from Stanford, neither of which were engineering or business. He started his career trading derivatives in New York and wanted to get out of the corporate treadmill, so he quit his trading job to head back to California and he started his own small hedge fund. Thiel would get connected with Max Levchin and together they would launch PayPal originally known as Confinity. We covered the full story of the PayPal mafia with Jimmy Sony a couple of years ago. If you're interested in hearing that story, you can search TIP417 on Google or your favorite podcast app or I can get that linked in the show notes as well. Confinity would run into Elon Musk's X.com and the two would later merge to form what's now known as PayPal. Thiel would temporarily become the CEO of this newly formed company, and after the Nasdaq had fallen by half In February of 2001, he managed to raise $90 million in Series D funding, thinking that if the tech sector would continue to slump in the near future, then PayPal may be able to outlast their competitors who might not be able to raise money down the line. To which he was actually right. In July of 2002, eBay would buy PayPal for $1.5 billion, netting Thiel $55 million in his mid-30s. In 2005, Thiel launched the Founders Fund, which seeked to invest in founders who created companies like PayPal and promised to treat this new generation of founders with the respect that they themselves had wished for. Thiel believed that founders should control their own companies. Google had previously laid out the blueprint and Mark Zuckerberg of Facebook had doubled down on that strategy. Mark Zuckerberg had showed up to a presentation with Sequoia Capital. He was wearing his pajamas and he titled his presentation the top 10 reasons you should not invest in wire hog. Sequoia was interested in investing of course, in Facebook, not Wire Hog, by the way. So Zuckerberg went the route of raising capital from angel investors early on. And then Thiel invested $500,000 in August of 2004 for 10.2% of the company. Now, the Founders Fund was technically a venture capital fund, and Thiel was the first venture capitalist to explicitly speak about the Power Law. He understood that radically unequal outcomes were common in the natural and social world. For example, he had stated that the most destructive earthquakes are many times more powerful than all smaller earthquakes combined in big cities dwarf all small towns put together. It was therefore not just a curiosity that a single venture capital bet would dominate the entire portfolio. He also felt disdain towards the traditional VC model of getting really involved with the business and maybe even replacing the founder with an outside CEO. He argued that venture capitalists should not be mentoring founders because mentoring founders is based on the belief that the tried and true methods trumped outside the box experiments. Malaby writes here. If the Power Law dictated that only a handful of truly original and contrarian startups were destined to succeed, it made no sense to suppress idiosyncrasies. To the contrary, venture capitalists should embrace contrarian and singular founders. The wackier, the better. Entrepreneurs who weren't oddballs would create businesses that were simply too normal. They would come up with a sensible plan, which, being sensible, would have occurred to others. Consequently, they would find themselves in a niche that was too crowded and competitive to allow for big profits. It was surely no coincidence, Thiel continued, that the best startup founders were often arrogant, misanthropic and borderline crazy. Four of the six early PayPal employees had built bombs in high school. Elon Musk spent half the earnings from his first startup on a race car. When he crashed it with Thiel in the passenger seat, all he could do was laugh about the fact that he had failed to insure it. Such extremes and eccentricities were actually good signs, Thiel concluded. Venture capitalists should celebrate misfits, not coach them into conformity. End quote. So some really interesting insights there from Thiel and Malibi. I feel that so many of us want to naturally fit into the mold and reject the misfits to a large extent. I feel that's why so many value investors would have avoided investing in Tesla ever since their ipo, thinking that Musk is too volatile and too unrealistic when that in itself is needed to create a trillion dollar company from scratch in the electric vehicle space or create SpaceX and launch all these rockets into space. From the beginning, the Founders Fund believed that a founder should never be ejected from their company and after 15 years of operation they upheld that principle. TSD connected with Elon Musk after Musk was ousted from PayPal and the Founders Fund would invest $20 million in SpaceX in July of 2008 for 4% of the company. One decade later, SpaceX was worth 26 billion, which cemented the Founders Fund as one of the top performing venture vehicles. In 2005, Paul Graham launched Y Combinator, which would invest in very early stage companies and support them in the process. It was a vehicle to provide support to young founders, provide feedback on their projects and offer a community for them to get to know other founders. And in return, Y Combinator would get 6% of equity in each of these micro companies. The acceptance rate to get into Y combinator was only 3.5%. So there was this big scarcity value where it was really hard to get into that program. Graham believed that Many people made building a startup more complicated than it needed to be. He had once said, build something users love and spend less than you make. How hard is that? But Ben Horowitz viewed it differently, as outlined in his compelling memoir, the Hard Thing About Hard Things, which captured the trauma of entrepreneurship. So Graham was, of course, another disruptor to the conventional VC industry. Malaby also gets a bit into the luck versus skill debate for venture capital. The success of a VC firm can be very path dependent. Venture capitalists who back winning startups garner a reputation for success, and in turn, the venture capitalists with a good reputation are oftentimes the ones who get the first seat at the table with the next hot startup, and they can get, you know, more favorable terms than the other firms. So it's this cycle where prestige boosts performance and performance boosts prestige. But a good reputation in itself can't guarantee success, as some firms have, of course, fallen by the wayside. Kleiner Perkins is one example. So they believed that the green energy trend was going to be bigger than the Internet. So they started betting on these startups starting in 2004. Things like solar power, biofuels, electric vehicles. In 2008, Kleiner doubled down, deploying a $1 billion growth fund exclusively to this sector. But green energy was really a tough field for venture investors. And just because an industry can make for a large market doesn't necessarily mean it will make for a profitable one. Malaby writes here, startups working on wind power, biofuels, or solar panels were capital intensive, heightening the risk of losing large sums. Projects took years to mature, depressing annual returns on the few that succeeded. To compensate for the large capital requirements and long time frames, clean tech investors could, in theory, have invested at lower valuations and demanded additional equity. Compounding this error, Door's early clean tech forays focused on businesses that lacked an obvious moat. Solar and biofuel projects involve producing energy, an undifferentiated commodity whose price is wildly cyclical. And Door estimated the federal government's willingness to deliver honest promises of tax or regulate carbon. Kleiner's rounds of fundraising as a result were really a mixed bag. So some investors, they lost money, while others ended up okay after having invested in companies like Beyond Meat, which generated a 107x return, and Enphase, which generated a 25x return. So, like with the stock market, venture capital requires a bit of luck and a bit of skill to be successful. Perhaps more luck is required in the world of venture capital due to the volatile nature of the business. The volatile nature of the economy, like what we saw in the tech crash in the Great Recession, plus the amount of disruption that just happens in the world of startups. So much has to go right to have invested in the next Amazon or Google or Facebook. After the great financial crisis, an investor named Yuri Milner would help shift the VC industry yet again and also change the landscape of public markets. Milner was an investor based in Moscow, and in 2009, he called Gideon you, who was the CFO of Facebook, and let him know that he wanted to invest in the company. Given that Facebook was in the midst of the great financial crisis, Zuckerberg's plans of allowing employees to cash out some of their shares have been thrown for a loop. Most VC investors believed that with Facebook at 100 million users, they were nearing their saturation point. But Milner believed that there was still much more growth to come in the United States, based on the data he saw with other social media sites from other countries. In other countries, social media sites were among the top three sites visited. And in the US Facebook still hadn't cracked the top five. He also saw that there were many Facebook users outside of the US Showing that they could monetize their platform globally. So Zuckerberg had this issue that his employees weren't able to cash out at the valuation they would have liked. But Milner solved this issue. So he agreed to invest at a valuation of $10 billion in the U.S. vC investors thought he was just insane. This was a ridiculously high price. They thought it was just dumb money coming in from overseas. So Milner invested $200 million for company issued primary stock. It was around 2% of the company. And as Milner predicted, Facebook's audience and revenues rapidly grew from there. So in the 18 months that followed, this would have been late 2010. Now, Facebook was valued at $50 billion. I can't help but think that some investors were just scarred from the tech bubble and assumed that valuations would normalize. So this allowed a savvier investor like Milner to recognize the great opportunity for growth that still lied ahead for Facebook. Now, this investment by Milner was a pretty big deal because it showed that Facebook did not need to necessarily go public in order to allow employees to cash out on some of their equity. This shift in the industry overall meant that great companies would be able to go public later in their life cycle, giving these VC investors more of the upside in the company's growth. Also, staying private allowed Zuckerberg to really focus on his business. He didn't have to worry yet about quarterly calls with Wall street analysts, regulatory disclosures, or hedge fund traders shorting his stock now this is one reason why I personally like to shy away from Tech IPOs. If a tech company is hitting the IPO market, that sort of tells me that the milliners of the world aren't interested in investing. And given what the valuations are for many of these companies at their ipo, the risk reward trade off oftentimes doesn't make a lot of sense to me. So to give a couple of examples here, shares of Airbnb are flat since 2020, despite the company continuing to grow at a pretty good clip and generating a lot of cash. Shares of Uber were flat from 2019 through 2023, and they've had a solid run ever since then, actually just recently. But overall the total returns have substantially lagged the broader market around the time of the Milner investment in Facebook, Ben Horowitz and Marc Andreessen started to rise onto the VC scene. They raised 300 million in June of 2009. They implemented a bit of a dual strategy of both backing ambitious startups and what we could call growth investments of more established businesses, like what Milner did investing in Facebook. Andreessen had said that Milner had had an effect on the way he invested and being more willing to invest in companies who weren't in these really early stages of their growth. Andreessen and Horowitz bet on many companies our audience would be familiar with, including Skype, Zynga, Foursquare, Twitter, Groupon, Pinterest and Airbnb. For the fund they launched in 2009, they generated a 44% annual return, net of fees, three times the return of the S&P 500. This put them in the top 5% of funds launched in 2009. Malaby also shares that some of Andreessen's funding grounds did not fare as well, putting them more in the middle of the pack of the VC firms underperforming the S&P 500. If we jump to the 2010s, we see continued growth of venture capital. From 2009 to 2019, the number of venture capital investors in the US more than doubled, and so did the number of startups that they founded. Many venture capitalists specialize in specific industries related to tech, like artificial intelligence, biotech, cryptocurrencies, agtech, big data and cloud. Sequoia largely led the charge in VC as they became by far the top firm in the industry, dominating the business in both the US and China. They backed unicorns like Airbnb and WhatsApp, and they seemed to succeed at everything they touched. There's also a lot here in the book talking about Sequoia and their investment process, but one thing I thought was interesting was that despite their tremendous success, they found that oftentimes they sold their positions too early. One prominent example was the sale of YouTube to Google for $1.6 billion in 2006 as a standalone company. Today, YouTube would be worth around $400 billion. Malaby writes here. In accepting Google's acquisition offer, the founders had behaved precisely as behavioral experiments predict. People are often willing to gamble in order to avoid a loss, but they are irrationally risk averse when it comes to reaching for upside. Examining the pattern of Sequoia's investments, they determined that premature profit taking occurred repeatedly at the firm, despite Moritz's earlier efforts to extend the partnership's holding periods. The behavioral literature also drew attention to another tendency that they observed. VCs suffered from confirmation bias, the practice of filtering out information that challenges a position you have taken. At Sequoia, the partners sometimes missed attractive Series B deals because they wanted to make themselves feel good. They hated to admit that they had been wrong in saying no to the same startup at the Series A stage. So I think this really ties in well with public equity investing. The first step to try and overcome our biases is to recognize them. Every stock that's been a 10 bagger was at one point a double, a triple, and then a 5x along the way. And almost certainly there were investors who believed that they should take chips off the table, incur capital gains taxes, and allocate that capital elsewhere. When you're holding onto a winning stock, this is oftentimes a mistake. For most investors, holding onto your winners enables the power law to work for you rather than against you. The second mistake is the mistake of omission. You might have passed on a great company for various reasons in the past. And I think all of us have an aversion to buying a stock at 150 that we passed on last year at $100. By definition, the best companies are going to continue to hit new all time highs with the passage of time. Meaning that if you want to participate in that stock, you're going to need to overcome that bias of anchoring on the initial price we analyze for that business. For me, my mistake of omission was not investing in Tesla. I briefly owned shares in Tesla years back, but sold because of valuation concerns. Had I treated the investment to Tesla more like a venture bet then that would have paid off handsomely for me. Luckily, we don't need to bat 100% to be a successful investor and hit our financial goals, so I don't really regret having made this costly mistake. I've been lucky enough to hold a few winners that have been multi baggers and grown to be much larger than I initially anticipated they would Sequoia would run postmortems on their investments to learn from both the success and failures of the investments they did and did not make. They also would write up a pre parade on each investment, sharing how the company would turn out assuming everything went to plan. This gave those leading the deal permission to share their excitement about a company. Jim Goetz said, we all suffer from the desire not to be embarrassed, but we're in the business of being embarrassed and we need to be comfortable enough to say out loud what might be possible. End quote. I also liked this excerpt here on serendipity, and it ties in well with how many public equity investors discover new ideas Sequoia's tight team and loose experiments illuminated the enigmatic skill in venture capital. Taken individually, the story of every venture bet can seem to hinge on serendipity. Investor receives a random referral. Investor meets inspired young misfit. Investor meets to connect with youth by means of an opaque alchemy. Explaining this bonding process, Yahoo's Jerry Yang had remarked mysteriously that Michael Moritz had soul, while Tony Zingale, another Sequoia backed entrepreneur, stated that he got along with Doug Leone because he's another fiery Italian. But despite these trivializing explanations, Sequoia illustrates the method behind the seeming arbitrariness and chance. The best venture capitalists consciously create their luck. They work systematically to boost the odds that serendipity will strike repeatedly. One thing I've found in studying many successful people is that luck plays a major role in their lives. But they were able to help manufacture their own luck. As investors, we should be open to bringing in new investment ideas from any source to allow that serendipity to strike in whatever way necessary. Malaby shared. From 2000 to 2014, Sequoia's venture investments achieved a return of 11.5 times after netting out fees, the weighted average for venture funds was only two times. So Sequoia stands head and shoulders above the vast majority of firms. Of the 155 US venture bets over time, 20 of them generated a return of 10x or more in a profit of at least $100 million. And none of this came easy for them. They took their success in the US they replicated it in China, and they even decided to expand further into India and Southeast Asia. It's remarkable what they've done in terms of their returns, their global reach, and the billions of dollars they've been able to successfully deploy. And that's not to mention all the unicorns they helped grow that ended up touching billions of people's lives. Jumping to the conclusion of the book here, Mallaby shares an interesting case study to help us wrap our minds around the Power Law. A sociologist was intrigued by the idea of the Power Law and why a tiny number could reap such a disproportionate majority of the spoils. So he put together an experiment. He created a website where people could listen to songs by unknown artists, then choose which songs they'd like to download to their library. Participants were randomly assigned to different virtual rooms, which really can be thought of as parallel worlds. Unsurprisingly, the participants in this study were more likely to choose songs that others had downloaded, responding to social influence. And as a result, each virtual world had its own mega hit that was significantly more popular than the rest. But in the different cohorts of people, different songs came out on top. So, for example, one song named Lockdown, it came in first in one of the worlds and then 40th out of 48 in another world. Even though it was the exact same song competing against the exact same rivals, the sociologists concluded that blockbuster hits were random. This can humble a star venture capitalist. Because of the feedback effects in a power law business, some venture capitalists will dominate the sector, raising a lion's share of the dollars, getting access to the hottest deals, and generating the best returns. Meanwhile, the rest of the industry is going to struggle. It's estimated that the median fund narrowly underperformed the broader stock market, While the top 5% of firms outperform the index by a very wide margin. And it might be just a few lucky breaks that can make or break the performance of a VC firm. So the main takeaway is that the Power Law seems to be a natural law in many fields. And by applying the power law to venture capital, we know that just a few winners will become outsized stars relative to the pack. And there's an element of luck in who the stars are. And if you listen to my episode with Hendrik bessembidner on episode 667, you'd know that in the stock market, a small number of companies generate the vast majority of the returns, meaning that there's really a similar element of luck at play when picking individual stocks. However, this shouldn't take away the aspect of skill for the great venture capitalists and the great investors we interview here on the show over multiple decades, I believe that both luck and skill play a critical role and we can't compute exactly how much each plays a role because it's really unquantifiable. If you're like me and can't help but find out if you have what it takes to be in the top 5% of investors, you might be interested in joining the primary private network that I help manage here at TIP. It's called the TIP mastermind community. We have a small community of around 100 private investors, portfolio managers, and high net worth individuals who are passionate about value investing and lifelong learning. We also host weekly live ZOOM calls to share ideas, tune into member presentations, or tune into stock presentations as well. And we'll be getting together this year in Omaha, in May during the Berkshire Weekend and in New York City in October. While I love that the community helps me become a better investor, it also puts me in touch with so many high quality people because we vet each member who joins the community to ensure we keep the group high quality. So if this sounds interesting to you, I would encourage you to join our waitlist to apply since we're capping the group at 150 members. To do so, please click the link in the Show Notes or Visit the investors podcast.com mastermind well, that's all I had for today's episode. I thoroughly enjoyed reading the Power Law and I hope you enjoyed hearing my takeaways from the book. There's a lot I really didn't have time to get to during this episode since it's a pretty long book, 400 pages. So to learn more I'd encourage you to order it off Amazon, which we'll be sure to link in the show notes as well. With that. That's all we had for today's episode. Thanks so much for tuning in. I hope to see you here again next week. Thank you for listening to tip. Make sure to follow we study billionaires on your favorite podcast app and never miss out on episodes. To access our Show Notes, transcripts or courses, go to theinvestorspodcast.com this show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.