My thoughts on XX in 2018

Wefunder ran a program called XX from 2018-2021, designed to be the first check invested in very early founders. I wrote this to the Wefunder team in 2018 when we first created the XX. Now that we’re doing to get back to doing something like this again, I’m publishing it.

A mentor once taught me an interesting trick.  For any complex decision - particularly one where multiple people are involved - separate of all of your assumptions into paragraphs, started by "I believe..."   The conclusions usually flow out of it.  If there's a disagreement, each person can go decide which belief they disagree with, and then debate the root cause of the disagreement.

So here we go.

---

The Golden Age

I believe we’ve lived our entire lives in the most golden of golden ages by any objective global measure. It is fraying at the edges.

I believe civilization will collapse if economic growth stops.  By economic growth, I mean progress and wealth creation – that belief, among even the poorest, that their kids will be inevitably better off. Otherwise, we’ll fight over who owns the pie in a zero-sum world. Democracy won’t withstand the strain. Best case, we stagnate like the Qing. Worst case, a millennium of dark ages. Golden ages do not last forever. This has happened before.

I believe if America falters, the world will soon follow.  After the UK passed the baton, America has been at the forefront, exporting our ideals and ideas to the rest of the world, allowing the rest of the world to “catch up”. For 75 years, Pax America has kept the world at relative peace.  This is an anomaly. And this is fading. History did not end in 1989. Liberal democracy has not won. It is losing ground. Totalitarianism is on the rise again.

I believe each generation has to fight the same battle over again.  America’s greatest prior threat was the Great Depression followed by the defense of the liberal order in WWII. The Greatest Generation rose to the occasion. Their sacrifice led to decades of growth and equality. Now, it is our turn to extend the golden age. Our job should be easy in comparison.

I believe what made America special was optimism and a can-do attitude, the hubris from over 200 years of barely uninterrupted progress.  This is fading.

Capitalism & Democracy

I believe capitalism has led to the greatest wealth creation in history.

I believe capitalism best exploits human flaws for the greater good, by giving those humans the proper incentives.  Incentives rule human behavior. There is no clearer a/b test then North and South Korea… or East or West Germany…. Or even Mao’s China to today’s China.

I believe capitalism sows the seeds of its own destruction. It must continually be ‘corrected’. I believe capitalism – unfettered – concentrates wealth and power in the hands of the few.  All boats might rise higher at first.  But then some boats get 16-inch naval guns.

I believe concentrated wealth and power corrupts the system.  Power and wealth are rarely given up willingly (George Washington and Cincinnatus excluded). Those with power use it to defend their own interests and build moats to keep out those pesky pirates with new ideas.  (Regulatory capture, Google/FB hoovering up engineers and startups, housing, education, etc.)

I believe overly concentrated wealth/power – at some point – will lead to civil war. Even if all boats rise, humans are more concerned with relative wealth and fairness, rather than absolute wealth.  If enough citizens do not feel like they have a fair shot at an equal stake in the system, faith in the rule of law and institutions will collapse.  What is left is sheer physical power: who has the guns, and which demagogue who can inspire them to be used.

I believe our system of democracy – historically - has proven resilient enough to make these corrections to capitalism, despite the power of money in our politics.  I don’t believe totalitarian systems of government can make those adjustments over a century.

I believe, for a stable system that lasts more than a century, capitalism and democracy must be linked. Both feature the bottom up wisdom of the crowd, rather than centralized planning. If one fails, the other eventually will too.

Creative Destruction

I choose to believe the universe is a simulation, designed to produce some mystery result we are not evolved enough to comprehend.  It is it in iterative loop – where the old destroys the new – until that outcome is achieved.  Supernova’s destroy trillions of lifeforms, but seed new stars, and new life. Life on each planet is a war where the strong lifeforms literally eat the weak ones, adapting and evolving... or dying.  Civilizations of organisms rise, have a golden age, and then get conquered by stronger ones.  Startups rise, get old and slow, and then get destroyed.  This is the nature of the universe.  Evolve or die. Can’t step in the same stream twice.

I believe destroying the old and stagnated – who often have power - is a political battle. Yet, creating something of value, that is better, that people want, is what changes minds. The political battle accelerates the change, so it happens in years instead of decades or centuries.  The faster the loop, the more progress.

I believe small groups of super-aligned humans make the greatest impact in the world, the fastest. I believe even the best run large organizations can’t compete with small groups of humans, no matter how many billions of dollars they may have, if there is an even playing field.  Of course, large corporations do everything in their power to ensure the playing field is not even.

I believe the meaning of my life is to help the new and inspired destroy the old and stagnated. I believe we can help create help create tens of thousands of new businesses that otherwise would not exist… or get killed in the cradle. This is a business, political, and cultural battle.

America in 2018

I believe Trump’s election was a jarring warning sign that something is very unhealthy with our system, where there is an incredibly large segment of our population that is feeling disenfranchised, ignored, and left out.  During the Obama years, the liberals along the coast rationally knew something was not quite right, but it didn’t really impact our lives.  Now, it’s in our face every day, and we must deal with it.  So we will. This is why democracy works.

I believe this is partly due to rapid social and cultural change that are being resisted by an older generation… that are further enraged when they are called racists because they are not PC enough. This is not my personal battle to fight.

I believe this is partly due to an uneven distribution of talent, an education system that has been too slow to adapt, and a generation that can’t easily be retrained. How are we supposed to re-train a factory worker in his 50’s to be a programmer?  This is also not my personal battle.

I believe this is partly due to geography being destiny, while social mobility is decreasing.  Growing up in West Virginia to a family of coal miners in a very different life experience then growing up next to Stanford and getting your first computer to start coding in 5th grade.  I believe that, while most of this is above our pay grades, there is something very impactful we can do here.

I believe we can make a measurable impact on economic growth, social mobility, and education.

I believe we can primarily do this by inspiring more potential founders to start their own businesses  – particularly, the ones who are less privileged and overlooked.

Wefunder: Reg CF

I believe the current incarnation of Wefunder has made an impact.  We’ve invested $70 million and created 25,000 new investors.  Money matters.  Money from customers – those who believe in you – matters even more.  We should be proud of what we accomplished.

2025 update: Now about a billion dollars invested

I believe with some regulatory reforms, the current incarnation of Wefunder will make an even greater impact.  There is adverse selection with crowded cap tables, 12g, and no testing the waters.

I believe when those reforms happen, there will be an inflection point where Wefunder core can grow 3X year over year in 2019.

2025 update: This happened post reforms.

I believe those reforms are just the start.  Those reforms simply place us on a more even playing field with more traditional investors.

I believe the most important thing we can do is to “add more value” to the money.  We should not be dumb money.

I believe we can do a lot more with by building software that helps the crowd of investors feel involved.  This will add some value.

But I believe we can have the greatest impact by empowering a smaller circle of “experts” or “founders” or “operators” to invest as the first money in. I believe this is what can create thousands of more companies,  and help them succeed, so that can later use Wefunder Core when they are ready.

I believe this is a far better “sales” strategy then spamming business owners, albeit a longer-term one.  We will get higher-quality companies that want to work with us.

I believe this is what will cause founders to think of Wefunder fondly.  Everyone remembers the first person who believes in them.

Wefunder: XX

I believe all that matters is how much we change the lives of founders.  I believe all else is secondary.  If we spot and change the trajectory of founders, all else follows.   YC proved this.

I believe we can create 10,000 companies that otherwise would not exist.  I believe some of them will be unicorns.  I believe some of them will fail, but then create a unicorn on try #4.

I believe it will take 3 years for the outside world to even notice if we are succeeding.  It took YC 5 years to hire their first partner (after Dropbox, Airbnb, and Stripe).

I believe XX can have a very long-term horizon and grow organically. I don’t believe we need to prematurely rush it.

I don’t believe it is possible to replicate Silicon Valley in another American city in our lifetime.  I believe it takes at least 3 generations to develop an ecosystem that powerful.

I believe that Silicon Valley will only continue to accelerate its advantage (unless tech giants & housing kills the region) compared to other cities.

I don’t believe if we fund a 2 person software company in Des Moines that ends up on a Google-like trajectory, they will stay in Iowa.  They will likely be drawn to SF or NY as they scale from 2 to 10,000.

I do believe we can lower the gap between today’s Silicon Valley and the rest of the country.

I believe we can spread the values of “pay it forward” and risk taking.

I believe we can provide seed capital – meant to invest in risky startups - across all geographies, even if they stay there or not.

I believe this will make a big difference in giving more founders their shot.

I believe we can help inspire thousands of potential founders to start their business.  I think there is an unlimited pool of founders, if they are given the right nudge at the right time.

I believe the primary way to inspire a potential founder to start is a face to face meeting with a local investor who believes in them, helps them think bigger about what is possible, gives them good advice, and invests money to prove they believe in them.  That single person can change a person’s life.

I believe if we want to create thousands more founders, we should create thousands more investors who can inspire those founders.

I believe we can redefine what an “investor” is.  It used to be a rich white guy (mostly in SF) who sold a company, and would invest $25k+ per deal.  We can make it a non-wealthy local founder a few years ahead who invests $1000 (and unlocks $10,000 from a fund).

I believe most traditional angel investors outside SF and NYC give horrible advice to startups and cause them to die premature deaths in the cradle.  They are focused on the wrong things – IP, instant revenue, risk adverse, etc.  Newbie startup founders follow this bad advice because they don’t know better.

I believe – when it comes to the quality of advice – the wealth of the investor should not be a factor.  Just because you have money doesn’t mean you know anything about startups.

I believe founders a few years ahead running companies with operating experience make better investing decisions on pre-seed and seed.  They are on the ground and know what to look for in formidable founders.

I believe giving more power and influence to the “local legit investors” so they can outcompete the “horrible angel groups” will be the most impactful way we can make a difference.

I believe uniting the 10 people in a city and giving them far more influence and power  – who may not be wealthy by actually know what they are doing – can create a powerful early-stage startup ecosystem within 3 years.

The Batch Model

I believe the batch model is the best way – by far - to spark a strong community.  We make strong friendships through shared experiences.  These friendships last well beyond.

I believe the batch model is the best way – by far – to stay on true north:  do everything we can to transform founders into better versions of themselves.

I believe the primary way we create high-potential startups is through education.  A 3 month program is simply a highly a highly concentrated educational program.  We educate people in batches for a reason: K12, college, and then grad school.  We learn most from our peers.

I believe being surrounded by good people – in the real world – is what causes learning to accelerate. If you are the smartest person in a room, find a new room.  We are the average of who we surround ourselves with.

I believe good people don’t like being the worst in the room.  If they feel they are underperforming, they will get better.  Since everyone feels this way, everyone gets better.

I believe weekly accountability inspires us to get better. I believe artificial, external deadlines (like the end of the program) inspire a startup – both the founders and their employees – to get a ton done, faster.

I believe one full-time ‘partner’ can change 10 startups over 3 months, in a way that changes their trajectory.

I don’t believe this can be done remotely.

I believe real-world, face to face meetings:

• build stronger & more meaningful relationships

• Make us happier & more fulfilled

• Are much more valuable for founders (higher bandwidth)

I believe after these real-world relationships have been created, the online community will be far more powerful.

I believe if we just invested in companies through a network of scouts, and hooked them up with a mentor online every new and then, we won’t make that startup any better.  That is, we won’t provide much value.

YC

I believe YC is best optimized to find the highest potential ~250 startups per year, around the world, that have the best shot at being unicorns.  I don’t believe we can compete with them among this talent pool, even if we take 0% equity.  If YC accepts them, they should go to YC.

I believe our focus should be to find startups that should be in YC one day, and then get them in YC.  This would add value to YC and the founders.  This means we can’t charge much equity.

I believe YC still takes some risks on clueless teenagers with no traction (i.e,, 2005 Justin Kan).  But, as their acceptance rate has decreased from 3% to 1.5%, and they have capped out at ~125 per batch, I believe they must be taking less chances.

I don’t believe their picking ability has improved 2X in the last 3 years.

I believe there are potential Airbnb’s – startups that could have been Airbnb – if YC had picked them, that have since died – a funeral no one came too.

I believe there are founders that could be “YC-Caliber” much faster, if guided. I believe the potential number of startups that are “worthwhile” to exist greatly exceeds 250 per year.

I believe the number of unicorns can exceed 10 per year.  I believe the greatest obstacle is founder education, and that we can make a difference on that.

I don’t believe online programs like Startup School move the needle enough. 

I believe it’s more powerful if we can figure out how to scale face-to-face interactions, on the ground, across the country.