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Kanyi Maqubela: Fintech, Emerging Markets, and All Things VC
ondeckdaily.com · 118 days ago

Hey! Honored and happy to do On Deck Deep Dive. I'm an entrepreneur building a company, and advising a few others. Previously, I spent 6 years working at a venture capital firm called Collaborative Fund, an early stage fund focused on mission-driven companies. I've worked as a campaign staffer for Obama '08, venture-backed entrepreneur, bootstrapped entrepreneur, and amateur writer! I taught a few semesters of undergrads at NYU, and love design thinking, philosophy, political economy, and venture capital.

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Hi Kanyi! Thanks for popping in for a Deep Dive. Two questions for you:

1. I hear startup founders outside of SV telling me that VCs expect them to move to SV to be funded. What is your take on this? How should founders outside of SV respond?

2. You've been all over the startup ecosystem in different roles. I'm curious, what do you like doing yourself the most, and why?

1. A few answers to that question: first, there are dramatically more investors in the Bay than anywhere else, so if you're looking for maximum efficiency, then yes. YC Demo Day (which happens twice a year) is a smart time to come, as that's probably when the highest concentration of investors are in town. Second, it depends on when you're raising. If you have product-market fit, the investors should (and will) come to you. Third, planes work, Skype works. Operate in whatever market where you feel like you can hire a team that will help you see your vision through. Everything else comes after that.

2. I like the period when the first customer you don't know pays for your service. That feeling is untouchable and so cool. So, I guess that means operating :)

Will Angel&Seed investors have a place in a world driven by ICO funding? Would love to hear your thoughts on this topic.

Yes. There are 10,000 companies that could get seed funded every year. 5,000 that are actively looking for funding. More capital will only make both of those numbers rise. Certain financing mechanisms make more sense for certain businesses than others. Which is a good thing. Moreover, ICO's are currently being used at t=0 for many companies, but you can issue tokens at any point in a business's life. And there's plenty of reason to suggest that they should come later. That is very much not settled, even among the most well-regarded cryptocurrency practitioners.

But TL;DR- "Gosh, there are way too many ways to finance a business" is not something an entrepreneur says.

you've now worked in a few cities on both sides of the table: what makes a successful startup ecosystem?

It's certainly not the total number of financings, or necessarily the total capital in the ecosystem, first of all. Those are outputs, not inputs.

The most important part of an ecosystem, the hub from which all else is the spoke, is a really great innovative big company. Henry Ford's company was more important for Detroit innovation (and general vibrancy) in the 20th Century than any university or financing, and I think that has actually stuck with us in the Information Age. Uber, Airbnb, Pinterest, Stripe, Slack, and their sisters all inherited their greatness from the labor of employees from Facebook, Yelp, Salesforce, LinkedIn, who inherited theirs from Google, eBay, Netscape, PayPal, who inherited theirs from Apple, Sun Microsystems, Silicon Graphics, Oracle, and so forth. After the big burst of founding and early-stage creativity with each of these companies, much of the scaling consistently relied on experience drawn from previous companies.

An ecosystem is vibrant when a company goes from 10 people and all opportunity, to 100, 250, and 1000 people who are really pushing their industry forward. That's where the industry expert angel investors, next generation venture capitalists, close-knit teams who will form future early-stage groups, etc. come from in their best form. Those promising early-stage companies need to hire people with relevant experience from high-growth environments, with technical skills in a relevant discipline, and a network of other great people with whom they work well.

It's a bit of a chicken-and-egg for those who want to create a great ecosystem from scratch. Yes, a great company can be *founded* anywhere. But the journey from early-stage to transformative company requires high-level, experienced, skilled talent. People build companies. So, here's a thought: attract the best people, not just to be founders (it's impossible to know who those are), but particularly with relevant experiences, and you'll be in good shape.

What has been the most common basis for rejection in your investment decisions over the last year?

It's always personal. I didn't like the brand. I didn't like the mission. I just didn't get a good feeling around the deal dynamics. Unfortunately, at the pre-seed or seed, when there are so few data points around business performance, you have to go on really random and subjective feelings like that. It's also never personal for an institutional seed investor, who says no > 10 times a week. And there's a strange cognitive dissonance that's hard to stay empathetic about in time, because the no's bleed into each other.

...But saying no in a way that is constructive and builds a relationship is one of the hallmarks of a really great investor, which results in investors having to come up with "thoughtful" reasons to say no, when the truth of the matter is often, "I didn't feel like it."

What steps do you build into diligence and investment decision making to mitigate your cognitive biases?

It’s hard. The best way to do it, in my opinion, is to have a partnership with checks and balances.

Allow for a formal structure for conflict in your partnership, and optimize for as diverse a partnership as possible. Consensus-driven partnerships have a harder time getting this right.

In your writing and the writing of your former colleagues at Collabfund, it seems as though study of history informs a great deal of your thinking and decision making. Is this an intentional approach and if so, why?

Yes. Clear writing helps you formalize, critique (in public) your thoughts, and add structure to them. Which, I believe, helps you make better decisions. As for Collaborative, Morgan Housel is one of the clearest writers – and thinkers – I've ever met. And that's in no small part because he's an incredible reader.

To that point, most great writers are great readers. And there are only four things you can read in business: history, technical analysis, business tips, and current events. The latter two are almost always useless (though most commonly read), so you've gotta read something!

1) What's a mission-driven company you wish existed?

2) What can/should entrepreneurs do to promote diversity within the larger ecosystem, especially within venture funds? Do entrepreneurs have an obligation here?

1a. I wish there were a Glassdoor for every industry – including for individuals. The facts of the matter (about people) are kept in the shadows, and I think our world would be better with more sunlight. Imagine what that would do to academia... to politics... to our industry. :)

1b. I would love for someone to challenge the utility companies.

1c. I think there should be more investment in the long term care labor force.

1d. I think we are dramatically underbuilding affordable housing, and need to think very creatively about serving the biggest generation of homebuyers (and renters) in America's history.

2. Black women are the most overrepresented demographic of entrepreneur in the United States. And the least represented demographic of venture-backed CEOs. Pitch the black women VC's (Shauntel, Arlan, Kesha, Gayle, Lisa, Sydney, to name a few) whenever you raise - if they'll let you :). Get them the best dealflow, carve out space for them in your oversubscribed rounds any time they want it. And when the reference calls come for them to get their next gig, go the extra mile in recommending them. Because they are way more likely to fund the entrepreneurs who look different. Ditto Latina women. And women more broadly. To wit: go to the sources of capital, and demand better of them.

The (funded and 'fundable') entrepreneurs have more leverage than they think. Use it.

You’ve written about insurance a few times on your blog over the last year, sometimes using it as a lens onto how consumers perceive risk. Consumers have become far more sophisticated in many ways, but your posts point out that we probably still delude ourselves into thinking we’re much safer than we actually are. Is there room for companies to help consumers be more intentional about rational thinking?

1. Media companies (and social media companies) have created addictions as powerful as chemicals and pornography by recognizing that we are primates who crave social validation (and have social curiosity) above all. (FB – well, Twitter for me – is as addictive as cigarettes, I swear.) I wish that level of energy around social + community design was applied to making financial literacy sticky, to behavior change around preventive health. Think: WeightWatchers for saving, or life insurance. WeightWatchers for diabetes management.

2. Opt-out is a very powerful mechanism. If I have to (confusingly) opt-out of inviting all of my gmail contacts to LinkedIn, or (painfully) opt-out of my credit card being swiped every month at the gym, why can't you design an opt-out of financial services that are good and well-priced? I think there's something there, which the likes of Digit, Even, and Bloomcredit on the younger side, which are just starting to scratch this itch.

Talk about which investments shifted your worldview in a major way.

I think it's an investment that I very stupidly *didn't* do, which is Patreon. I now, in large part because of that company, believe that capitalism is in its infancy, rather than old age.

You’ve had a wide range of experiences--from startups to politics to venture. Have those been equally rewarding or did some feel like more personally authentic endeavors than others?

Working for Obama’s campaign was life-changing. The content of the work mattered a lot, yes, but the biggest reason why was: I lived in a part of North Las Vegas, near Nellis Air Force base, which was utterly unlike anywhere I had ever lived in my life. The United States is a number of big countries in one, and that realization really hit me — and humbled me — during that experience. People live very, very different lives from what you find up and down the 101. People see the world quite differently, too. But even still, every individual has broader moral imagination than they get credit for. Once we enter our tribes, we all tend to lean into our myopia, but individual humanity really is expansive. It took an experience like that for me to *really* wrap my head around these ideas.

Talk about your time teaching at NYU. Has that experience yielded insight about the future of education?

Well, that experience certainly told me that they'll hire just about anyone at these institutions :)

But more seriously, the biggest asset bubble in the United States is the education bubble –– $1T. The GDP and job growth metrics that economists use to measure the effectiveness of education woefully undershoot the target. After all, an online bachelors done over 7 years is a *completely* different asset type to a bachelor's from Harvard – frankly, to even a matriculation from Harvard. Yet both are measured in the same bucket, have near perfect price inelasticity, bad principal-agent problems because of the lending traps, and these days have serious moral failings, since a $200K investment decision is being made by 17 year-olds before they have any financial literacy whatsoever.

Once it pops, which it will, I expect vocational schools to make a very powerful resurgence, for industries to gather around union-sponsored on-the-job training, and for the liberal arts to have a serious uphill battle to maintain relevance.

I also think unions will come back more powerful and stronger than ever. That's one of history's most profound 'aggregation of supply' network effect strategies that has *not* effectively been brought online.

You’ve written about a future with mobile data centers that speed up data transfer exponentially-- what would be the non-obvious implications of an infrastructure upgrade like that?

How do you envision the benefits of big innovations in connected urban infrastructure spilling over into rural communities?

‪Your answers on Patreon suggesting the infancy of capitalism (I agree!), and about the future of unions, are really interesting! ‬And uplifting. Do you have any suggested readings that follow that thesis?

Strange as it is to say, I'd keep track of YCombinator Core. They're the most interesting labor union operating in the market right now, I think.

And as for capitalism, it's hard to say. Maybe.: Keynes's "The General Theory", Janeway's "Doing Capitalism in the Innovation Economy", Eisenstein's "Sacred Economics" and Levy's "Freaks of Fortune"

Fascinating. Can you elaborate regarding YC core - how is that the most interesting labor union (how are they a union?)

4 out of the top 5 companies by market cap today are tech companies, and it's clearly dominating global GDP growth. Who makes tech companies? Startups. Who has the most influential network effect of startup employees and founders? YCombinator. After all, 3 out of the top 5 private tech companies in the United States, by "market cap, are YCombinator companies (Airbnb, Dropbox, Stripe). If a union aggregates the labor force for an important industry, so they can negotiate wages against capital owners, set standards for member benefits, and close ranks against those who hurt their members, thereby creating political influence... At ~3,000 formal members (founders) today, and 10,000 informal members (early employees, etc.) that is pretty profound scale.

Today's unions won't look like yesterdays. But the aggregation of labor theories certainly still apply.

Thanks for that clarification. I see it! I hope someone is taking this opportunity up to set all those terms and "digitize them". It's a cool idea! I definitely wouldn't have seen YC Core network with that lens until you pointed it out, but it does seem like an efficient place to move forward.

Hi Kanyi, not sure if I'm late to the game.

First of all, wanted to mention I love how your writing is genuine, opinionated, and vulnerable (open to discussion).

1) What's been one major learning from each of your previous (and current) experiences you could share with us? (From campaign staffer, vc backed entrepreneur, bootstrapped ent., and writer)

2) If it's possible to share, what are you starting/building right now?


1) A network is real currency. But you build it by being generous, kind, and incredibly useful (+lucky). Meeting people comes later.
2) A few things. Right, right now: a newco in the healthcare space and a newco in the financial services space. More soon :)

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