SOPHISTICATED PLAYER

The $300 Million Bet on the Creator of WeWork

People are mimetic—a perfect book to introduce us to this topic is "Wanting" by Luke Burgis—and yet we love to believe that we make decisions based on our individuality and rationality.

I mention this because there's a video where Jason and Chamath discuss why on earth a16z invested three hundred million dollars in Adam Neumann's new idea.

Here's some context if you're out of the loop:

Jason and Chamath are legendary operators in the high-tech world. Today, their personal fortunes are in the billions of dollars. They count people like Elon Musk and others in that league as personal friends. They are not mere traditional boring investors but operators with experience at the highest level of business from its core. If anyone understands the game, it's these guys.

a16z is also a legendary investment firm, founded by high-caliber operators who conquered the internet fortune in the nineties and then decided to support other entrepreneurs in the ecosystem. Today, they are a behemoth, and some of the things they have touched have turned to gold, hence their formidable reputation in a world where maintaining results is extremely complicated due to scale and volatility.

Adam Neumann is the famous creator of WeWork, a company that grew rapidly only to implode due to his exotic personal actions and poor management. His journey from building the organization from scratch to nearly taking it public was so implausible that HBO made a series about it with top-tier actors.

Given all this context, the fact that a16z is investing in Adam’s new venture is incomprehensible, to say the least. He is someone that all serious players in this high-tech game considered "burnt out," so you can imagine the world's surprise when this firm announced that, guess what, we are giving him three hundred million dollars for his new idea.

The High-Risk Game of VCs

When you have a venture capital fund, you are under pressure to deploy the money in that instrument so it can multiply outrageously far beyond what a normal, much more stable financial vehicle would yield. The most common theory of a VC is that you're going to bet on many things, and only one of them is actually going to work out, but the one that does will pay for all the losses and then some. I won’t explain the mechanics here. I know you are an intelligent, curious reader already used to consulting and delving into new topics with artificial intelligence, so I'll give you your space to go and consult all this with your premium ChatGPT Plus and Claude 3 Opus subscriptions.

The explanation by Jason and Chamath is fantastic because it reveals something people like me —who have been passionately following this world of VCs, startups, and more—suspected for a long time: that the investment by a16z does not make sense under normal analysis parameters but they simply need to put the capital to work now, now, now because the business of the funds is nothing more than the fees they charge for managing them. As soon as you tell your LPs (limited partners, the people who put the money into the fund but who do not manage, operate, or make decisions) that the fund is closed, you have “permission” to start raising new capital for the next one. And if you consider that they charge a two percent annual fee on the money that comes in and that it is usually estimated by default that a fund lasts ten years, we are talking about the firm automatically pocketing twenty percent, so the more they collect and the faster, the more they earn on the administrative side. This is not scandalous or anything like that. This model has been working for several decades. Nobody who participates in this game cares about the fee because at the end of the day, you're not here to fight over the downside but to become filthy richer with the upside (invest a million dollars today and in a few years one of the companies the money went into is like Google or Facebook and your initial capital turns into one point two billion dollars or something like that).

Nobody who participates in this game cares about the 2% fee because at the end of the day, you're not here to fight over the downside but to become filthy richer with the upside.

Of course, I'm oversimplifying all this to an extreme. There are many more aspects to consider to play in these leagues, but my emphasis today is on the fact that many people misread what is done at the high levels of the world. A young finance and technology enthusiast might think that Adam Neumann now has a solid idea, that he has learned his lesson, that his business model is now innovative, that he has found a way to make a real estate business have multiples as incredible as a high-tech one and—again, according to Jason and Chamath—that is not the case.

Deciphering the Secret Code of Investments

Neither you nor I should read the signals from firms like a16z—or others—as if they were strokes of genius. We need to see where the real business is, where their profits are. For this, we need to understand the game, to be philosophical and pragmatic at the same time. Adam Neumann does not have a great idea but he does have the contacts, the geography, and the timing right to convince the people with the necessary liquidity. What I'm getting at is that we need to be increasingly sophisticated and much less naive in our valuations.

Mark Zuckerberg even admits to this in a recent interview: there are certain decisions he made without being sophisticated but he was successful thanks to the advice from people around him. I believe that you and I do not have advisors of the caliber that seated next to Mark, so it is up to us to reach a sophisticated level of understanding of things faster.

What does it mena to have “sophisticated understanding”? Knowing about philosophy, understanding strange things like transhumanism, geopolitics, being able to connect the dots between the PR comments that many well-known figures make to look good vs their reality and true movements, being able to quickly understand that what you see in a video or read in the news is not the entirety of the matter, and activate our filters to capture the underlying messages that big companies and leaders send in their cryptic language all the time with acquisitions, appearances, layoffs, statements, and more. And we cannot do this quickly and accurately if we do not consume and study it in English (for all my non-native English speaking friends out there). Period. That is being sophisticated. Start conquering this hill from the height that corresponds to you.

The Deadly Trap of Investor Mimetism

I talked about mimetic theory at the beginning. This is one of the biggest problems that prevent you and me from growing tremendously. What happens is that we see someone do something and suddenly we automatically want to do that. Think about crypto, which disastrously rolled over more than one, think about everything that quickly becomes fashionable, the trends we see on social media and so on. That is mimetism. In investments, the same thing happens. When an institution like a16z sends an apparent signal indicating that real estate ideas can have tremendous potential at the level of high-tech companies, many other investors will take that as sacred word and act accordingly simply because we all like to feel smart about "being able to see things" that others do not even understand.

To combat our addiction to mimetism, one of the best tools is to subject our minds to the old guard who no longer gets excited at first, types like Chamath and Jason who tell us elegantly but directly "hey, this is not the way, don't be foolish."

Innocence Broken, Wealth Conquered

The first job we have on this path to building wealth and being High-Performance People is to avoid doing foolish things.

Please, stop wanting to play the game believing that consuming some series on Netflixg, podcast clips on Spotify, and blogs in Substack is enough. Your job is not to be naive. And for that you have to go deep into things. And for that you have to read boring books, talk to people who will tell us how we are wasting our time, and question those beliefs that we firmly carry. Getting excited easily about something is a symbol of immaturity in almost all professions that directly involve money.

I love you. You can do it, but you have to do it right.

Glory is in the long run.

Focus. No drama.

Emotional discipline. Mental toughness.

With love and alpha.

Be bold. And be bold now.

—A.