0xdC41
December 17th, 2021

The Power of Collisions

Introducing El Cap

Collision theory states that when suitable particles hit each other, only a certain percentage of them will result in a change. These collisions are the ones with enough energy at the moment of impact to break existing connections and form new bonds. In many ways, El Cap’s story is one of collisions, where people, companies, and technologies collide with enough energy to form powerful new bonds. This is how our partnership came to be, and it’s a core concept of our investment philosophy.

Before starting El Cap together, we took wildly different career paths. Stew, a Salt Lake City native, spent the first seven years of his career as an NFL linebacker. After retiring from professional football, he joined Goldman Sachs’ investment banking division on the TMT team. His experience there led him to Steadfast, a Tiger Cub hedge fund in NYC, where he invested in technology companies.

0xdC41
December 16th, 2021

5.26.2021

At El Cap, we think and talk a lot about what work is going to look like for millions of people in the not too distant future. Even before Covid, we believed the tide was shifting towards more flexible work, teams working asynchronously, and a significant number of employees working from different places, rather than in a single office. A global pandemic that forced all of us into our homes only accelerated this shift.

We’ve seen this sudden shift playout in our portfolio, as leadership adjusts workflows to keep their teams connected, motivated, and informed—all while trying to develop and maintain a strong culture. Understanding that where people work from isn’t the only thing changing, but also how they work is being transformed is critical. This insight informed our investment in Friday, a team that is building the command center for remote work.

An exciting part of the rise of more flexible work situations is that it should hypothetically give people more freedom to do personal things at times and in ways that weren’t easy or acceptable in many work environments in the past. Want to travel to another part of the world for two weeks, and work outside the office? For most of us, that would previously have proved difficult, but with more teams working asynchronously, time zones become less of a factor. Want to go run errands in the middle of the day, or get a workout in before lunch? You can now build your day in a way that lets you optimize both for productivity at work and happiness outside of it.

0xdC41
December 15th, 2021

4.28.2021

I recently got my first car at the age of thirty-five this past October when I made the move to Austin, Texas. I also spent very little time in Austin before deciding to pick up my life in the middle of a global pandemic. Needless to say, but Google Maps has been a lifesaver. Fun question - how much would you pay per month for Google Maps if they decided to charge for it? I don’t know the answer, but it would be an incredibly high number for me. Ok, I digress. I’ve driven more in the past seven months than I probably have in the past five years, maybe even ten years.

One of the things that feels like magic with turn by turn directions is that it’s not simply a map, but it’s an intelligent map. The route I’m being guided on is being informed by what’s happening around me. If there is traffic building up ahead, the app will offer an option to take a different route that will save me a few minutes. Sometimes an accident, road closure, construction, or other unforeseen event will prompt the guidance to provide a temporary detour that will ultimately still get me to my desired destination. The navigation is adaptable. It’s reacting to what’s happening in the world, while never losing sight of the end goal. Getting me to where I need to go.

Working closely with founders at the early stage, a lot of conversation is centered on reaching different milestones and achieving set goals. Growing the number of customers. Reducing the churn rate. Expanding the team in a certain way. Improving conversion. Optimizing the go-to-market. All of these milestones are hopefully steps along the way to getting to the ultimate goal, building a large and meaningful company. It’s a CEO’s job to construct a plan, on a quarterly and yearly basis. The budget, the hiring plan, the product roadmap all flow from this forward planning. This is an important exercise, but at times CEO’s can become prisoners of their own plans. Plans work well on paper, but they are often tested when implemented. A good plan should serve as a guide, but when new information or demands present themselves, it’s crucial to be adaptable, and adjust accordingly. Being able to adjust when the path ahead presents obstacles is critical. When the market is changing around you, it’s on leadership to figure out a better alternative path. Rerouting mid-trip can be anxiety inducing, but it’s helpful to take comfort in the fact that you’re still driving towards the same ultimate destination, the twists and turns might just help you get there faster, and in a maybe slightly different looking car than you started the journey in.

0xdC41
December 15th, 2021

4.2.2021

My partner, Stew has previously written about how busy we’ve become busier as more time has passed in our journey building El Cap. It has become common for us to feel nostalgic for our youth, where we had more free time, and the ability to get lost down any rabbit hole that piqued our interest. I’m a believer that college is wasted on the youth. Instead, I wish I had the ability to spend four years in my thirties taking interesting courses, having time to spend in the library, all while being surrounded by others on their own intellectual pursuits. But I, like most humans, make the mistake of romanticizing the past. When I step back, I remember that I grew up tolerating school, doing just enough to be a “good student.” No more. No less. But I do love learning. It’s why I feel incredibly fortunate to do this job. When I think about this seeming contradiction, I think I finally have figured out where the disconnect for my love of learning and my contempt for school comes from. In most schools around the country we are taught things, forced to memorize them, and then regurgitate what we remember on exams to demonstrate how well we understand the material. I’m skeptical that this is the most effective way to gauge understanding. I’m even more confident that this system is not the best way to encourage children to fall in love with the act of learning.

Most kids are curious. They are often discovering things for the first time. They ask why. A lot. Somewhere along the way, many have this curiosity slowly chipped away at. When learning is not guided by curiosity and it’s not intrinsically motivated it is harder so sustain. The pursuit of some other goal, whether it is a good grade on an exam or nailing a job interview might motivate someone to learn, but it will never be an equal substitute for genuine curiosity. Wanting to learn because you’re interested in something will always be the best driver, because you will always want to go deeper to really understand something new.

As a generalist investment firm, we’re not deep experts on any particular area. We have frameworks, ideas, and theses on what we think the future might look like, and how different products can play a role in building that future. We are always looking to get smarter. Our curiosity leads us to whitepapers, blog posts, podcasts, books, and conversations with smarter people than us who are kind enough to give us some of their time. Some of this pursuit of learning is reactive. We are diving into a particular area for potential investment, or trying to get smarter around a particular business topic. Often, our curiosity is proactive. We’re learning about things not directly related to our jobs. I believe this learning is what actually makes us better investors. We’re able to connect dots, develop new ways of thinking about problems, and have a unique prism to look at the world.

0xdC41
December 15th, 2021

3.17.2021

Often, by the time El Cap invests in a company, we’re the first institutional capital a company receives. They are often bootstrapped or have previously raised sub-one million dollars through Angel investors. That first chunk of capital they are able to get from early believers is precious, and they are expected to do a lot with it. Run experiments, get something built, make a key hire or two, and be able to prove out enough to go raise a larger subsequent round of capital. That initial mindset, that the founders have to do everything to create something is valuable, especially in those early days. It’s not only valuable, it’s critical to buy more time to bring the team’s vision to life.

I’ve previously written about the shift founders have to make from a scarcity mindset to an abundance mindset when they make the transition from bootstrapping to raising outside capital. This shift with outside capital also provokes another change that founders have to make for the company to keep executing efficiently and to continue growing. Founders have to become comfortable with firing themselves from some of the jobs they’ve been doing alone for an extended period of time. Having more resources means that you’re now able to hire more people, and you need to empower those people to do what you were previously doing, with 100% focus and a higher level than you ever could have, while performing all the other responsibilities of a founder and leader.

Making this transition from doing everything, to giving up more responsibilities to your growing team is essential for any founding team that is making the transition from testing an idea to building a company, but isn’t always easy. It’s natural to feel protective of everything you’ve achieved to date, and feeling like you’re the best person to do everything. Most founders eventually realize that to achieve their ultimate goals, they cannot do it alone. The best founders understand this sooner rather than later.

0xdC41
December 15th, 2021

9.15.2020

The ability to learn new things quickly. This is a critical skill for founders, employees, companies, and investors to be successful in their respective roles. If you work at an organization that is being transformed by growth, chances are your role will be transformed too. The skills that got you the job may no longer be sufficient as the demands of the organization evolve. Even organizations themselves need to be adaptable and able to learn quickly. This is how you battle incumbents, but also how the best incumbents stave off disruption from startups. The demand for learning doesn’t slow down as a company grows, it increases as time goes by. In our work with founders, it is clear to me that their unique positions are the most demanding of change, and the ability to learn quickly. Leaders of companies are so important to getting things done at a company, so as the organization grows and changes, so must the leaders and their skill sets.

As investors, we are no exception to the requirement of being able to learn new things quickly. We’ve written about how we are generalists, and part of our process is learning from entrepreneurs about problems that plague different industries and the potential opportunities to solve them. So learning quickly is an essential part of our job. If we’re doing our jobs properly, we’ll continue to be lifelong learners. So it’s not crazy to think that as we continue our jobs as investors, that the longer we do the job, the better we should become over time. We often talk about how our primary goal is staying alive long enough to get really good at what we do. On a recent episode of the Invest Like The Best podcast, distinguished investor Charlie Songhurst explained the idea of the experience curve, stating:

Don't study greatness, study failure, and work out how not to be that. If you're sort of thinking of history, trying to be as good an Emperor as Augustus would be really difficult, but not being as incompetent as Caligula seems really easy. And so as a practical advice, not making the catastrophic mistakes and just surviving long enough feels like a good strategy. There was some military general somewhere that said: “it's not that good soldiers become veterans. It's the lucky soldiers become veterans, but veterans are good soldiers.” Meaning just the luck of surviving the first few hours put you up an experience curve. And I see entrepreneurs transform in those first 36 months of leadership and management. And half of it is just stay alive till you get good.

0xdC41
December 15th, 2021

The first step to solving any problem requires awareness that a problem even exists. Solving problems for large groups of people, often those with life experiences different than your own requires awareness, which comes from exposure to different kinds of people. As I recently passed the one year mark of moving to Los Angeles, I’ve been reflecting on the many ways it’s different from my former city, New York. While there are a multitude of differences, the most stark is how isolating Los Angeles is relative to the incomparable density of NYC. Los Angeles is not a walking city. Part of this is the weather. Much of this is how sprawling the city of Los Angeles is. A huge factor in the lack of walkability is how the city is designed for cars to move through it rather than pedestrians.

There is a lot to love about living in Los Angeles, but how you get from one place to another is not one of them. In a very car-centric city, people are often commuting over tens of miles each way to/from work every single day. Most of these miles are traveled in brutal bumper to bumper traffic. Traffic defines so much of life in LA.

Moving around NYC is in stark contrast to getting around in Los Angeles. It is common to walk to places in NY. That is part of the appeal of living in the city. Almost everything you need is usually just a short walk away. For slightly longer distances a bike will do the trick. Biking and walking to get around are great, but NYC’s real superpower is the NYC Subway. It’s far from perfect. I’ve definitely quietly (and sometimes not so quietly) cursed at it while being delayed, or stopped for train traffic (not convinced this is even a thing) but it is still one of the most impressive feats I’ve ever experienced. An intricate system that allows anyone to access any part of the city for $2.75, no matter how far of a distance they need to travel. It runs 24 hours a day, 7 days a week, 365 days a year. As a New Yorker, it’s easy to take this for granted. I certainly did.

The NYC Subway is great because it provides access to everything the city has to offer. But it is truly special because it simultaneously offers access to everyone the city has to offer. Rich or poor. Young or old. Upper East Side Mom with two toddlers. East Village skater. Williamsburg Hipster. Jackson Heights shopkeeper. Staten Island construction worker. They all need to hop on the same train, and for some amount of time day after day, week after week, year after year, they are forced to be aware of one another. I believe this is the real underappreciated part of NYC’s Subway, it’s an empathy engine. Hopping on any train provides the likely possibility that you will spend some amount of time with people whose lives are radically different from your own, and that you might rarely cross paths with in other parts of your life. It forces you to see the humanity in everyone that you’re sharing a space with. It shows you the stark differences between you and many of the people who call the same city home. But more importantly, it also constantly serves as a reminder for how similar all of us really are. New York City, and particularly the subway system, throws together a bunch of people, in a space that often feels too small. It reminds us that everyone is facing their own challenges, trying to do their best, and more often than not, will step up to help one another.

0xdC41
December 15th, 2021

9.4.2020

At El Cap we’re often in conversations with founders who have been building a business with little to no outside capital for years. They have been focused on building a product, talking to customers, iterating as they learn more, and trying to grow in a continuous cycle. Bootstrappers. Much of their time to date is spent thinking about how to accomplish the most with the least. By the time we’ve connected with this kind of leader, it’s likely they’ve had time to form some strong habits. And these habits are often the source of early challenges if we invest.

We aim to invest in businesses that have reached an inflection point. Things are working, product-market fit exists, and more capital can help the business grow more quickly in concrete ways. This can take many forms. More money to experiment with marketing strategies, to ramp up hiring, to add product verticals, to expand into new markets, etc. In simpler terms, most founders we talk to have already affirmitavley answered the question of “Can this be a business?” Chances are by the time you’re talking to me; a new question has popped up. “What would more money enable you to do for your business that you can’t do today?” Founders fundraising usually have great prepared answers for this question.

Yet simply taking capital for the first time doesn’t flip a switch in the minds of every entrepreneur. Bootstrappers are often forced to operate from a limited resource mindset in the earliest stages of a company. I call this a scarcity mindset. Shifting to a more abundance driven mindset can prove challenging at first. I believe an abundance mindset enables founders to think bigger. It empowers them to ask “what can we do, try, and learn now that there is more capital to support our goals?” Surviving is no longer the most important consideration, rather optimizing to thrive should become the primary focus.

0xdC41
December 15th, 2021

7.13.2020

I’d argue that the most powerful force unleashed by the internet is the idea of permissionless innovation. Founders have created many new products and services that make it easier for aspiring entrepreneurs to get started with fewer barriers to entry than at any other time in history. In the past, starting any kind of business typically required a large sum of starting capital, access to expensive distribution channels, and long feedback loops for product development. Where you lived, who you knew, and how much experience you had, combined with your ability to access capital didn’t determine if you’d be successful, but if you could even attempt to build anything in first place. The internet has rapidly shifted this reality for all of us. Almost anyone can get started today.

Many are now familiar with the narrative around how the rise of cloud computing dramatically reduced the cost of starting a technology company. This shift enabled founders to build MVPs, raise less money, begin testing their products, and continue iterating towards product-market fit. This trend has largely defined the last decade-plus of technological innovation.

This shift to cloud computing enabled a cambrian explosion of online products and services, which in turn have enabled future founders to start something new even more easily than before. The trend of fewer barriers to beginning is promising for anyone who is excited about innovation, progress, and democratizing entrepreneurship.

0xdC41
December 15th, 2021

6.10.2020

As an immigrant, and child of immigrants, my life has been spent watching my parents figure things out. Then, as an adult, having to figure many things out for myself that my parents never experienced. The life of an immigrant is a journey of constantly running into new obstacles that need to be understood and then overcome. Many of the obstacles are increasingly challenging because we lack sufficient context, experience, or simply haven’t figured out where to find the solution. Immigrants often lack the social support systems that many others can easily turn to. When someone chooses to uproot their life along with their family in the search of opportunity, they are entering into a bargain. In return for a chance, much of their life might just prove to be a series of things that they don’t know yet, but will be required to figure out.

The mindset of an immigrant can’t be “I don’t know English.” The mindset is “I don’t know English yet.” "We aren't living in a neighborhood with good schools yet." "We haven't found a way to balance our heritage with trying to assimilate into our new community yet." "This doesn't feel like home yet." Every challenge is appended with yet, because immigrants inherently recognize the deal they have opted into.

I think about how the yet mindset applies to all of us, not just immigrants. In today’s world, to stay competitive and current, learning and growth don’t just end the day you graduate from school. Personal development is a never ending journey. We are all required to be forever students now. This idea is most apparent to me when connecting with operators who are building companies. They are often doing things for the first time. A CEO’s job demands constant evolution, the learning curve is steep, and the journey along that curve is often lonely. The earlier in the journey that a leader can adopt the yet mindset the better it is for them and for their company. By simply framing your challenges as things you haven’t overcome yet, they no longer seem like ambiguous insurmountable mountains. Instead, you can begin to focus on the incremental steps that will make up your climb to the other side.

0xdC41
December 15th, 2021

Our investing framework at El Cap includes a set of business and financial attributes we like to see when considering an investment. It helps us qualify if companies will be a good fit early in the process, and is vital to our efficiency. But when it comes to industry focus at El Cap, we are generalists. This means neither of us are focused exclusively on any one industry or sector. The challenge we face as generalists is a steep learning curve each time we look at an industry for the first time. The benefit is that we can approach new industries with a true beginner's mind. Beginner's mind —a Zen Buddhism term— refers to having an attitude of openness, eagerness, and lack of preconceptions when studying a subject, even when studying at an advanced level.

While we can make a lot of progress on our own to understand the unique opportunities of a new industry, the operators who are native to these industries are the best source of educating us about the present and the future.

Many successful businesses have been built by people who experienced a pain point in their personal or professional life, searched for a solution, didn't find what they were looking for, and decided to build it. Chances are if you're experiencing a problem and are searching for a solution, you're not the only one. And, if it turns out that there are many people who have the same problem, and are willing to pay for a solution, you might have discovered an interesting business to build.

Each job and industry has its own quirks, workflows, and requirements. As a small investment team, we can't be experts on everything. Instead, we focus on having a prepared and open mind, so we can quickly learn from, and empathize with, operators who teach us about the problems they are solving. As generalists, when we speak with domain experts we often feel like they are sharing a secret with us. A secret about something that is broken in an industry, and why they believe the product they have built can repair it for so many people. The problem they are solving is not a secret to those who encounter it regularly, and if the solution they are building is compelling, it inevitably feels obvious to everyone who intimately understands the problem. If the product is successful, it becomes obvious to everyone else eventually.

0xdC41
December 15th, 2021

5.11.2020

A lot is currently being written about work from home and all the things that will be better about it. The pessimist in me can’t help but wonder about what we’re losing. Technology and behavior change will offer some good enough substitutes to a lot of in-office culture, but the one that I struggle to understand translating to distributed teams is how you engineer serendipity. The conversations that happen over lunch, the small talk while waiting for the elevator, being able to walk over to someone’s desk to quickly chat through an issue which leads to a broader conversation that you likely wouldn’t have had otherwise, time to talk through a news story or piece of content without it directly relating to anything you’re working on. For some jobs this kind of serendipity might not be essential, but for many jobs and companies it is critical.

Thinking about our own work together at El Cap, Stew and I are often working on different things at different times. Pre-Covid we spent most of our working hours together, with headphones on, but often breaking to share something on our computer screens, launch into a conversation on a topic, or chat through an issue related to an existing or potential investment. These things were never explicitly put on our calendars, they happened organically, and we are still figuring out how to recreate this space in our Zoom-focused workflow.

Steve Jobs understood the value of serendipitous interactions among colleagues. He valued it so much that when he was designing Pixar’s office, Jobs took great care in designing the atrium and where he placed the bathrooms so the design would lead to serendipitous interactions between people across the company. Sometimes these conversations would just be casual chatter, but in some instances an employee might be heading back to her desk with a new idea. What is the virtual equivalent of office design for serendipity?

0xdC41
December 15th, 2021

4.10.2020

Until last year, you likely thought of Spotify as a music company. Spotify is the place you go and listen to almost any song you can think of. 90’s Kunal, who was constantly putting his family’s shared computer in harm’s way by searching for high quality MP3’s on Kazaa, Limewire, and Napster definitely wouldn’t believe today’s music consumption reality. How easy, legal, and affordable accessing music is today was unfathomable to most of us back then.

Spotify is a great product for listening to music, but it wants to be more. In Feb 2019 Spotify announced two acquisitions. The first was Anchor, a company that makes it easy for anyone to record and publish podcasts. The second was Gimlet, an award winning narrative podcasting company. Spending an estimated $340 million dollars for both companies was a very clear way of announcing that Spotify has ambitions beyond being a music streaming service. More recently, Spotify announced its acquisition of The Ringer, a media company that has built a robust podcast network. Spotify is a listening company.

If we look at Spotify through a listening company's lens, aggressively moving into podcasting makes a ton of sense. If users already come to your service to listen to music, it's not crazy to think they might also enjoy listening to podcasts in the same space. Podcasting is still an emerging category and has the potential to have much more favorable economics for Spotify than working with the music industry ever will. Maybe Spotify has studied how Netflix leveraged the film studios to build a customer base before pouring billions of dollars into creating original content that they wholly owned. It would be impossible for Spotify to do this with music, but podcasting might provide a path towards more independence and greater leverage with music labels.

0xdC41
December 15th, 2021

3.30.2020

Doing my duty as a citizen of the world, I’m writing this while self-quarantining. In this time of physical isolation, rather than dive into one of the countless highly recommended new TV shows or movies, I found myself revisiting one of my old favorites, Lost.

Lost tells the story of a group of strangers who survive a plane crash, and find themselves stranded on a mysterious island. Early in the series, one of the leads of the show, Dr. Jack Shepherd emerges as the leader of the group. He explains “It’s time to start organizing, we need to figure out how we’re going to survive here...last week most of us were strangers, but we’re all here now, and God knows how long we’re going to be here. But if we can’t live together, we’re going to die alone.” Live together, die alone. It’s a theme that the show comes back to several times throughout the run of the series. It’s also a line that I’ve been thinking about before beginning my rewatch of Lost, as around the world we are told that in order to survive, we must all separate. The irony is not lost on me. The pun is not intended either.

While we are required to be physically apart to fight the spread of COVID-19, our effort will only be as successful as our ability to do it together. If people don’t cooperate, we cannot achieve our goals. Cooperation on a total global scale is difficult, many would say impossible, but it is necessary. It’s necessary in the present, and it will remain necessary. We will get through the COVID-19 pandemic, but other global challenges will still persist.