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Author of The Psychology of Money and Same As Ever, partner at The Collaborative Fund.Note that the blogger is Morgan Housel and his colleagues.
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A Few Questions

2025-05-09 04:16:00

Which of my strongest beliefs were formed on second-hand information vs. first-hand experience?

If I could not compare myself to anyone else, how would I define a good life?

Whose views do I criticize that I would actually agree with if I lived in their shoes?

Who do I envy that is actually less happy than I am?

Looking back, am I any good at anticipating how I would feel and react to risks that actually occurred?

Is my desire for more money based on the false belief that it will solve personal problems that have nothing to do with money?

How many of my principles are cultural fads?

Whose silence do I mistake for agreement?

What kind of lifestyle would I live if no one other than my immediate family could see it?

What events nearly happened that would have fundamentally changed my life, for better or worse, had they occurred?

What views do I claim to believe in that I know are wrong but I say them because I don’t want to be criticized by my employer or industry?   Am I thinking independently or going along with the tribal views of a group I want to be associated with?

How much of what I do is internal benchmark (makes me happy) vs. external benchmark (I think it changes what other people think of me)?

Whose approval am I auditioning for?

Which of my principles would I abandon if they stopped earning me praise and recognition?

If I could see myself talk, what would I cringe at the most?

What question am I afraid to ask because I suspect I know the answer?

How much have things outside of my control contributed to things I take credit for?

How do I know if I’m being patient (a skill) or stubborn (a flaw)?

What crazy genius that I aspire to emulate is actually just crazy?

What strong belief do I hold that’s most likely to change?

Which future memory am I creating right now, and will I be proud to own it?

Am I addicted to cheap dopamine?

If I were on my deathbed tomorrow, what would I regret most?

Top-Decile Returns for Sesame Street

2025-05-06 21:00:00

We launched Collab+Sesame in 2016 as a pre-seed and seed-focused fund with a simple but powerful thesis: as tech entrepreneurs come of age, they would create a new wave of products and services to transform the kids’ space.

Sesame Street’s Endowment took a courageous step. It entrusted us with its brand, one of the best brands in the world, along with decades of research, a global audience, and a reputation built on kindness and learning, and said, “Show us what you can do.” We were humbled by that vote of confidence, and every day since, we’ve been mindful of the responsibility.

Fast-forward to present day, and here are the numbers through March 31, 2025:

  • Net TVPI: 5.3x
  • Net DPI: 2.6x
  • Net IRR: 38.1%

These metrics rank in the top decile for Net DPI, Net TVPI, and Net IRR among all global venture capital funds in that vintage (PitchBook’s Q3 2024 benchmarks, with preliminary Q4 data).

But these returns are about more than just numbers. Along the way, we’ve been fortunate to back some incredible teams, including Lovevery, Outschool, Step, OK Play (acquired by Dapper Labs), Yup (acquired by Prenda), Luminopia, and others. Their hard work and vision have been instrumental in shaping this success.

Beyond financial returns, these numbers represent the foundation for new research and initiatives that reach millions of children worldwide. Every dollar we’ve returned to Sesame Street’s Endowment flows back into the mission that first inspired us: helping kids learn, empathize, and explore.

Collab+Sesame isn’t a story about charity, nor a conventional venture fund. It’s proof that when you blend rigorous investment discipline with a genuine mission, you can deliver market-leading returns and meaningful change.

Read our 2016 launch post and explore how Wired, TechCrunch, and The New Yorker covered the start of this journey.

Hat tip to Tim Brady and Geoff Ralston for creating ImagineK12, which was an early inspiration for Collab+Sesame.

Past performance is not indicative of future results. There can be no assurance that any Collaborative fund or investment will achieve its objective or avoid substantial losses. Certain statements contained herein reflect the subjective views and opinions of Collab. Such statements cannot be independently verified and are subject to change. In addition, there is no guarantee that all investments will exhibit characteristics that are consistent with the initiatives, standards, or metrics described herein. Certain portfolio companies shown herein are for illustrative purposes only and are a subset of Collaborative investments. Not all investments will have the same characteristics as the investments described herein. Certain of the investments made by Collab+Sesame and their performance are unrealized. Actual realized returns may different materially from the currently valued returns of these investments. References to “Net IRR” are to the internal rate of return calculated at the fund level. In addition, references to “Net IRR”, “Net TVPI” and “Net DPI” are calculated after payment of applicable management fees, carried interest and other applicable expenses. Internal rates of return are computed on a “dollar-weighted” basis, which takes into account the timing of cash flows, the amounts invested at any given time, and unrealized values as of the relevant valuation date.
It should not be assumed that any impact initiatives, standards or metrics described herein will apply to each asset in which any Collab fund invests or that they have applied each of the prior investments. Impact of an investment is only one of the many considerations that the Collab funds take into account when making investment decisions, and other considerations can be expected in certain circumstances to outweigh those considerations.

A Few Short Stories

2025-04-24 15:09:00

Thirty-seven thousand Americans died in car accidents in 1955, six times today’s rate adjusted for miles driven.

Ford began offering seat belts in every model that year. It was a $27 upgrade, equivalent to about $190 today. Research showed they reduced traffic fatalities by nearly 70%.

But only 2% of customers opted for the upgrade. Ninety-eight percent of buyers preferred to remain at the mercy of inertia.

Things eventually changed, but it took decades. Seatbelt usage was still under 15% in the early 1980s. It didn’t exceed 80% until the early 2000s – almost half a century after Ford offered them in all cars.

It’s easy to underestimate how social norms stall change, even when the change is an obvious improvement. One of the strongest forces in the world is the urge to keep doing things as you’ve always done them, because people don’t like to be told they’ve been doing things wrong. Change eventually comes, but agonizingly slower than you might assume.


Dunkirk was a miracle. More than 330,000 Allied soldiers, pinned down by Nazi attacks, were successfully evacuated from the beaches of France back to England, ferried by hundreds of small civilian boats.

London broke out in celebration when the mission was completed. Few were more relieved than Winston Churchill, who feared the imminent destruction of his army.

But Edmund Ironside, commander of British Home Forces, pointed out that if the Allies could quickly ferry a third of a million troops from France to England while avoiding aerial attack, the Germans probably could, too. Churchill had been holding onto hope that Germany couldn’t cross the Channel with an invasion force; such a daring mission seemed impossible. But then his own army proved it was quite possible. Dunkirk was both a success and a foreboding.

Your competitors can probably innovate and execute as well as you can. So every time you uncover a new talent you’re proud of, temper your thrill with the acceptance that other people who want to win as badly as you probably aren’t far behind.


Notorious BIG once casually mentioned that he began selling crack in fourth grade. He explained:

They [teachers] was always like, “Take the talent that you have and think of something that you can do in the future with it.”

And I was like, “Well, I like to draw.” So what could I do with drawing? What am I gonna be, an art dealer? I’m not gonna be that type. I was thinking maybe I can do big billboards and shit. Like commercial art.

And then after that I got introduced to crack. Haha, now I’m thinking, commercial art?! Haha. I’m out here for 20 minutes and I can make some real, real money, man.

Incentives drive everything, and most of us underestimate what we’d be willing to do if the incentives were right.


When Barack Obama discussed running for president in 2005, his friend George Haywood – an accomplished investor – gave him a warning: the housing market was about to collapse, and would take the economy down with it.

George told Obama how mortgage-backed securities worked, how they were being rated all wrong, how much risk was piling up, and how inevitable its collapse was. And it wasn’t just talk: George was short the mortgage market.

Home prices kept rising for two years. By 2007, when cracks began showing, Obama checked in with George. Surely his bet was now paying off?

Obama wrote in his memoir:

George told me that he had been forced to abandon his short position after taking heavy losses.

“I just don’t have enough cash to stay with the bet,” he said calmly enough, adding, “Apparently I’ve underestimated how willing people are to maintain a charade.”

Irrational trends rarely follow rational timelines. Unsustainable things can last longer than you think.


When the Black Death plague entered England in 1348, the Scots up north laughed at their good fortune. With the English crippled by disease, now was a perfect time for Scotland to stage an attack on its neighbor.

The Scots huddled together thousands of troops in preparation for battle. Which, of course, is the worst possible move during a pandemic.

“Before they could move, the savage mortality fell upon them too, scattering some in death and the rest in panic,” historian Barbara Tuchman writes in her book A Distant Mirror.

There’s a powerful urge to think risk is something that happens to other people. Other people get unlucky, other people make dumb decisions, other people get swayed by the seduction of greed and fear. But you? Me? No, never us. False confidence makes the eventual reality all the more shocking.

Some are more susceptible to risk than others, but no one is exempt from being humbled.


Dr. Dan Goodman once performed surgery on a middle-aged woman whose cataract had left her blind since childhood. The cataract was removed, leaving the woman with near-perfect vision. A miraculous success.

The patient returned for a checkup a few weeks later. The book Crashing Through writes:

Her reaction startled Goodman. She had been happy and content as a blind person. Now sighted, she became anxious and depressed. She told him that she had spent her adult life on welfare and had never worked, married, or ventured far from home – a small existence to which she had become comfortably accustomed. Now, however, government officials told her that she no longer qualified for disability, and they expected her to get a job. Society wanted her to function normally. It was, she told Goldman, too much to handle.

Every goal you dream about has a downside that’s easy to overlook.


Historian John Meecham writes:

When we condemn [the past] for slavery, or for Native American removal, or for denying women their full role in the life of the nation, we ought to pause and think: What injustices are we perpetuating even now that will one day face the harshest of verdicts by those who come after us?

This applies to so many things.

What is the modern version of cigarettes, which were doctor-recommended just a few generations ago? We didn’t know dinosaurs existed 200 years ago, which makes you wonder what else is out there that we’re oblivious to today. What company is the modern Enron, so obviously a fraud? What do most people – not a few wackos, but most of us – believe that will look something between hilarious and disgraceful 100 years from now?

A lot of history is just gawking at how wrong, how blind, people can be. Disastrously wrong, embarrassingly blind. Millions of people, all at the same time. When you then realize that today will be considered history in a few generations … oh dear. It’s unpleasant. But also fascinating.


Apollo 11 was the first time in history humans visited another celestial body.

You’d think that would be an overwhelming experience – literally the coolest thing any human had ever done. But as the spacecraft hovered over the moon, Michael Collins turned to Neil Armstrong and Buzz Aldrin and said:

It’s amazing how quickly you adapt. It doesn’t seem weird at all to me to look out there and see the moon going by, you know?

Three months later, after Al Bean walked on the moon during Apollo 12, he turned to astronaut Pete Conrad and said “It’s kind of like the song: Is that all there is?” Conrad was relieved, because he secretly felt the same, describing his moonwalk as spectacular but not momentous.

Most mental upside comes from the thrill of anticipation – actual experiences tend to fall flat, and your mind quickly moves on to anticipating the next event. That’s how dopamine works.

If walking on the moon left astronauts underwhelmed, what does it say about our own earthly goals and expectations?


John Nash is one of the smartest mathematicians to ever live, winning the Nobel Prize. He was also schizophrenic, and spent most of his life convinced that aliens were sending him coded messages.

In her book A Beautiful Mind, Silvia Nasar recounts a conversation between Nash and Harvard professor George Mackey:

“How could you, a mathematician, a man devoted to reason and logical proof, how could you believe that extraterrestrials are sending you messages? How could you believe that you are being recruited by aliens from outer space to save the world?” Mackey asked.

“Because,” Nash said slowly in his soft, reasonable southern drawl, “the ideas I had about supernatural beings came to me the same way that my mathematical ideas did. So I took them seriously.”

This is a good example of a theory I have about very talented people: No one should be shocked when people who think about the world in unique ways you like also think about the world in unique ways you don’t like. Unique minds have to be accepted as a full package.

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My Thoughts on Tariffs, Economic History, and the Market Decline

2025-04-10 02:55:00

Below is a transcript from a recent podcast I did on the tariff news.


My business that I use for my books and my speaking and whatnot is called Long Term Words, LLC. Now, the name of that is not very important. Nobody sees it unless I’m doing a talk with you or something. But let me tell you the origin behind that name, why I picked that name, because it’s relevant to today’s episode.

I’ve always wanted at least the opportunity that anything I write in a book or an article, that it has at least a fighting chance to still be relevant, 10, 20, even 50 years from now. I only want to write about things that are timeless because I’ve never enjoyed, as a reader, reading news that has an expiration date on it.

If this news article is not going to be relevant a year from now, it shouldn’t be relevant to me today. That’s always been my philosophy, and I’ve wanted to do that with my own writing. Write things that at least have a fighting chance for somebody to read and enjoy and maybe learn from many decades into the future.

That’s always been the goal. Long term words. I bring that up because today’s episode is going to be a rare departure from that in which I’m gonna talk about something that is happening in the news today and this week, and that is tariffs and the market reaction to it. We’ll get in that as well. So if that’s not your thing, if you’re only interested in the long term words, this episode might not be for you.

So before I jump into my detailed thoughts about what I think is going on, let me put my cards on the table. I think the tariffs are a terrible idea. Not just a terrible idea, but a horrendous idea.

Now I understand that all of us, everybody, including me, everybody can live in their own bubble. Particularly for these topics where it’s very hard to divorce economics and money from politics. So if you disagree with that broad view and you think the tariffs are a good idea, let me just state I respect you. I’d love to hear you. Everyone sees the world through their own unique lens, and it’s naive to assume that my lens is clearer than yours, even if it might be different.

Look, I’m a free market person. Of course. I understand the need for law and regulation and even tariffs in certain situations like masks during covid when we are reliant on other countries for things that we desperately needed, or military supplies, you don’t wanna re reliant on other countries making your military supplies in a war.

So tariffs can absolutely have their function in a well-run economy. But this what’s going on in the last week seems completely backwards, I think, to everything that we know and have learned about economics. Let me give you one analogy that’s been helpful to me with this. For nutrition science in terms of what kind of diet should you eat, what is the best diet that you and I can eat to live the healthiest life?

Nutritionists and health experts fiercely disagree on what the best diet you should eat. Should it be keto, should you be vegan? Everything in between. There’s so many different nuanced views over nutrition. But everybody agrees that eating lots of refined sugar is bad. There’s no disagreement about that. If you’re eating lots and lots of processed, refined sugar, that’s not good for you, even if there’s so much disagreement about everything else, and I think that is how economics works as well. There is so much disagreement. Among economists and politicians and investors over how to run the economy, what’s the right level of taxation?

Should it be more, should it be less? What’s the right level of regulation? Fierce disagreements among very smart people, but tariffs are the equivalent of refined sugar. You’ll be very hard pressed to find many economists. Of course, there’s always going to be one or two standouts here or there that make a lot of noise.

But one of the most agreed upon topics in economics is that tariffs are bad and trade wars are destructive. And the broad reason why is because tariffs by and large do two things. They raise prices for consumers and they make manufacturers back at home less competitive.

And one good way to explain this, I think that’s been helpful for my thinking, is just understanding the value of specialization of trade.

Now, I am a writer. I might have some skills at writing. I do not have any skills whatsoever at plumbing or electricity.

So when I need those things resolved, I hire a plumber, I hire an electrician because they are much better at those tasks than I am in that situation. When I hire a plumber, the plumber is not taking advantage of me. Even though I have a trade deficit with him, because he’s probably not buying my books, but I’m buying his services.

I have a trade deficit with the plumber. Nobody is being taken advantage of in that situation. He has a skill that I don’t, I can exchange my money for his skills. Everybody is better off. He’s better off. I’m better off.

Most people can understand that at the individual level. And that is also true at the economic level. There are some skills that the United States has that we are ridiculously good and talented at. There are other things that other nations are much better than us. And there’s no shame in that, just in the same way that I am not shamed at the fact that I’m not good at plumbing.

It is specialization of labor. So I think in the United States historically and today, we are extremely good, I think we are the best in the world at three things, entrepreneurship, service, and very high end manufacturing like planes and, and rockets. I think we are the best in the world at that, but just like the plumber is much better at other things than I am, there are things that other countries are way better than the United States at manufacturing a lot of certain goods, particularly mass goods, particularly lower end goods like clothing and shoes.

I spoke to A CEO last week, and he told me something that was helpful in my thinking here. He said, look, if you give instructions to Chinese workers and you say, here’s how to make this part, here’s step one, step two, step three, they are better than anyone in the world at making that part.

They can do it cheaper, faster, more efficiently, higher quality. But if you went to those Chinese workers and you said, please go design me a new part, they’re not that good at it. Americans are way better at that task than assembling that part, and that’s why the back of your iPhone says, designed in California, made in China.

That’s exactly what he was speaking to.

So look, my, my standard asterisk here, you might disagree with that. You might have different views. None of this is black and white, but the statements about it almost always are, which makes this a hard thing to talk about. So if you disagree with those views, lemme say it again. I respect you. I would listen to you. I’m just putting my cards on the table.

One big factor that I think gets lost here. And I’m gonna speak in a second why I think there is such a push among certain people for tariffs and why they think there is the need for them. I’m going to speak to that in a second, but one factor that I think is very lost here is that, yes, the United States has lost a lot of manufacturing employment over the last 50 years.

Of course, it absolutely has. And often when that is addressed, it is immediately jumped to, that’s because we ship those jobs overseas. The factories that used to be in Indiana and Tennessee and Mississippi, we shipped them to Mexico and Canada and China. There is some truth to that. Of course, indisputably. There is, I think, a bigger truth that gets lost, which is that where a lot of those jobs went was not necessarily to another country, it was to automation.

My favorite example of this, I wrote this 10 years ago, I had to go fish this up from an old article that I wrote is about a US steel factory in Gary, Indiana. In 1950, this individual factory produced 6 million tons of steel with 30,000 workers. In 2010 it produced seven and a half million tons of steel with 5,000 workers. So during this period, they increased the amount of steel that they were making, and they did it with 25,000 fewer workers. They went from 30,000 workers to 5,000. That story, I think, can be repeated across virtually everything that is made in the United States and around the world over the last 50 years.

Very interesting thing that I read the other day: China, the manufacturing powerhouse of the globe, has fewer manufacturing workers today than they did 10 years ago. They’re making more stuff than ever before. They’re building factories faster than ever before, and they have fewer people working in those factories because China, more than anybody else probably throughout history, is installing and using robots and automation in their manufacturing at a ferocious pace.

And so you can keep making more and more stuff but you need fewer and fewer people working on those assembly lines. That is often lost in the debate because if we were to bring back the manufacturing capacity to the United States, and that’s a separate debate, that’s a much longer debate, but let’s say that we do, it would not in any circumstances bring back the manufacturing jobs and the employment levels that we had in the 1950s. It’s a very different world today than it was back then. One way to get a very good view of this is to go onto YouTube and search for a video of Tesla factories. Because Tesla, very similar to China, is big on automation in its assembly and robots. And compare a modern Tesla factory to the 1950s Ford assembly line. It could not be more night and day, it could not be more different. The modern assembly line is robots and machines. Versus the assembly line back in the 1950s, which was biceps and backs and legs. That today has been replaced by automation.

One other example of this in the auto industry in 1990, not that long ago, the average American auto worker like working on an assembly line, their share of total auto production was about seven vehicles per year. So take the number of vehicles that were produced in the United States, divide that by the number of auto workers, and it was about seven.

The average worker was responsible for seven vehicles per year by 2023. Again, that’s just like one generation apart. Not even that much. The average auto worker in the United States was responsible for producing 33 vehicles per year. It went from seven to 33.

So we are, we are still producing a lot of cars in the United States. We still make a lot of vehicles here in the United States. It just does not require the amount of labor that it used to.

Just a few years ago, the economics journalist Neil Irwin wrote, “in the newest factories, one can look across an airplane hangar size floor, and see only a small handful of technicians staring at computer screens, monitoring the work of the machines. Workers lifting and pushing and riveting are nowhere to be seen.” And so I think that that is how manufacturing works today. It is very high output and low head count. At least much lower than it used to be.

So even as a US faces a manufacturing boom, which it has by the way in the last decade, easy to overlook, that manufacturing just can’t be expected to create the kind of employment that you saw many decades ago.

Okay, so that is a good leadway into another topic, which is about what the world was like during the golden ages of manufacturing that we remember, you know, the people who are working in the auto plants and the steel mills in the 1950s and the 1960s and through the 1970s, I think that is by and large the world that a lot of people want to go back to. Very understandable. I do not look down upon them for wanting to go back to that world in the slightest because it was a great world. It was amazing when there were tens of millions of manufacturing jobs in the industrial parts of the United States.

The people who did not go to college, or even people who did, could go get and earn good wages, that was great. It was a wonderful thing, but lemme tell you at least part of why it occurred at the time. At the end of World War II in 1945, Europe and Japan were decimated into rubble. Whereas the United States, of course, had all of its manufacturing capacity intact and had all these gis coming home.

There were 16 million GIs who came home in 1945 and had all this pent up demand to buy homes and washing machines and cars and all the new gadgets. And because Europe and Japan were in rubble, America, by and large had global manufacturing to itself. It had like a monopoly on global manufacturing at the time because Europe and Japan was still trying to build themselves back from the devastation of the war.

China at this period was still kind of an economic backwater, wasn’t really part of the equation. It was also trying to recover from the ravages of World War II. Places like India and Bangladesh and Thailand that manufacture a lot today weren’t really part of the global manufacturing equation back then.

There was this period when, because of the state of global geopolitics, America had a manufacturing dominance to itself for a good 20 years from probably 1945 through the end of the 1960s. That was also a period when, for many different factors, we don’t need to go into all of them, but white collar workers were not making that much money.

If you worked on Wall Street in the 1970s, that was not a place to make a lot of money. That was an admin accounting job that was not very looked highly upon because you didn’t make that much money. Bankers were not making nearly the kind of money that they made in the decades before or after. This period, and that was important because the blue collar manufacturing workers, by comparison to others in the economy, to others in their town, were doing great.

So even if their wages were lower back then than they would be today, even adjusted for inflation, when the manufacturing worker compared themself to the banker or the accountant, or the lawyer or the doctor, by comparison, he said, I’m doing pretty great. I’m doing pretty well. And then two things happened starting around the 1970s that really accelerated in the eighties and nineties, which was one Japan and Europe kind of after having recovered from the ravages of World War II became manufacturing powerhouses in their own right.

One of the first signs of this was when Honda, Nissan and Toyota started selling cars in the United States, and people realized in the US that, Hey, actually. These are pretty good cars. These aren’t bad. It was easy to look down upon ‘em at first because they were small and had tiny little engines relative to the Chevy Camaro or the, the T-Bird, but this came during a period in the seventies and eighties when gas prices surged and all of a sudden those tiny little engines in a Honda Civic or a Toyota Corolla we’re what people wanted. And then all of a sudden, out of the blue, you went from incredible American dominance in car manufacturing from gm, Ford, and Chrysler to Honda, Toyota, and Nissan actually taking a lot of market share.

There’s a very good book I read a couple months ago. It’s called The Reckoning, and it’s about Ford’s decline and Nissan’s rise during this period, from the 1950s to the 1990s. And a lot of what happened to, to state it very generally, it’s more complicated than this, was companies like Ford, a GM in Chrysler, had so much dominance during this period, fifties, sixties, seventies, that when they started facing competition from foreign imports in the eighties and nineties, they kind of lost their way. They had such a stranglehold monopoly on auto manufacturing that they became much less competitive. And as I said earlier, that is one function that tariffs implement is when you don’t have to compete with foreign suppliers.

You become much less competitive. You become kind of fat and happy and lazy. In a way, and that was kind of the, the broad thesis of this book was that Ford became fat, happy, and lazy while Nissan and other Japanese auto manufacturers were just surging.

And so the manufacturing dominance, not just in autos but in lots of things, heavy machinery and whatnot, started to erode in the seventies, eighties, and nineties, and really started to explode higher in the two thousands when China really came on board in terms of global manufacturing. And that occurred at the same moment when white collar workers.

And finance and accounting and office jobs started making fortunes huge sums of money. So now at the same moment that the manufacturing worker was losing their jobs both to automation and foreign competition, the white collar workers were, were just having a field day and making money hand over fist, which made what manufacturing jobs existed feel even worse by comparison because let’s say you’re an auto worker making $25 an hour in one era, that might feel great, but if all of a sudden your neighbor who is a project manager at KPMG is making 300 grand a year, your $25 an hour doesn’t feel that great anymore. ‘cause your neighbor has, has a bigger house and more cars and is sending their kids to private school.

So by comparison, you feel worse off even if your wages adjusted for inflation may have been going up. And so you put all of that together. That is a very. Shorthand history. Of course, there are a billion variables that I left out in there, but I think that shorthand history is in broad strokes what has happened over the last 80 years.

It is so understandable that you have millions of workers who say, this economy worked for me 50 years ago and it doesn’t today. My dad, my grandpa had great jobs in the GM factory and I can’t have that today. So understandable that that would be the thought process of millions of workers, and I think it is naive and insulting for people who are on my side of the tariff debate who say tariffs are a bad idea who cannot understand the views of those kind of people. Because if I was in that situation, and if lots of people who disagree with tariffs were in that situation, they’d be arguing for the same thing.

I think one of America’s strengths over time, this has been true for hundreds of years, is this sounds kind of crazy, but I think it’s true. A firm belief in things that are probably not true. That has always been a strength of the United States. This goes back to the very early days of the settlers and the colonizers, whom back in Europe were told that America was a land of absolute abundance.

And when you got there, there would be just, you know, rivers overflowing with gold and whatnot. And actually it was like a malaria swap when they got to the East coast of the United States. But we believed it was always believed that this was the promise land. That was what brought the people over. And even when they came to the United States and settled. It was that belief too. America has always been so unbelievably optimistic, particularly at the individual level, and that’s why I think we’re so good at entrepreneurship. It’s this idea that you, the entrepreneur, even if you start as a, nobody can make it to become the next Elon Musk, Bill Gates, Henry Ford, Thomas Edison. You can make it. You can do it. Not a lot of other cultures have that level of even like optimistic ignorance, because in many ways that’s what it is. But what that’s done is it’s created this incredible entrepreneurial society that has given us and the world some incredible world changing innovations in companies over the years.

And when I pair that belief with the observation that there are tens of millions of Americans who feel like the world doesn’t work for them anymore, who feels like this economy is not working for them anymore. That worries me. It worries me that a meaningful chunk of society does not have that optimistic ignorance. I mean that in a positive sense to think that, hey, the world is my oyster. The sky is the limit. I can go do it now. We’ve been through similar periods in the past, the 1930s, the 1970s, and we recovered from those. We recovered from those malaise periods, and I’m optimistic that we’ll recover from it this time, but we should not lose track of the fact that we are in one of those periods again.

Where this goes next, my guess is as good as yours. And both of our guesses are useless beacuse I don’t think anyone knows what’s gonna happen next. Interestingly, many of you will listen to this podcast the day that I publish it, which I guess is April 8th. Some of you will listen to it weeks in the future when half of what I just said will be outdated because the situation is changing so quickly.

That gets back to why I only want to do long-term words and why this is so against what I normally do. But let me say a couple of things about. Investing because that has been the initial reaction to the tariffs has been entirely in the stock market, which as I speak here, is down about 20% or so from its highs that were reached just a couple weeks ago.

Now, the tariff impact has not hit the broader economy in terms of inflation at the grocery store or mass layoffs or whatnot. But so far it’s been in the stock market. So even if that is a very minor part of what will impact the economy, let me speak to that just a bit. I, of course have, have been glued to Twitter over the last week just trying to understand what’s happening and hear other people’s views.

I’ve watched it with a sense of shock and just confusion trying to piece together what’s happened, but it has not in the slightest changed how I invest, and I extremely doubt that it ever will. I think it is possible to be an engaged and informed citizen, even a social media junkie reading the news and a calm investor at the same time.

I purchased stocks early last week, not because of anything that was going on in the news, but because you gotta do that every month around the first of the month. I do it every single month. I’ve done that for, uh, I don’t know, 20 years now. I’ll do it next month. I’ll do it the month after that. That won’t change. I think it, it never changes. So I think you can simultaneously dollar cost average. Remain long-term, optimistic, not panic about anything that’s going on in the world. You can enjoy life, spend time outdoors, hang out with your kids, eat good food, listen to good music, have a good time, and at the same time, if you are of the same belief of me, realize how destructive and unnecessary what we’re going through is.

You can do all of that at the same time. It’s not like you have to be optimistic or pessimistic. I am very optimistic on the long term, even if I think this is a bad idea, that’s not a contradiction. Something else I’ve been thinking about is that we have in the past been through much more uncertain times than we’re going through right now, but it never feels that way, or it rarely feels that way because when we think about the past economic crises, COVID, Lehman Brothers, 9/11, Pearl Harbor, those kind of events. We know how the story ended and we know that the story did end and we know that we eventually recovered. But whenever it is a current crisis, a current period of uncertainty, you don’t know that. You don’t know when it’s going to end. You don’t know how it’s gonna end, and some people don’t know if it will ever end.

And because of that, even if, I think without a doubt what we’re going through is less uncertain, less serious than other periods of economic upheaval. It rarely feels that way because we don’t know what’s gonna happen next. So every crisis has its own little unique flavor of what’s going on. But the common denominator is this feeling that you can’t see the future anymore. And that makes people go crazy in, turns them into political junkies. It makes ‘em make bad investing decisions. That’s always been the case. Try to avoid that. I would also say that for most investors, 99% of good investing is doing nothing.

Most investing is just not doing anything, not trading, not selling. Just letting your money sit there and to hopefully grow over the years and decades. That’s 99% of good investing. 1% of good investing is how you behave when the world is going crazy. And this, I think, is one of those periods when the market falls 20% in a week.

That is one of those periods when it is so absolutely vital that you keep your head on straight. A lot of people will mix their investing decisions with their political beliefs, and 99% of the time, that is a mistake that you are not gonna make good investing decisions if you are doing it through the lens of your tribal beliefs.

Whatever those beliefs might be. Napoleon’s definition of a military genius was quote, the man who can do the average thing when everyone else around him is losing his mind. I’m gonna repeat that because it is such a ridiculously good quote. A military genius is the man who can do the average thing when everyone else around him is losing his mind.

It is the exact same in investing to be a good investor over time. You don’t need to make a lot of genius decisions. You just need to be merely average when everyone else is making bad decisions, as many people are.

One other thing that’s very different from this period, these, this tariff period that we’re going through, if you compare it to other periods of economic upheaval like Covid and Lehman Brothers and 9/11 and Pearl Harbor, is that this could end. In the next hour, right? Like the, these tariffs could be immediately removed in the next hour.

Or even if it’s not that there could be certain laws, whether it’s from the courts or from Congress, that could end these very quickly. Obviously we didn’t have that with Covid. There was no button on anyone’s desk that said, remove the virus, just click this button. We do have that now.

And so what is very different about this is how quickly it could end, and if that were to happen, how ferocious. The rally in stock markets would almost certainly be, even if there was some permanent damage, because global trading partners don’t trust us as much as they used to this, as such a unique period of economic crisis because with the flip of the switch and the stroke of the pen or a single tweet, it could all end.

And I don’t think I can’t think of another economic crisis that was similar to that. Obviously that was, there’s no analogy for that in terms of 9/11 or Pearl Harbor or whatever. The other thing I would state, maybe I’ll end with this, is that in every period of economic upheaval and political upheaval, it is so easy to underestimate the counter forces that come from it.

When things are declining, when things are getting worse in your eyes, it is easy to extrapolate and say, well, it’s gonna keep getting worse forever. It’s very difficult to envision the counter forces of. People’s reactions and lower stock market valuations that push in the other direction. It is true in every single previous bear market that those counter forces set the seeds for the next bull market, but virtually nobody saw them coming at the time.

That lower valuations plant the seeds of the next bull market, that people becoming frustrated with this political environment. Push for change. It’s always difficult to see those, but they always happen. That is happening right now at this moment. There are counter forces all over the place that are setting up the next bull market.

Now, I have no idea when that’s gonna begin. It might start tomorrow. It might start six years from now. I have no idea, but it’s always in play and it’s easy to overlook and it leaves people more pessimistic than they should be. And so as I end this rant, that will be a departure from what I normally write and speak about,

I’ll end just by saying I’m as optimistic as I’ve ever been, particularly for the long term. I’ve always talked about the idea of rational optimism, which is the idea that I am very optimistic that the world is gonna be a better, wealthier place 20, 30, 40, 50 years from now, but I’m rational in the belief that it’s gonna be very difficult between now and then.

The path between now and then will be extremely difficult. I wrote about that many years ago, and as I sit here in this unique week, unique period, maybe that’s the belief that I always come back to. Very optimistic about the long term, even if I’m understandable about how difficult it will be to get there.

Turning $5M Into $100M

2025-03-21 00:16:00

In 2015, Collaborative Fund made an unusually bold bet—investing $5 million—20% of a $25 million fund—into a single startup. Less than five years later, that one investment returned over $100 million, singlehandedly quadrupling the entire fund.

Was this risk justified? Should a fund spread $25 million across twenty-five $1 million bets or five $5 million ones?

This wasn’t only a lucky outcome; it was also a deliberate choice rooted in conviction. Venture capital returns famously follow a power law—a tiny fraction of investments often generate the majority of returns, both for a given fund and the entire industry each year. The challenge is structuring a portfolio to catch at least one of these breakout outcomes without over-diversifying and diluting returns.

This post examines the math behind portfolio construction, the trade-offs between concentration and diversification, and why exceptional outcomes often come from high-conviction positions.

The flawed math behind venture portfolio construction

Venture investing is often called an art, but that doesn’t stop people from trying to turn it into a science. Many funds use math to guide portfolio construction, helping to estimate how many bets to place and how much to allocate per investment in a given fund. These range from probability-driven frameworks like the Kelly Criterion to simulation-based modeling like Monte Carlo.

No model perfectly captures the reality of venture capital. Each has flaws, assumptions, and blind spots. Some fail to account for the extreme variance in startup outcomes, while others assume investors can accurately predict success rates—something historical data suggests is extraordinarily difficult.

Still, these frameworks can help ballpark an approach. Below are some of the more common ones and their limitations.

Kelly criterion

Originally developed for gamblers, the Kelly Criterion calculates the optimal bet size to maximize long-term returns. In VC, it can be used to help determine the proportion of a fund to allocate per startup.

Why it isn’t a perfect fit for VC

  • You don’t know exact probabilities of success or payouts—Kelly assumes you do.
  • It assumes you can reinvest winnings each round, but in VC, capital is typically locked up for a decade.

Back of the envelope power law math

Some VCs take a probability-driven approach to ensure their portfolio includes at least one breakout winner. The basic logic goes like this:

  • Assume a startup has a 5% chance of delivering a 20x+ return.
  • If you invest in just one company, there’s a 95% chance you miss a big winner.
  • If you invest in two, the chance of missing a winner drops to 90% (95% × 95%).
  • Keep investing, and the odds of missing a winner continue to shrink.

From here, one can set a threshold for failure—say, wanting a 20% or lower chance of having zero breakout winners—and backsolve to determine how many investments to make (32 in this case).

Why it isn’t a perfect fit for VC

  • The failure threshold is arbitrary—too low, and you dilute your best bets; too high, and you risk missing a winner altogether.
  • It treats startup outcomes as binary (big winner or bust), ignoring the reality that many exits fall somewhere in between.
  • A more nuanced approach would factor in different return profiles and optimize accordingly.

Monte Carlo simulations

This method runs thousands—sometimes millions—of randomized scenarios based on assumed success rates and exits, testing different allocation strategies to identify the best.

Why it isn’t a perfect fit for VC:  

  • Like all models, Monte Carlo is only as good as its inputs. Assumptions about success rates and exit values are just that—assumptions. Even using robust historical venture data doesn’t guarantee reliability.
  • For example, AngelList ran Monte Carlo simulations using data from 3,000+ past investments. One might expect a dataset of that size to produce generalizable conclusions. However, adding just a few breakout investments drastically altered the projected returns:
    • Adding Peter Thiel’s Facebook seed investment shifted the average return from 2.7x to 5.9x.
    • Including Google’s and Uber’s seed rounds pushed it to 27.7x.
  • Monte Carlo is useful for modeling potential outcomes and assessing risk, but it can’t predict the future. Even running simulations on a perfectly curated dataset of every VC deal from the last decade wouldn’t ensure reliable forecasts—past performance isn’t indicative of future results.

So… how should you construct your portfolio?

Each of these methods has flaws, but together, they offer a rough picture of effective venture portfolio construction. 

They suggest that early-stage funds should aim for 25-40 investments per fund. This range balances the potential for capturing breakout winners while avoiding excessive dilution. 

However, portfolio construction isn’t just math—it’s strategy. Models can give a broad range of appropriate portfolio concentrations, but they can’t tell you exactly how many bets to make or when to make a single more concentrated bet. Our decision to allocate $5M—20% of our fund—into a single company wasn’t model-driven. In fact, most models would have cautioned against it.

Below are some strategic reasons for varying degrees of portfolio concentration.

Arguments for less concentration

  • Firm longevity: A broader portfolio increases the odds of landing a power-law outcome. An overconcentrated fund that strikes out may compromise future fundraises. LPs won’t tolerate a decade of locked up capital for a <1x MOIC. Diversification may sacrifice upside in a single fund, but it can keep a firm in the game. If our $5M bet had missed and the rest of the portfolio underperformed, our concentration strategy would have been scrutinized, potentially leading to some tough conversations with LPs.
  • Leading vs. following: Larger checks often mean leading rounds, which comes with extra responsibilities—diligence, term negotiation, and board seats to name a few. Not all firms are structured and willing to lead.
  • Poker analogy: Fred Wilson compares early-stage investing to poker. Players put in a small ante to see their cards before deciding whether to bet a larger amount. Similarly, a small early check secures a seat at the table, giving investors time to assess execution from the inside. A diversified approach in early stages increases exposure to potentially strong performers, enabling investors to deploy follow-on capital with greater conviction in subsequent rounds.

Arguments for more concentration

  • Conviction: When a standout team, market tailwinds, and early traction align, a concentrated investment can be the right move. While conviction should underpin every investment (ideally), some opportunities inspire greater confidence than others. When that happens, check size should reflect it.
  • Deeper involvement and better follow-on decisions: A concentrated portfolio lets investors be more hands-on, building stronger relationships with founders and offering targeted support. With fewer companies to track, follow-on decisions are also more informed.
  • Quality over quantity: More deals can mean spreading capital too thin or investing in lower-quality startups just to fill a portfolio. If a fund can reliably identify its strongest investments at the time of investment, concentrating more on those maximizes returns.
  • Top-tier funds tend to concentrate capital: Data shows higher-performing funds tend to be more concentrated. Whether through larger initial checks or follow-on investment, they focus on companies with the highest potential for outsized returns.

Conviction and check size dynamacy 

Our $5M bet wasn’t one of five evenly sized investments within our $25M fund—it was an outlier. The fund made 20 investments, keeping it relatively concentrated, but this check was unusually large. It was placed with conviction, and in hindsight, it paid off.

Had this bet failed, we would have reassessed our approach to concentration. Big swings carry big risks, and a miss would have been a tough reminder of the balance between focus and diversification.

While we haven’t committed 20% of a fund to one company since, this experience reinforced conviction’s role in our portfolio construction. Since then, we’ve leaned on it more heavily, ensuring we’re positioned to bet big when the right opportunity presents itself.

Venture capital is as much an art as a science. The real challenge isn’t just portfolio sizing—it’s knowing when to take a concentrated risk and having the discipline to live with the outcome, whether it’s a hard-earned lesson or a $100M success.

Past performance is not indicative of future results. There can be no assurance that any Collaborative Fund investment or fund will achieve its objective or avoid substantial losses. All returns, including MOICs, shown herein are gross returns. Gross returns do not reflect the deduction of management fees, carried interest, expense, and other amounts borne by investors, which will reduce returns and in the aggregate are expected to be substantial. Certain statements contained herein reflect the subjective views and opinions of Collaborative Fund. Such statements cannot be independently verified and are subject to change. In addition, there is no guarantee that all investments will exhibit characteristics that are consistent with the initiatives standards, or metrics described herein. Performance information shown herein is for a subset of Collaborative Fund investments.

Beautiful vs. Practical Advice

2025-03-19 01:38:00

I heard a phrase recently: “Magazine architect.”

It’s a derisive term architects use for their colleagues who design buildings that look beautiful, grace magazine covers, and win awards, but lack functionality for the tenants.

Intricate roofs look amazing – and are notorious nightmares for leaking.

Oddly shaped buildings win awards – and offer little flexibility to remodel interior layouts.

Fancy materials glisten—but good luck finding someone skilled enough to maintain or replace them.

Ornate lobbies take up tremendous space – and are often not used by occupants, who enter through the garage.

The book How Buildings Learn writes that architects fancy themselves as artists, but people who occupy buildings do not want art; they want a building to work in:

Art must experiment to do its job. Most experiments fail. Art costs extra. How much extra are you willing to pay to live in a failed experiment? Art flouts convention. Convention became conventional because it works. Aspiring to art means aspiring to a building that almost certainly cannot work, because the old good solutions are thrown away. The roof has a dramatic new look, and it leaks dramatically.

The book cites renowned architects like I.M. Pei and Frank Lloyd Wright for designing buildings admired by everyone except their occupants, whose feelings tend towards frustration and disgust. Frank Lloyd Wright once said of his infamously leaky roofs: “If the roof doesn’t leak, the architect hasn’t been creative enough” – an amusing comment to everyone but those living in his homes.

The flip side is that office buildings with happy tenants tend to be big, boring, rectangles built with classic materials. They will win no awards and grace no magazines. But the roof is tight, the layout is flexible, and the HVAC system is located where it should be. The true purpose of a building – a place that helps you do your best work – is achieved.

I like art and can appreciate architecture. But the idea that there is a time and place for beautiful vs. practical should be recognized. And the idea that if you are looking for practical advice, beware hiring an artist whose goal is to be praised should be, too.

Is that true for many things in life?

Jason Zweig once wrote about investing:

While people need good advice, what they want is advice that sounds good.

The advice that sounds the best in the short run is always the most dangerous in the long run. Everyone wants the secret, the key, the roadmap to the primrose path that leads to El Dorado: the magical low-risk, high-return investment that can double your money in no time. Everyone wants to chase the returns of whatever has been hottest and to shun whatever has gone cold.

A lot of financial advice is beautiful and intelligent but has no practical purpose for the person receiving it.

It happens for a couple reasons.

One is that, like architects, financial professionals may want to further their career more than they want to help their clients. I think this is usually innocent: It’s easy to be blind to what your clients need when your business is so profitable and you’re gaining so much attention.

“Look how much money I’m making and how often I’m asked to come on TV” can be interpreted as “I am adding so much value.” Sometimes that’s true; often it’s not. An intense and complex derivatives strategy can make you sound brilliant and bring in buckets of fees, and also be the opposite of what a client actually needs. It’s telling that the company that figured out how to provide low-cost index funds – Vanguard – could only do it as a non-profit. There’s a mile-wide gap between what many clients need and what generates the most fees. A lot of people need the financial equivalent of a rectangle building but are sold a gorgeous geodesic dome with a leaky roof and no garage.

The other reason is that no two people are alike, and financial advice that’s useful for you could be disastrous for me and vice versa. There is no one-size-fits-all financial plan – a fact that’s easy to overlook because people want to think of finance like it’s physics, with clean formulas and absolute answers. When advice needs to be personal but you think it’s universal, it’s common to default to what sounds the best, the most intelligent, and the most complex. People drift from practical towards beautiful.

I watch financial markets every day because I think they’re a window into culture and behavior. They’re so fascinating, so beautiful, like art. But my personal finances are simple and boring. They will win no awards. But they’re practical for me and my family. They provide what I need them to do. Isn’t there beauty in that?