Since I am sitting on my ass and doing PT three times a day you get time to reflect. I was chatting with my wife about our past. When you do that, you start to remember things.
Yesterday in the comments, a few people said that younger people didn’t understand how they got to where they did. Makes sense. They only see the finished product. They don’t see the scrum and hard work you put in when you were younger.
You can tell them you walked uphill both ways in snowstorms to school and they shrug their shoulders. You might have had a little luck along the way but my experience is that hard workers create their own luck. For people like me, it wasn’t given to them. They didn’t show up and have the corner office right away.
Younger people are also afraid of making mistakes. I find many of them extremely risk-averse. If I had been that way at age 18, I wouldn’t be where I am today. Social media contributes to that a lot I think since mistakes are there forever. Who wants to put a mistake on social media only to be reminded of it 10 years later? I made a lot of mistakes along the way.
Startups power the future of our economy. Given that startup funding is down, I don’t see that as a great development but I understand why. People are generally pessimistic. I can see it, and it is easy to be pessimistic. It’s a lot easier to find the dark places in our world than the light ones. Besides, the dark ones get significant amplification.
The startup market is a market like any other market. I think that in the next couple of years, it might be a great time to be an angel early-stage investor since everyone is pulling far far far away from it. Don’t follow the sheep. Face them. The best outsize gains come when everyone else isn’t doing it or doesn’t see it. Don’t be one of the cool kids.
The cool kids in my neighborhood worked on hot rods. I borrowed my parent’s car and went and got my ass kicked by Black kids on basketball courts. Don’t be the cool kid.
You can look at all kinds of startup data. I look at early-stage funding statistics because that’s where the big winners will be 10-15 years from now. Angel and seed funding is in a huge downward trend. There will be fewer winners in ten years. But, the ones that win will get the spoils. It reminds me a bit of 2003.
All the cool kids are going to invest in Artificial Intelligence this year.
Investors are pulling back because of higher risk-free interest rates. But, I believe the primary reason is the entire sector got way ahead of itself from 2019-2021 and was wildly overvalued. When individual investors lose money that quickly they tend not to be as loose with checks.
I was looking at some data and the Chicago startup ecosystem is not growing. In 2015, Chicago was 7th in the world. According to this article, it is now 19th. It’s not fatal but Chicago is in a coma despite what you hear from the cheerleaders. It was a gigantic missed opportunity run over by egos and the false sense that they knew how to assume early risk. They didn’t but they were the cool kids and talked a good game.
This study also revealed that cities with a high quality of life and good infrastructure tend to attract more talented individuals. This can be seen in cities like Amsterdam and Copenhagen, which scored high in both the Innovation and Startup Ecosystem categories. (Chicago is not safe, has some of the worst schools in the US, has poor infrastructure)
The report found that there is a strong correlation between the number of startups in a city and the level of economic growth in that city. Cities with a thriving startup ecosystem tend to have a higher GDP growth rate than those without. (Chicago is not growing)
The state of Illinois governor fashions himself as a “venture capitalist” yet under his leadership the state has imploded when it comes to venture capital and startup activity. All hat and no cattle but he was born with the hat.
The Marxist mayor isn’t going to turn things around. Chicago is dead.
Name one bank headquartered in Chicago. After Northern Trust, which is just a wealth manager now, there aren’t any major worldwide or even national banks that have an impact. Not one in the third largest American city. Other factors like federal regulation have an impact but Chicago banking doesn’t stir any drinks. What does everyone say when they see corruption? Follow the money. Same in business.
Charlotte, NYC, and Dallas have significantly larger finance sectors. The only big industries left in Chicago are electronic trading, some insurance, law, consulting, and accounting. Tax the electronic trading industry and it will be gone overnight and the state will be left with the leeches, not the creators.
Cities that are growing aren’t just low tax, they have open, merit-based networks in the industries that are growing. If the city you are in has a closed network you can do well if you become a key cog in that network. What I found in Chicago was that a lot of people I know that did well were based in Chicago but the real action in their business was outside of Chicago. O’Hare kept them there or maybe family ties.
It’s going to take an entire restart for Chicago to be anything but a grease spot on the tires of places like Silicon Valley, Boston, or NYC. Miami will look at Chicago in the rearview mirror in a few years and laugh. It’s just not on the radar screen. It’s not in the conversation, except within closed networks.
Boy, did I make some mistakes and thankfully they weren’t fatal. However, the opportunity costs were high. It’s hard to know, and the costs are pure speculation because the alternative vision you had for yourself might not have happened.
But, I have always been resilient and had confidence in myself, while being too stubborn and loyal as well. Stubbornness and loyalty are double-edged swords. Sometimes you fall on them needlessly.
What were my mistakes, and how did I survive?
When I was on the CME board, I was so focused on the CME board I didn’t see the forest. I could have started or figured out a way to join, a burgeoning HFT firm but I didn’t. Total screw-up on my part and cost me big money.
I had a bad year trading in 2003. It was when the Eurodollars ($GE_F) went computerized. I lost my edge. I started trading Hogs in 2004. It was a good move, except in the grand scheme of things it was moving not to grow but not to take a bullet.
In June 2005, I started my MBA at Chicago Booth. I finished my MBA at Booth in March of 2007. I was crushing it in the Hogs. I knew my days were numbered and I knew I needed a real credential hence Chicago GSB. Doing my MBA at no-name or lesser school would have been a total waste of time.
A lot of my contemporaries left and started insurance, wealth management, or real estate businesses. They mostly did well because they are high-integrity people and they work their asses off. I didn’t have the personality to do the first two, and the only place I would have considered the real estate thing was Florida and that wasn’t appealing coming out of 2008.
I co-founded Hyde Park Angels in April of 2007. We made our first investment in ShuffleTech which had many twists and turns but turned out okay for Ryan, Rick, and I thanks to Rick. No one else wrote a check. At our first HPA introductory meeting, our initial choice for the leadership position performed so absolutely badly Chicago GSB (at the time) said if we didn’t switch, they were out.
By the way, at our first meeting, only three of the founders actually wrote a check for dues. I think we set them at $500, but it might have been $1000. Hence, only three of us actually put skin in the game.
We only chose that person because they didn’t have anything else to do at the time. We took a professor that Booth recommended to us, but we didn’t really have a choice. It is debatable whether I made a mistake sticking with it at that time. Remember, I am stubborn and loyal.
I was still trading great. When you are trading great, it’s a salve for everything. The trading in Hogs didn’t go south for me until 2009. Then it went very south. I never made money trading again.
I had two kids in school. One had matriculated to college, the other was still in high school. This is where I made what I think is a big mistake in my career.
Instead of confronting the failure and embracing a new risk, I did what was comfortable. Often, choosing comfort is the exact wrong choice. Depends on what’s going on and how much cushion you have. I quit trading and concentrated only on early-stage startup investing with my own money. It became my “job”. I tried to get a “job”, and had a desire to raise a fund. However, I didn’t have the institutional expertise nor the “track record” to get it done. But, I knew how to make markets and assume risk.
I also got fucked by some people I had trusted. But, had I left Chicago when the timing was right that wouldn’t have mattered. So, part of it was my mistake. I allowed myself that opportunity…..
When I spoke with recruiters they laughed at me, even with my sterling Chicago Booth credential and background! No one gave a shit. I looked like a schmuck trader to them and no one understood what that was. I also never developed a good ability to talk about it in ways they could understand. Plus, the “Chicago Booth” network isn’t like other networks. They are far less willing to help. It’s not the Ivies or Notre Dame.
So, I invested my money hoping to build a track record and focused exclusively on Chicago. The second part was the big mistake. See the data above. When you can go to Mecca, go to Mecca. Play with the Big Dogs if you have the opportunity.
When I was a punk clerk in 1986, my boss asked me if I wanted to go to Singapore and trade. I didn’t want to. I wanted to trade in the major leagues and that was Chicago. Same with early-stage investing. The major leagues are in the Bay Area. Where are the Big Dogs, the movers and shakers, the real influencers in the industry you want to excel in? Go there.
What I should have done in 2009 was bit the bullet and rented a one-bedroom in San Francisco. Then, networked the hell out of it. I could have flown out on Sunday, flown back on Friday until our second got out of school. Sell Chicago and go rent in California. I let the dollars get in the way and I also let fear guide my decision-making instead of embracing the fear, dealing with it, and overcoming it.
When you see your net worth dwindling away, and you are burning savings, along with writing checks to the riskiest companies on earth, it’s hard to not be fearful. Especially when you are responsible for people other than yourself.
Turns out, I was pretty damn good at it, and in a small ecosystem, you have to be better than the people in larger ones because you have fewer bites at the apple.
I had well-respected people from California tell me this: and such. “Go to Silicon Valley. It’s where the action is.” They were big-time VC Lawyers and such. I ignored them and thought I could do it as well where I was at. Plus the inertia keeping me there was hard to overcome. I was in my late forties.
I did invest in some really good companies. I was a “good picker”, plus had a great network to bring to bear to help people. Many were in Chicago but some weren’t. Turns out, when you plant a flag in the ground that says you are willing to write early stage checks you get to meet a lot of people and drink a lot of coffee.
Of course, that’s how you learn. I took my lumps for sure.
But, had I gone to the Bay Area or NYC, I think I would have done a lot better. There are just many more companies and the ecosystem is significantly thicker. Especially when you look at the companies that were started from 2009-2020. It only takes one right?
I’d have heard more pitches. I would have met more people. My guess is I still might actively be working today.
When I decided to leave Chicago in 2016, I learned my lesson. I took the higher-risk avenue for this part of my life than the easy way. The easy way was Florida otherwise known as God’s Waiting Room. We looked hard at Nashville, Austin, Phoenix, Jacksonville, Las Vegas, and dabbled with Atlanta, North/South Carolina. I have friends in Nashville, Austin, Phoenix, and the Carolinas. I didn’t know a soul really in Las Vegas. For a large variety of reasons, we settled on Vegas. Others wouldn’t have made the same choice but their costs/opportunity costs are different.
It’s been a good move.
As Yogi Berra said, “When you see a fork in the road take it.” What he means is to assess all the risks and opportunity costs correctly. Then, go and don’t look back. Sometimes it’s not the easy choice. The highest alpha choice often is the harder one.