The world is better than we realize.
One hundred years ago, life expectancy was thirty-five, and now it is seventy-four. One hundred years ago, seventy-five percent of the world lived in extreme poverty, versus twenty percent today.
In America, most of us have the liberty to now focus on delicacies. We have more computing power in our pocket than all of NASA in 1969. We can turn off our kitchen lights from Mongolia. We are so comfortable with the dollar's strength that we created new currencies. Life is so good.
Life may be too good. It’s effortless to push a button and get toilet paper in three hours. It’s easier to read a 240-character summary than an actual 240-page book. Somehow, we are frustrated when flying in the air.
This ‘effortless addiction’ applies to start-ups, too. It’s easy to sit on a couch, make an app, and push it to the world with two clicks. It’s easy to slap a logo on mass-produced clothing and market it on social media. The unintended consequence of abundance is that high-caliber talent too often chooses shiny objects among the endless opportunities.
It’s more challenging to set up tables in apartment lobbies and sell dry cleaning to strangers. It’s harder to ship goods for small businesses. However, these boring paths with initially unscalable activities compounded into competitive advantages. Our entrenched assets serve as a barrier to entry, our higher-quality revenue inextricably ties to our customer’s daily needs, and our loyal employees who once made $20 per hour now make $80K per year. We chose the harder path, built the right kind of businesses, and improved America.
Ten years after starting our businesses, we see difficult roads arrive at beautiful destinations. Because of that difficulty, the journey was lonely. Countless venture capitalists passed on us. We just put our heads down every day and made boring daily progress that compounded into exceptional results.
A decade later, things haven’t changed. In fact, the funding environment is worse: 55% of venture capital funding targets just 19% of GDP. These firms continue to look for the next asset-light, employee-light, cloud-based unicorn.
Yet, we need to solve some serious issues. We need better nursing homes, we need to figure out recycling, we need to solve the housing shortage, we need to fix the ROI on education, and we need more people to participate in the greatest economic period in global history.
Now is the perfect time to work on these problems.
California is out of water, a generation can’t afford a home, and our skilled tradespeople are in their fifties. Raw input, supply chain, and labor crises are silently cracking America’s infrastructure, creating once-in-a-generation opportunities for entrepreneurs to exploit.
Five principles guide us:
Remain independent
Why this matters to us: We are entrepreneurs, suggesting that we thought 7 billion people were missing something. This group wouldn’t just create any investing firm. We vow to think independently because that’s how we got here.
Why this matters to you: Venture capital is the most subjective of all the investible asset classes. Therein lies the opportunity. Our business fundamentals were sound. Pressbox micro-stores generated a 7-month payback and post-tax ROIC of 80%. Cubii’s elliptical trainer had 15,000 5-star reviews and 90+ NPS. In a sea of skeptics, ten independent supporters took a chance on us. We will be among those ten supporters of exceptional entrepreneurs in the 81%.
Catalyze change
Why this matters to us: We are all at our best when creating change. Each member of The 81 Collection has a why behind their drive for change. Luke was a traveling salesman, sick of eating unhealthy food on the road. Jackson couldn’t pursue his childhood passion for becoming a musician. Dhruv & Divey saw the cost of bureaucracy in their youth and never understood why business owners spent so much time on fruitless activities like going to the post office.
Why this matters to you: America is an experiment. It was radical for the people to choose their government, and it was radical in 1990 to invest three billion dollars in the Human Genome Project. Both of those experiments worked out, while others did not. We believe America is still an experiment, and we intend to further it. America must tackle some serious issues, and many of these serious issues touch the 81% of the GDP we seek to back.
Employ moderation
Why this matters to us: Balance is critical in our personal and professional lives. Daily, we strategized at 30,000 feet while also putting out fires at the ground level. We held conviction in our beliefs but sought input from different perspectives. Our empathy for the full spectrum of decision-making was vital to our success.
Why this matters to you: Investing boils down to emotional strength after all facts are known. As investors, we will deploy the empathy that we know well. We learn from the best private equity and venture capital investors while holding conviction from our entrepreneurial journeys. Our minds are in Silicon Valley, but our customers are in the Midwest. We believe in cash flow, but also disruptive technologies. We approach each opportunity with rational optimism.
Focus on the long-term
Why this matters to us: All start-ups are difficult, but start-ups in boring industries are especially difficult. At year four, the glow is gone, and you might be inventorying orders on a Sunday or dealing with a food recall while your friends are at a birthday party. Our grit to persist made the difference, and it took us a decade to become an overnight success.
Why this matters to you: Venture capital’s infatuation with 19% of the economy stems from a short-term mindset. We increasingly favor now over tomorrow, shallow over deep. Companies that tinker win funding because it is considered less risky to take small pieces of an established market, grow quickly, and get out. Easy, short-term choices lead to poor long-term consequences, while short-term pain leads to great long-term benefits.
Create more than we capture
Why this matters to us: This group of founders grew close because we leaned on each other. We supported each other after permits or term sheets got pulled. We helped each other because all we had was each other. Our employees, vendors, investors, and friends enrolled in this positive-sum mindset, and this spirit continues. We play infinite games.
Why this matters to you: We will be at our best as investors when we approach our craft by growing a win-win ecosystem rather than pursuing the maximization of our interests. Rebuilding the middle class is more important than any single investment firm. We deliberately seek to sow more than we reap in all our undertakings.