BD & Partnerships Newbie
👋 Hey, I'm Wayne and I am not old enough to legally drink, yet.
I grew up in DC, did a stint in NYC & SF and now live and work in Utah.
I spent my early adolescent years camping outside of malls after school to buy sneakers and resell them online.
At 12, I bought a sneaker bot from a friend for $5 and resold it on eBay for $12 to hundreds of people.
At 16, I became a lifeguard at the local gym, was given Rich Dad, Poor Dad and learned to invest in public markets from my then manager.
At 18, I started a pet tech startup called Petly, a smart dog home for storefronts.
Shortly after, I bought a one-way ticket to SF and landed a gig at Truebill (YC W16), a personal finance app that helps people optimize spending, manage subscriptions, lower bills, save for the future, create budgets, and more.
I've recently joined Lambda School, a software engineering academy that teaches people to code or design, for free, until they land a high-paying job.
At Lambda, I work on business development & build strategic partnerships with east coast companies.
On the side, you'll find me interviewing marketplace founders here, watching Suits, writing here, and admiring contemporary art.
I'm interested in many things but have a soft spot for multi-sided marketplaces, early-stage investing, sneakers, education, and financial scandals.
Two & Twenty
As I was on a flight to Europe, I started reading "The Quants," a book on the origins of quantitative investing.
While reading, I came across a paragraph about Ed Thorp and his hedge fund's fee structure.
Rather than use the traditional 2/20 structure, Thorp's investors paid the funds expenses.
This got me thinking, specifically, in the context of early-stage VC funds.
I kept looping back to these questions (and I'll attempt to answer them):
Why would a sub-$50MM fund adopt the same model as a top-tier hedge fund?
What are the possible outcomes of a budget-based fee structure for micro VC funds?
Regarding the first question, funds use this model because historically, it just works. For $50MM+ funds, this model works quite well. For sub-$50MM funds, eh, not so much.
I guess the real question here is, why aren't micro-VC funds getting creative with the fee structure?
Is it because of potential pushback from LPs? Is it because of certain incentives like carry? Is it because other models likely won't work? I don't know.
I find it absurd that partners have to be scrappy and/or have to ask for a higher percentage management fee just to keep the lights on because of some contrived dollar amount.
Instead of the 2/20 model, I think micro-VC funds should use a budget-based fee structure based on forecasted expenses.
In my head, this means that huge expenses (GP salaries, employee salaries, legal and accounting fees, office space, etc.) should be paid for by the LPs, regardless of the dollar amount.
In this case, the management fee would no longer be a fixed number. And it can be greater than or less than the 2 & 20 equivalent.
For example, if I close a $20MM fund and estimate that the annual expenses will be $300k, the 2 & 20 equivalent will be $400k. Because 2% x 20M is $400k.
In this case, the budget-based fee structure is less than the 2 & 20 equivalent.
I imagine this model working a few ways. One way is to pool capital together for each expense, in a syndicate-like manner, as each payment comes up. Another approach could be to raise an amount upfront, specifically for the management fee.
Heading to the second question, the hopeful result of this budget-based fee model is that:
GPs will have enough money to live normally, the fund's organizational expenses will be covered, and all worries about the lights going out will vanish
GPs will receive a higher percentage of carry
The dynamics between GP‘s and LP’s will change as incentives become more aligned
With these potential outcomes, there can be some pushback. One could ask, what happens when a GP exceeds the 2 & 20 equivalent? And what does that mean for the percentage of carry?
I don't know the answer to those yet, but I look forward to diving more into this topic and figuring out whether or not this structure is economically feasible for everyone.
The Road Less Traveled
Two years ago, I walked into my university's registrar's office and withdrew from school. They informed me that I had about two days before they were going to kick me out. I was limited to two days to figure out what I was going to do for the rest of my life.
At the time, I knew that I loved startups, technology, entrepreneurship, and self-directed learning. I also knew that I needed to be in the epicenter of where innovation was happening.
So I thought to myself, what better place to be in than Silicon Valley?
I then did what any perfectly sane person would do. I went to the Airbnb app and literally found the cheapest place to live in California.
That same day, I booked a one-way ticket to San Jose unbeknownst to what my experience would be like.
I ended up in a “hacker house,” better known by its more formal name, a hostel.
At any given moment, I lived with over five people, and most of us shared the same bathroom.
I didn’t have much money, so I had to budget and spend wisely. This inevitably led to oatmeal, ham sandwiches, and Soylent being my primary source of energy and nutrition.
In addition to this, the hacker home didn’t have reliable air conditioning, so I was forced to open up the window which unfortunately led to a plethora of ants taking over my room.
I’m pretty sure you’re wondering by now why I put myself through all of this.
Well, it just so happens that I moved there to either build a startup or join one.
During this time, I was working on conversational AI startup where people would acquire knowledge in a simple, interactive, and fun way by talking to digital humans that embody the people they love (Steve Jobs, Elon Musk, etc.)
It was apparent to me that I didn’t have adequate computational resources nor the skills to work on such an ambitious project so I decided to stop working on that idea.
In December, nearing the Christmas holiday, I figured it was time to go home and spend some time with my family back in Washington, DC.
While I was home, I studied machine learning, freelanced a couple AI projects, built a powerful PC, and traded cryptocurrency.
There was one school that I believed would be an ideal fit for me — Stanford — I applied and was rejected.
With my new skills, I decided to apply to some AI fellowships, guess what? I was rejected by all of them. I honestly don't know what I was thinking.
After some self-reflection, I noticed that I had been running in the same place for too long, getting nowhere. I came up with a list of actionable goals and held myself accountable to accomplishing them.
Scrolling through my Twitter timeline, I saw a tweet by a startup COO mentioning a project they wanted to work on and was looking for someone scrappy to help out.
I immediately stopped what I was doing and DM’ed the startup exec.
He asked me a question, was impressed by my answer, then responded with, "send me a note at [redacted], let's grab coffee next week.
I then bought another one-way ticket but this time to San Francisco — the most expensive city in the US.
I knew that San Francisco was a place where I could meet like-minded people and learn from amazing operators and investors.
So, I texted a friend that I knew lived there and asked if I could crash at his place for about a week and he said “sure.”
After that week was up, I found a hostel to stay in.
I couldn’t afford to stay a night anywhere else, so I had to resort to my last option — Couchsurfing.
I stayed at a random woman’s condo for a weekend in SOMA, in exchange for free lodging, I went swing dancing with her.
At one point, I thought I was going to be homeless, living in The Tenderloin, so I downloaded the schedule for a free, mobile shower.
Luckily, I found a family friend that lived right over the Bay Bridge in Oakland who welcomed me into her and her husband’s lovely home where I stayed for a couple months, helping grow plants and feed chickens.
Throughout this process, I applied to a ton of startups but was extremely picky, I was only looking for companies that met specific criteria (less than 50 people, mission-driven, pre-series A, etc.)
As you can guess, I was rejected by almost all of them. Submitting applications with my resume hoping to land a job was ludicrous considering that I didn’t have a degree or any “real” experience.
I changed my strategy, instead of applying for jobs the conventional way, I became a trailblazer and carved my own path.
I reached out to startup founders via cold email and Twitter and pitched them on how I could add value to their company.
This landed me a couple coffee shop meetings and some onsite interviews but nothing stuck. One founder even told me “you’re too risky, we’re a super early-stage startup we already have enough risk, de-risk yourself.”
By this time, I was reaching my breaking point.
I was contemplating on if I should just give up and go back to school but I knew that didn't necessarily fit my learning style and I quite literally came too far to do that.
A couple of days later, I received a notification on AngelList from a founder and company that I previously reached out and applied to.
The CEO asked me to come in for an interview. I went to the HQ, rocked the interview, and was offered a full-time position within the same week.
Some of my learnings so far:
Learn to deny immediate short-term gratification in favor of greater long-term gratificationDon’t give up easily even if you can’t see the light at the end of the tunnelSometimes life is about risking everything for a dream no one can see but youMost doors in the world are closed so if you find want you want to get into, you better have an interesting knockIf you want results, go straight to the topKnow your unique value proposition and communicate that concisely and effectivelyEvery opportunity may not be the right opportunity for youWhen you’re largely unproven, you may have to create value before you ask for
Personal Burn Rate
Burn rate is the pace at which a company spends money.
Let's say a startup has $1M in the bank. If they're spending $100k/month, then their burn rate is $100k/month. This also means that they have ten months left until they run out of money, aka ten months of runway.
The burn rate is usually categorized as being low or high, neither being more correct (or incorrect) than the other, as it is purely contextual.
As you might imagine, a low burn rate means you're spending less, and a high burn rate means you're spending more of the money you have in the bank.
In a startup context, money is usually spent (or burned) on things like employees salaries, office space, marketing/ads, a cool new ping pong table, etc.
In a more personal context, money is usually spent (or burned) on things like subscriptions, rent, car payments, health insurance, student loans, etc.
If you're a young person with a ton of bills, loans, subscriptions, and side projects, I'd say you have a high personal burn rate. Partly because of how much money and time is being spent but more-so because of your lack of freedom.
A low personal burn rate equals minimum commitments and fewer constraints, which lead to optionality and flexibility.
Let's say your dream job pops up, but it's across the country and pays more (or less) than what you're currently making. If you maintain a low personal burn rate, you should be fine making the jump and going for the opportunity. If you have a high personal burn rate this will be much harder for you to do.
Otis | Alternative Investments
As a young person that hasn't exited a company and doesn't make enough money to be considered an accredited investor, the barrier to entry into particular asset classes remain prohibitive. Generally, if I want to invest and grow money, I resort to public stocks and cryptocurrencies. However, there's an array of other asset classes that I would like to participate in, ones that allow me to get some skin in the same game as wealthy individuals and institutional investors.
Otis is a marketplace that allows anyone to invest in alternative assets. They're deeply driven by making wealth accumulation and preservation possible for the 99%. People like myself will be able to invest in things like fine art, commercial real estate, movies, and even sneakers, all for as little as $100.
Here's how it works, Otis:
Finds and picks an asset Acquires the assetSecuritizes the asset, converting it into purchasable shares for investors
All of the assets are owned by Otis Gallery LLC, a subsidiary of Otis. When a person purchases shares in a specific asset, they become a shareholder in a sub company that represents the asset.
As you might imagine, shares can be bought and sold on their secondary market, allowing seamless trading between different assets. Otis plans to hold onto each asset for about 5-10 years, and at any point, anyone can offer to acquire the asset in full, liquidating all the investors.
In regards to fees, Otis is still working out a structure that will be economically feasible for everyone.
Otis was founded by Michael Karnjanaprakorn. Before Otis, Michael co-founded SkillShare, an online learning community for creators. Skillshare went on to raise $50M+ and reached 6.5M members. Before SkillShare, Michael led the product team at Hot Potato (acquired by Facebook) and was an early employee at Behance before its acquisition by Adobe.
In addition to Michael, the team is comprised of Connor Lin (Biz Dev),
Andrew Simpson (Growth), and James Gilligan (Ops). Conner co-founded Carbon-12 Labs, a price-stable cryptocurrency designed to create a more efficient and inclusive global economy. Andrew founded Someonew, a platform for employees of large companies to connect better. James was Head of Ops at CommonBond, an online lending platform that takes the trouble out of education financing.
Market + Opportunity
Otis plans to offer a diverse set of assets to invest in but they're going to kick everything off with Contemporary Art — work made and produced by artists living today. Contemporary art is widely known for artists being able to explore different mediums and reflect on modern day society through their work.
Contemporary art isn't just aesthetically pleasing; it plays a huge role in the $63.7B global fine art market. In 2017, post-war and contemporary art was the largest sector of the fine art auction market, representing $6.2B in sales and accounted for 46% of its total value. I should also mention that sales have been increasing 12% YoY.
In a winner-take-all market like contemporary art, accessibility is limited to the wealthy. In fact, works priced over $1M accounted for 62% of value in the post-war and contemporary art sector. If 61% of people don't have enough money in their savings to cover a $1k emergency, they definitely don't have enough to acquire a piece from an established artist. On the other hand, it may still be lucrative to invest say $100k in ten works than to invest $1M in one work.
Although works are selling at massive prices, according to a survey, art dealers are having trouble finding new buyers and new demand for art and antiques. In addition to this, there's a significantly low number of galleries being established, the number of new galleries created in 2017 was about 87% less than in 2007.
Though this is just a subset of Otis's grandiose vision, I believe there is a huge opportunity here to genuinely help the 99%, dealers, and creatives alike.
Masterworks is identical in that they want to make it possible for everyone to invest in blue-chip art. However, Masterworks has a rather steep entry point of $1000 versus Otis's $100 entry point. In addition to this, Masterworks focuses on acquiring only "bluechip art" which typically cost well north of $1M, and artist are already considered established. Comparatively, Otis plans to be more flexible in art acquisition price and artist categories. Because Masterworks acquires art at such exorbitant prices, they have to work directly with major auction houses, whereas Otis has the option to acquire work from art dealers, online, and at some point, even the artist.
Rally Rd. is also a company that allows people to purchase shares in blue-chip items, except they're in the market of classic cars. Though, I don't necessarily see Rally Rd. as a direct competitor, they can expand their offerings at any point, or Otis can decide to add classic cars to their palette of assets.
Arthena is a "quantitative investment firm for art assets" — meaning they host various funds for people to buy into, where the assets are chosen using a data-driven approach. Arthena can be seen as a competitor because they are an alternative method for people to use when investing in art. Nonetheless, there are some drawbacks: 1) you can't purchase shares in individual works, 2) you must be an accredited investor, and 3) buy-in minimums are around $10k — this is fortunately not the case with Otis.
What makes Otis different?
Otis offers a variety of assets meaning they aren't constrained to one offering. By doing this, they will provide investors with the flexibility to explore different assets that pique personal interest, have a high barrier to entry, and historically perform well, things that are not typically mutually exclusive.
Otis is potentially opening up an alternative route for creatives to take ownership of and monetize their work. Typically, an artist has to go through dealers, gallerist, etc. but with Otis, they can have their work acquired and let the market decide ¯_(ツ)_/¯. I could see this working with an emerging artist, but it's unclear how this will work with mid-career and established artist.
Questions (Art an an Asset)
How will Otis find undervalued works by reputable artist (can their algorithms do that?)
What level work do they plan on acquiring? Emerging, Mid-Career, or Established, or all?
How does Otis plan on educating users who know nothing about this market but want to participate?