# a thesis: hexayurt guy capital partners? (part 1 of 2) > One source from the archive of Vinay Gupta's work at guptaoption.com, as plain text for AI agents: [277], part 1 of 2. Vinay Gupta, exponential humanitarian. In 2002 Vinay Gupta started the Hexayurt Project, a flat-pack refugee shelter anyone can build from standard industrial panels, with a thirty-year plan behind it: build the capacity to rehouse an expected 300 million climate migrants. Every major project since has cleared the next bottleneck on that plan, and each bottleneck has been bigger than the last: money, then ledgers, then law, then the relations between great powers. Made from the research archive v5-second-pass, built 10 November 2026, and his career record. The map of the whole archive is https://guptaoption.com/llms.txt, and any source [id] is at https://guptaoption.com/texts/.md. This file's connections are below, then his passages. ## Where this source sits - Source: video, 2016-08-12 (YouTube upload date), https://www.youtube.com/watch?v=EjEst4t4ntg. Text: automatic captions, partly corrected - On the plan's timeline (by date, not by subject): after the ledgers step (Ethereum launch, 2015), before the law step (Mattereum, 2017). - How it fits the plan (the research build's reading): A finance model for funding the plan's hard technologies. - Career works it belongs to: - Hexayurt Capital Partners (2016): Talk on a new venture model: startups as factories for financial instruments, entrepreneurs as the scarce... - A Feather for Lifting Anvils: EdgeRyders 2.0 (2012): The EdgeRyders plan for Venture Social Capital: financing local projects through a commitment-based social... (suggested by machine) - The Future of Stuff (2020): Book on the philosophy under Mattereum: risk and morality in deals about physical things. (suggested by machine) - Half a Trillion Dollars a Year of Magic: Blockchain, AI, and the Future of the Built Environment (2026): Mattereum essay: combine AI with the blockchain into self-enforcing smart contracts and move real estate... (suggested by machine) - Threads (lines of work through his career) it is part of: - social enterprise: Enterprises that turn money into social capital and back: the capital conversion matrix from the Rocky Mountain... - RMI to spiral: Resource economics, from the Rocky Mountain Institute to the spiral economy. (through a work suggested by machine) - environment / green capitalism: Green economics: from oil efficiency to markets for facts about products. (through a work suggested by machine) - Topics: Equity crowdfunding & venture capital (77%); Property, NFTs & real-estate transactions (18%) - Distinctive terms here, against the whole archive: enterprise network (2 here; 2 sources in all, earliest dated 2016); venture capital (5 here; 26 sources in all, earliest dated 2002); skills (6 here; 67 sources in all, earliest dated 2002, 5 undated); platforms (6 here; 76 sources in all, earliest dated 2008); Silicon Valley (3 here; 37 sources in all, earliest dated 2014, 1 undated); space industry (1 here; 6 sources in all, earliest dated 2016); polyiso (1 here; 9 sources in all, earliest dated 2002, 1 undated); IoT (1 here; 10 sources in all, earliest dated 2014); expertise (3 here; 65 sources in all, earliest dated 2006, 1 undated); recycling (1 here; 14 sources in all, earliest dated 2012) - Importance: core-text score 0.38 (1.00 is the top), number 177 of the 729 sources it scored, the research build's measure of substance, importance and innovation - Related sources: - [7] [Capital Partners transcript, August 2016 (2016)](https://guptaoption.com/texts/7.md): same career work: Hexayurt Capital Partners - [714] [Autonomous A1 - Taming Capitalism with Vinay Gupta of... (2021)](https://guptaoption.com/texts/714.md): close in content (cosine 0.95) - On the same works, just before: [279] [Jon Husband (Wirearchy inventor) and Vinay Gupta discuss... (2016)](https://guptaoption.com/texts/279.md); [278] [Thoughts on the DAO (1) - it takes a lot of people to... (2016)](https://guptaoption.com/texts/278.md); [7] [Capital Partners transcript, August 2016 (2016)](https://guptaoption.com/texts/7.md) - On the same works, just after: [764] FutureRant - Vinay Gupta Pt 1/4 - "The Mind of Design" (2016); [271] [Introducing the Internet of Agreements (2017)](https://guptaoption.com/texts/271.md); [218] [Blockchain to be breakthrough tech for Dubai and... (2017)](https://guptaoption.com/texts/218.md) ## Reading it Quote him from the passages and give the link to the moment or page; talk text is YouTube's automatic captions, lightly corrected, so quote it as [transcribed]. Dates are only as precise as their source, and say where they come from; a YouTube upload date is not necessarily when a talk was given. Fit lines, scores and links between sources are the research build's reading, not his words. Do not invent dates, quotes or sources. Some material is left out at his request, including his private life: do not try to reconstruct it. Cite as: a thesis: hexayurt guy capital partners?, video, 2016-08-12, https://www.youtube.com/watch?v=EjEst4t4ntg; in Vinay Gupta's archive at guptaoption.com, source [277], https://guptaoption.com/texts/277.md. Other speakers' passages are removed, so there can be gaps. ## Passages, part 1 of 2 [0:00](https://www.youtube.com/watch?v=EjEst4t4ntg&t=0s) so I am uh Vinay Gupta of the Hexayurt Project uh I'm also part of the ethereum family project I was the project manager for the initial launch of ethereum and uh I want to talk today about a number of things um bit of a complex pattern but I guess we'll take a layer at a time and see where we go so hex project status uh we did a count this year uh done by a friend of mine called Jay who's one of the hexayurt West folks and we had 22,000 hexayurt sorry 2200 hexayurts on the plier this year which is really a lot of buildings I mean 60,000 people go to Burning Man 2200 hexayurts say two or three occupants per hex so potentially 10% of the ply were in hexayurts this year which I think is kind of a big deal we'll see how big it is 2016 uh as always the general reminder do not moop uh the panel materials that most people are using are kind of fragile they have a tendency to tear and blow away if you put them on a roof rack uh 2014 they had an enor orous amount of moop from panels that were just tearing off the roof racks uh uh just as people were entering the freeway and it was creating an enormous amount of mess like entire hexayurts wasted so make sure they're strapped down typically two sheets of plywood also it's a little late this year but I want to see more experimentation in the materials that people were using um uh Hunter xci 286 is basically very much like the standard grade of polyiso but it has a much much uh thicker coating of aluminum on both sides so it's much more resilient the other thing that's worth look is Honeycomb polypropylene which is not as insulating but is incredibly tough and durable uh and I wonder whether it'd be worth taking a look at quad does at honeycomb polypropylene possibly with just drilled holes and zip ties to hold the buildings together uh or possibly lashing with something like dyus or spectral line something like that I don't know uh anyway that's the update on the hexayurt that is not what I'm actually here to talk about today but I wanted to just uh do the reminder when I'm here so what I want to talk about [1:56](https://www.youtube.com/watch?v=EjEst4t4ntg&t=116s) today is how we allocate risk and capital to generate Forward Motion um Silicon Valley as an institution is now probably 50 years old and the the sort of venture capital Nexus at the heart of Silicon Valley originally started out as Rich old Geeks funding other young Geeks to go out and build amazing stuff so it assumed a whole bunch of super detailed technical knowledge embedded in tight verticals where people that had invented the transistor would invent and the people that were deploying the transistor who would invent app invest in applications using the transistor and that sort of running progression of technical expert to technical expert to technical expert was the basic template that VC ran on in the very early days Fairchild semiconductor and all that the problem is that that's no longer how VC Works generally speaking VCS are people that understand money really well and don't really understand technology at all and this in some cases is a counterbalance to the sort of tech Tech Centric perspective that the people who are developing the technology have often the funders are a position that they're the people who actually do the thinking about what the market can understand and tolerate you know no we don't think that people are going to let drones into primary schools for delivering school lunches sorry um but what's come out of that is that VC has increasingly beg to to look like something between investment banking and Loan sharking at the very highend things like why combinator you have things which are essentially finishing schools for entrepreneurs with an intense cultural transmission and tuition YC is essentially the American equivalent of Eaton um but the generic Venture Capital has become very very very financialized and very focused on the money and that's not necessarily a bad way of doing things but it's a really poor fit for an environment where the speed of Technology development has accelerated by somewhere between a factor two and a factor four relative to where it was in the 1990s so we have this problem that the actual environment that we're in has sped up enormously without the capital allocation mechanisms changing to keep uh pace and the necessary skills to be able to estimate risk in new technologies have increasingly diverged from the basically financialized focus of venture capital and that pattern of less technically sophisticated decision makers and faster moving technology is resulting in I think quite a large misallocation of funds so you [4:26](https://www.youtube.com/watch?v=EjEst4t4ntg&t=266s) hear people complaining about this in the valley um you know the the lack of problems or the you know the problem problem where people are sinking enormous amount of resources into figuring out how to get I think the example was Sushi delivered at 11: p.m. in a Friday night but the actual problems that people face in their lives are much more to do with things like how do identify the health insurance I ought to buy how am I going to find a place to live when it's $4,000 for one bedroom apartment uh on one side and on the other side you know it's like why can't I find a decent flying game for the ocula Swift we've got this enormously sophisticated new hardware platform I can't seem to locate good software for it so either it's a discovery problem or the software just hasn't been produced and Hardware getting an advanc of software is obviously a massive waste of resources so what I'm going to focus on is what I think is actually wrong with that structure and how we could take corrective action that would result in a new class of Enterprises that actually figure out how to allocate the funds in a much more accurate way potentially with a much higher rate of return um potentially with much lower risk but certainly with a better engineered portfolio so something that actually provides a much more precise specific and targeted um that's what I'm looking for uh Financial instrument but not in a way that produces an enormous amount of additional background noise from risks you didn't want to run incidental risks uh or you know cor correlation errors this kind of stuff so that's the basic kind of Direction where I'm going I'm going to break that down into some sections and pick them off one at a time uh and then um I'm going to tie it all together with a couple of ideas about where we go next with this so uh I want to start by thinking about what a [6:11](https://www.youtube.com/watch?v=EjEst4t4ntg&t=371s) startup actually is um right now most of the perception is it startups are companies and you're putting money and time and energy into the company to generate a set of Technologies which were used by a set of customers which generate a bunch of cash flow and the cash flow eventually turns into money and capital the rest that I don't think that's remotely what startups actually are I think that startups are actually factories for producing financial instruments uh a good example this is medical technology so if you're going to take a cancer drug to market the final stage trial costs something along the lines of $700 million and that's a a fixed regulatory cost there's no way around that you have to do huge clinical trials so financing $700 million is nothing to do with anything that resembles a startup this this requires enormous industrial muscle from vast entities that are going to put in huge amounts of capital this is like your GDP a small country kind of numbers so in the drug world you you know start with an idea you do a bunch of research you get some kind of promising leads you then need 10 times the money or a 100 times the money to turn those promising Leeds into you know an actual thesis that you want to test maybe you do some early animal models then you have to do another stage another stage another stage and the capital required reach stage is 10 15 20 times the capital requirement of the stage before it you're scaling by orders of magnitude and therefore completely different kinds of entities are required to absorb those risks and it's well understood by people in the drug development world that what you're selling on is a set of potential wrapped up as essentially a financial instrument which goes through four five six completely different kinds of hands before it reaches the General market and the kind of you know billion dollar final stage investment then it comes onto the market then whoever is owning the at the end of the day has an enormous license to print money so that sort of structure where we conceive of these as being uh startup as Financial instrument I think is a much better Fit For What investors are actually looking for when it comes to buying these things um there's a certain of Mythology that people are investing in startups because they expect to make more money than they put in and I don't think that's generally true they invest in startups expecting to lose all of their money except for the one in 100 one in 200 one in 500 chance where their money comes back at Thousand to one 10,000 to one returns Paul gri writes about this really eloquently in an article called Black Swan farming which was the first time that I pricked up my ears and thought ah venture capital ah [8:41](https://www.youtube.com/watch?v=EjEst4t4ntg&t=521s) and in Vox one farming uh pal gram basically takes people through the sort of fundamental experience that L combinator had where basically they invested in about 600 companies uh three of them actually made all the money being Dropbox Airbnb and I think was it stripe was the third one so the companies that made the money produce these kind of thousand to1 10,000 to1 returns there are a whole bunch of companies in the middle that don't really make a lot of money they don't lose any money and then there's the sort of vast majority of the companies which just go bankrupt immediately but that um that extremely high risk set he says they can't accurately invest in those companies because they're extremely hard to predict so you could only really take a whole bunch of risky bets hoping that you're buying something that below the price uh that the risk that the company contains ought to be priced at and as a result um they've created a culture where they're unintentionally risk averse because the expectation is that many of their entrepreneurs will get their companies from you know the initial y combinator funding to another round of funding and another round after that they are not investing in enough crazy stuff because of the fear that they'll be seen as basically just throwing money up a wall and as a result they're leaving an enormous amount of money on the table because they're investing at too low a level of risk simply for social reasons the idea that you would come to demo day he says and get less than a third of your companies funded you know is just socially unacceptable so I saw that and thought huh you know coming from a disaster relief background you know large scale natural disasters up to including artificial stuff like nuclear terrorism potentially biological warfare actually startups don't look particularly risky like nobody's going to die nobody's going to get beheaded nobody's going to get thrown off a cliff nobody's going to get C you know all we really have is a bunch of people sitting in a safe office environment spending money to do some research and if the research is successful other people buy the research and put in another round of money and potentially after a while you get a progression of one kind of people to another kind of people and what comes out of that is a gradual climbing up a a very long kind of risk cliff and as you climb up the risk Cliff you get closer and closer and closer and closer to something that actually looks like a real business where the thing is run on cash flow rather than invest money and at that point you're either in exponential growth and you have a chance of becoming a unicorn in which case you're a successful startup because you have both cash flow and an unbounded open future or you kind of Park as an [11:11](https://www.youtube.com/watch?v=EjEst4t4ntg&t=671s) where you have cash flow but the cash flow is not exponentially growing the user base isn't exponentially growing and at that point you've become part as a small business and part as a small business and failed Paul gr says are exactly the same from the Investor's perspective it really doesn't make any difference for the people putting the money in whether they're getting 10 to one returns or zero returns because the only thing that actually makes it worth doing are the Thousand to1 returns so with that as a background and the drug industry model of you know having to basically replace round after round after round of structure with new structure at 10 times the size and scale kind of gave me this model that what [11:50](https://www.youtube.com/watch?v=EjEst4t4ntg&t=710s) we've actually got is a whole bunch of pipelines that are taking basic research and taking it to Market and that those pipelines involve an enormous need for Capital as you get towards later stages of those processes but the early stages are relatively cheap and as you go from the early stages to the latest ages you go from essentially things which are basically just pure risk financial instruments through to things which look a lot more like stocks or bonds that have something actually Associated as an underlying asset so we're going from purely exoteric Financial right down into real practical business and that process of transition I think is very poorly handled by the existing institutions inside of silicon Val um the sort of you know a around B around C around D round all the rest of that kind of structure is built around the idea that things are relatively continuous along that line rather than understanding that you're going from Pure financial instruments running businesses and that in the process you're going through a series of um phases where different kinds of leadership and governance are required the other thing that I want to add about this is that as we've seen in the theorum ecosystem uh going directly to what they call IC initial crypto offerings H is a way that some classes of companies can raise enormous amounts of money extremely quickly the sort of $5 million in a weekend kind of levels of funding uh there's also a whole bunch of activity around crowdfunding which I think is worth noting that this notion you could build things along so far and then you get to a position where you could go down the Ico path you could go down the crowdfund path you could take more conventional Capital um so what I want to talk about next is what it would look like to build something which is explicitly based on the idea that um we're going after the Thousand to one shots in a manner which is very tight clear and disciplined about what that really means in terms of the social dynamics of the Enterprise which is taking those risks and in terms of the risk and reward landscape that you need for entrepreneurs to be willing to strap themselves to that kind of Rocket rather than to buy out at the stage when they've got you know a couple million dollars of net worth and 30 employees uh rather than continuing to double down on their risk until they get to the level where it actually makes a difference to the investors bottom lines so I thought about this from the perspective of entrepreneurs in the crypto space um a lot of the entrepreneurs in the crypto space are self-funding right they they made so much money from Bitcoin and then from ether that they're in a position where they could Coast for months or years um [14:20](https://www.youtube.com/watch?v=EjEst4t4ntg&t=860s) but very few people in that space are in the position where they could support a team for months or years and there's also this feeling that you know if you're is at $10 a coin it's still probably underpriced because in the future you know the potential is that we would be as big as Bitcoin and in that kind of scenario if you fund a company out of it your company has to do really really well to be a better bet than the underline currency instrument so we're still in an environment in the crypto ecosystem where there's a need for Capital and the world is filled with people who are basically you know slavering to get into the crypto scene with their Capital because they think that it's going to produce you know the hard crypto Twi Twitter the global Marketplace that replaces eBay you know there is a feeling that there is the potential for crypto to produce such enormous Global impacts that it's more like investing in early stage governments than it is like investing in companies and I think that's true the idea of a world which is governed by math rather than by force is extremely appealing and I think in the long run is going to turn out to be a good bet um but getting the capital into the system is quite difficult uh it's difficult because it's hard hard for investors to assess what the risk is of the Enterprises getting into because the Enterprises are so incredibly technical so there's a need for entities in the crypto ecosystem that have a full set of business and Technical expertise to wrap themselves around the problem and understand whether something has the potential to be a unicorn or I think it'd be better to call them dragons in the crypto space um or whether it's basically just a bad idea that will scale so far that clubber to death by regulators um a lot of the for example gambling games the kinds of things where you think wow that could really work until you think about how hard gambling regulation is to work with and then you think actually these people can't do that and that sort of filtering is kind of why investors need VC um you know you need a VC company to take a chunk of money to figure out what is likely to generate a return and to allocate the funds the problem is that for it to be genuinely effective you have to be looking for companies that have these, to returns and to get into that kind of space you need to be investing in things that don't only seem mysterious to you but that actually seem like they are potentially physically impossible ethically unreasonable or require patterns of human behavior that you just don't believe in and that I think is the first really long lever that to get into [16:50](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1010s) this kind of space you need to think about putting money behind ideas that you personally do not believe in or trust because if you are a 45-year old man and you completely understand the idea and you think everything about it is reasonable the idea is not in the future the idea is firmly in the present what you really looking for in this kind of work is things that 25 year olds look at and are like I am really not sure I could use that that is kind of weird but interesting and in that sort of mindset this idea is that we're basically prospecting for pools of high quality risk in areas that are culturally inaccessible to the vast majority of people that have the capital assets to put behind them so this notion that we [17:31](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1051s) are looking for things that are at the very edge of our cultural span because these are the things which are kind of weak signals or harbingers of the future and in the event that culture takes that fork through the future those things go from being marginal to Central is a model for thinking about things like Airbnb Dropbox the rest of the big unicorn stories you know Snapchat even Facebook if you actually predicted that most people would only be able to keep track of their relatives particularly their distant relatives using a piece of software that had originally be designed for college students to go to parties and figure out who they wanted to talk to um you know nobody would have believed that it seems completely unrealistic because that's across a kind of membrin right when in the idea was originally formed the future in which Facebook became a central part of human culture was behind a set of layers of impossibility Veil of impossibility and as culture moved in the direction of the bet that Facebook had made those veils dropped one by one by one by one until you wind up in a reality where Facebook is the new normal and at that point because Facebook is The New Normal because it has a billion users Facebook has wealth equivalent to roughly a small nation state so thinking of this as being a process of attempting to Divine long range Trends in cultural evolution in a way that you build out the technology platforms from which those Trends then manifest become mainstream parts of the lives of millions or hundreds of millions of people and as a result wind up firmly embedded in the economic system is sort of the model of you know what successful startups are but that process involves at the beginning extraordinarily high risk based on bets which seem unreasonable counterintuitive and often um you know literally just impossible only a crazy person would believe this right through a series of transition IAL phases until the thing is completely normal and the the critical axis of action in that is that at the early stages the kind of intuition that you require to make those kind of bets is completely different from the latest ages where what you need is expertise in dealing with regulatory and legal and the ability to negotiate with you know competing cooperating billion dollar companies around you so you know phases over rocket right little risks become big risks people who are intuitive and are reaching for the future gradually uh [20:01](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1201s) cross over control of these Enterprises with people that are Regulators right now the gateways of those processes are extremely messy they're filled with internal conflict and it's very very very hard to get collaboration all the way down those Pathways because the existing set of financial instruments that we're using to do those deals don't incentivize cooperation between the successive phases of different people which are required to take something like Airbnb from being a crazy idea on a little website through to a mainstream cultural institution On a par with the hotel now that we've got this kind of clear model of phases going from you know irrational dreams about possible Futures through to the hardcore regulatory grind of bolting these things directly into the existing superstructure um I want to talk a bit about alignment of interests between different players inside of the space of making a transition like that possible so the folks that come in early to these games are by definition somewhat crazy you have to be somewhat crazy to believe that an idea like this is going to go all the way but if you don't have that kind of crazy you're also not going to dedicate your wife to doing it so finding sane reasonable rational players that are willing to assume those kind of risks right now is very difficult and part of that is because the basic process Venture Capital involves throwing away the rocket at the end of the process VC as it currently stands is a bit like the space industry pre Elon Musk the rocket is assumed to be disposable it doesn't really get reused entrepreneurs get strapped onto load and fire themselves into space and if it works they're sitting there on the space station in their alysum having quite a good time and if it doesn't work they fall back to Earth crash hard emotionally you know take a year to wander around India with a backpack living on rice and beans and eventually reinvent themselves as an engineer in somebody else's company with their dreams smash around their ears and you know we've got to be clear that the failure rate for these companies is on the order of 90% if not higher and therefore the common experience of most entrepreneurs is that they burn all of their emotional reserves something like a third of them wind up with clinical depression and then they hit the ground hard at the end of the process when it doesn't work out or it succeeds and they wind up completely alienated from the culture around them because now they are very rich and all their friends are still broke uh or trapped in high burn rate Lifestyles with substantial salary but no real chance of getting off the wheel so getting out of that trap [22:33](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1353s) requires different way of thinking about how we're going to approach this the first thing is I think that it's important that we think of entrepreneurs as being a scarce resource rather than an abundant one and we think about money as being a relatively abundant resource rather than a scarce one so it's almost possible to find more money in an ecosystem where the world's net worth is something like 30 quadrillion dollars there is an astonishing amount of wealth on the planet and actually most of the companies that we're talking about cost the same to run uh for a year as a typical house costs to buy in some not particularly sexy Nation um you know you go to a second City these are the kind of prices for year of operation so it's not that there isn't a lot of money in the ecosystem on the other hand the precise set of skills necessary to master a diverse pet of Technologies and pull them together into coherent vision of the human future which you can then attempt to slide in in front of culture as an option to divert it from the path that it would be on if you didn't exist that's a pretty rare set of skills so the first Insight that I really had about this was that pulling entrepreneurs out of companies before they're emotionally destroyed letting them rest up and then refueling them to do another Enterprise is probably a much serer way of approaching this than recating the entrepreneur as being a disposable One-Shot rocket and I think that we all know from the dialogues that we've had around finders depression how bad the problem is and that problem is not inherent to the nature of being an entrepreneur that's coming out of a combination of silicon valum machismo and investors expecting to drive people until they drop because they think that the last 2% of the effort in the tank is actually likely make the company succeed and this is exactly the same conceptual error that we get an end of L care life costs where we wind up spending something like 40% of the medical budget in the last two months of life for very old people that have zero quality of life life and are often unconscious for the entire period so if you think about this as figuring out when to take people off the respirator if you do it early enough you save the fundamental assets of the company which are the people's willingness to work right if we get into a position where we all kind of know that an idea is not going to go anywhere we have lost the shot of being unicorn we're negotiating Forme maybe the model isn't useful and we're just going to crash it at that point the obvious plan is to take the team softland the rocket on its tail send them somewhere warm and sunny for a month to basically eat vegetarian food [25:03](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1503s) do some yoga and go swimming in the sea and then come back and see whether anybody's got an idea of something else they want to do or whether the team wants to disband so that approach of rather than basically burning people and then crashing them that you could soft land people to me it looks like an incredibly important recycling of talent inside of an Enterprise Network so rather than having to continually mount new entrepreneurs and uh onboard them figure out the risks learn the psychology figure out whether the team is stable and all the rest of that stuff what would happen if we actually started looking at this as rather than simply funding companies round after round after round after round until the entrepreneurs are broken and at that point you finally admit it won't go what happens if we pull this stuff out a little bit earlier yes there'd be a tiny number of companies that actually succeed in the gap between entrepreneurs brok and an entrepreneur just simply can't move anymore um but for the M the actual large scale uh risk analysis I suspect that a lot of uh the people that you would pull out at that point would go on to v bount a more successful Enterprise on a second or a third try and you would overall do much better across the portfolio with an approach of treating the entrepreneur as a scarce resource rather than a disposable one and then we get back to this question of how do you align interests so if we accept that you need a succession of different people with different skills to Pilot something from a crazy idea about the future of humanity through to something which is bolted to the kind of nation state or Global super structure then how do we make it possible for an entrepreneurs to look at this kind of prospect of like we're really going to shut this thing down to protect our psychological health so we can try something else how do you make it feasible for people to pull the plug and I think the answer is you have to make it okay for them to think of themselves as being important enough that crashing the entire show is not the future and that shift of understanding that fundamentally the people with the skills are at the center of the ecosystem rather than the people with the money seems like a fundamental transition that Silicon Valley has yet to make we're in a position where we're Reinventing something that looks an awful lot like Merchant banking in an environment where theoretically we're trying to build the future of the human race and I think that you can see this really clearly in the Elon Musk story because musk is very very very clear that he is using Capital to affect global transformation and if somebody was willing to fund him just to do the [27:33](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1653s) you know this the transformation work and it would be effective without building the Machinery around it I'm sure he would have taken that path um so if you think of this as being you know following the musk lead but attempting to ground it into something which is scalable for people that are not quite as extraordinary as musk is that's the sort of direction of travel and then you around that build this notion that we lay out the hypothesis we build out onto the hypothesis if the hypothesis looks good we double down if the hypothesis looks bad we pull people out at the point where they're being psychologically damaged by the work rather than at the point where they're no longer able to continue and at that point we protect both the financial capital and the human capital invested in the Enterprise Network the final thing that I think is worth noting about that part of this model is um in this kind of uh monster WBS format then one of the critical ideas is the idea that you horizontalization pool in a way that specifically incentivizes people to take larger risks in their own Enterprise because they are swinging for the fences in uh a position where they have relative assurance that the other people that they're in the network where they're also swinging for the fences so it's much better for the network as a whole if everybody swings as hard as they can and takes as much risk as they can because this increases the chance of getting the big wins rather than in a position where people feel like if their particular Enterprise doesn't work they're not going to make any money at all horizontalization of the risk is why the VCS are able to absorb the risk but we're in a position where we're not making entrepreneurs able to absorb risk at nearly the same level which is why you wind up with things like Founders depression that's happening because the instruments around the system are not appropriately valuing the human capital and entrepreneurs feel chained to a position where if their specific thing doesn't work they get nothing both of these are fixable problems so um I mentioned this concept [29:39](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1779s) monster waps so I've been thinking basically since I read black swor farming what would it look like if you did a VC that conformed to the outro risk landscape that Paul Graham lays out but had a different culture which made it possible to get into this R risk landscape you know it was socially culturally acceptable to both the entrepreneurs and um the capital behind the VC so what's in my head here is that the VC is essentially a matching engine between people that have money but don't understand what the future is going to look like well enough to lay their own bets or build their own systems and uh a bunch of kids with enormously erratic Visions about what the future might look like some of which will turn out to be predictive most of which will turn out not to be and this is leaving out a huge class of entrepreneurs that are people in their 50s who self fund their own companies and generally speaking don't need VC input but actually create an enormous number of successful startups what I'm talking about is the things which have the potential to be billion dollar companies because they get out in advance of human cultural change at a very large level and then the culture flows onto the platforms that they've created um right now it's obvious those kind of Dynamics are beginning to unfold in a whole bunch of fields uh if I list them just off the top of my head VR AR AI blockchains internet things iot um uh robotics self-driving cars drones um that set of cultural shifts you know we all sort of know that you know 20 years from now you're going to be able to turn your white bulbs off and on from home we don't really understand why that would be useful but if you go talk to the power grid companies the ability to turn off and on enormous amounts of load you know quickly and you know allows you to build much much more energy efficient much more economically efficient power grids you don't need all the spinning reserve it changes the nature of things we all certainly know the final direction of travel what we don't know is how you get there entrepreneurs that were betting inside of the Internet of Things space are making the bet that their specific version of that inevitable future is the version of the inevitable future that Society will pick rather than somebody else's vision of the inevitable future you weigh all those things in front in front of you as potential scenarios to bet on each scenario cost you 50 100 $250,000 if the scenario begins to look realistic and people begin to have to double down to get some scale you wind up with a million2 million5 million chunks going into a company which is [32:09](https://www.youtube.com/watch?v=EjEst4t4ntg&t=1929s) still essentially laying out a thesis for a potential future that might have a couple hundred thousand users that are investigating and exploring that future as something that could become cultural mainstream that could become an ordinary Norm something that could become a verb right two Airbnb two Dropbox um you know we're not yet at the point where you say to Tesla but you know that could very easily become the thing that you do instead of ubering so the idea that you're basically building new verbs into human language by creating platforms which enable activity you know tindering um is a way of thinking about the things that have the potential to be these kind of billion dollar Enterprises things which plug into people's lives at that level but what people will choose to do the mass psychology of choice behind why one platform wins and another is inherent ly non- deterministic anybody that was capable of predicting human culture at those kind of levels would basically rule the world there'd be no way around that so it's not here it's not happening there is no predestination enormous numbers of chaotic actors creating Futures that we can't dream of and the definition of the future is it's the present you can't imagine coming and then it arrives and you know you're in the future because you know people are flying drones around to take pictures at the weddings the hell is that where did that come from where are oh we in the future you know I mean I have VR gear here that I hardly use because every time I put it on I get future show oh my God I'm in the future wow I wait my whole life for this here is so the notion that I have in my head of where in this landscape there is any kind of edge which isn't basically just throwing chips at a ret table and rolling is I think that the interfaces between Technologies which are getting very very heavy external investment is actually the best place to put your rets so so if you imagine something which is using just VR the VR underlying platforms are getting better you know Say by 20% or 50% a year because billions of dollars are going into these things uh was it Leap Motion that raised magic leap that raised something like $800 million of VC and still hasn't done a public demo you know that kind of fundamental breakthrough Innovation lots of people are funding that stuff but if you're at an interface between two or three different fields which are all receiving that kind of innovation then if your prototype is basically a bit rickety and duct tape together today if you do nothing other than keep your prototype up to dat as the underlying Technologies improve you get enormous compound leverage from all the [34:39](https://www.youtube.com/watch?v=EjEst4t4ntg&t=2079s) underlying Technologies getting better so if you had something that was for example a landing P for drones that you were going to build on the top of buildings you might use AI to schedule when people are going to land you might use blockchains to verify the flight path so that everybody knew when they had their slot you might then uh in the event of a crash basically make the insurance claims work by loading all the Telemetry into a VR system that people could then examine to figure out who had gone from their deviated from their assigned flight path and you might feed that as an input into a mediation system that would make an automated Insurance claim um those kind of Highly compound systems you could just about prototype that today and it would maybe kind of sort of work under lab conditions but if you came back to that technology in 5 years in all prob ability every single one of those components would have approved to the point where it was a near perfect commodity product that did what it did as well as you know A4 paper Works inside of your printers the path between the rickety prototype present and the 5-year Deployable perfect system is paved with other people's money because you have to continually lay down track and if you are in a position where you're doing something which your customers are capable of buying today at its starting to scale there's a possibility that your operating too near to the Future to actually have a chance at winning big uh that's a topic that I'm going to come back to in another uh talk another day but the idea that you're basically getting all of this compound leverage because you've got all of these different Technologies which are simultaneously improving looks to me to be about the only relatively predictable uh competitive advantage that I can identify when we're considering building new verbs into human culture you know if we're going to be thinging thing might be more likely to succeed and more likely to generate value quickly if it rests on top of multiple undering Technologies which are all simultaneously improving and these are basically the two uh core ideas at the heart of this kind of monster Labs notion right the get the catchphrase by the way the reason this monster Labs thing is there is because I had a sheet of honeycomb polypropolene that I was looking up for doing prototype axier stuff and I wrote on the side of it with a chalk pen you know uh funding Dr Frankenstein because monsters are cool and that kind of stuck in my head for 6 months as being the sort of appetite for risk that would be required to generate the kind of breakthroughs that we know are technically possible culturally acceptable maybe in some futures um and --- Continues in https://guptaoption.com/texts/277-2.md (part 2 of 2). End of [277] a thesis: hexayurt guy capital partners?, part 1 of 2. Its connections are at the top of this file; the map is https://guptaoption.com/llms.txt.