Capital Chronicles #19

Hello there! Welcome to Capital Chronicles, saving you hours every week with ~2-3 minute summarised insights from the best venture builders, investors and capital allocators out there. This week: the best strategy icebreaker from Roger Martin, Slow Ventures’ Dawn of the Growth Buyout investment thesis, a semiconductor masterclass and Carta Q1 2024 VC fund performance.

As subscriber #TBD, each web link below takes you to:

• A link to the original article (read time: varies)

• Summary / insights / implications per article (read time: 2-3 minutes)

Now, read on for the latest…

🛠️ On venture building…

Reverse-engineering the strategy of your competitors, by Roger Martin, demonstrates reverse-engineering competitor strategies using the strategic choices cascade.

• Why you should read it: Roger Martin is one of the world’s leading experts on strategy and author of Playing to Win, a highly regarded book on the subject. The strategic choices cascade is an incredibly effective and practical tool for any founder, investor, or operator seeking to understand the competitive landscape and how to differentiate in the market. This article serves as an excellent guide. Bonus: Listen to Roger on Lenny’s Podcast (from July), where he shares some spicy takes on strategy and walks the audience through the full cascade.

🧭 On venture investing…

Dawn of the Growth Buyout by Slow Ventures argues that the next generation of venture-backed winners will emerge from Growth Buyouts (GBOs), where software companies acquire traditional businesses to modernize and transform them using proprietary technology.

• Why you should read it: a nuanced and compelling counter-narrative on succeeding in verticals with challenging market structures and an over-reliance on legacy software. If proven true, this thesis will break many commonly held assumptions about building enduring software companies. Notably, this perspective has surfaced elsewhere and is beginning to emerge as a trend. For example, consider how AI startups are building moats (covered in CC#13) and Equal Ventures’ application of the GBO thesis to insurance brokerages.

📖 Learning resource…

AI, Semiconductors, and the Robotic Frontier with Gavin Baker on Invest Like the Best: A wide-ranging discussion on the rapid advancement of AI and its implications.

• Why you should read it: Gavin started covering semiconductor companies back in 2000 and his takes are very astute - I felt smarter after listening to this episode. You could argue some are even controversial. For example, he believes the major tech companies are in an existential race to create a "Digital God" AI system. He also thinks global warming is a solved problem because of improving photovoltaic cell and battery efficiency. And he asserts that most public CEOs are objectively terrible because of their inflated egos. Spicy stuff!

📊 Market insight…

Carta's inaugural VC Fund Performance Report for Q1 2024 analyzes deployment pace, startup graduation rates, and return benchmarks for more than 1,800 funds across six recent vintages (2017-2022).

• Why you should read it: The report is one of the first of its kind and puts numbers behind what we've all been hearing anecdotally about market conditions over the past couple of years - it's tough out there! Capital deployment has slowed (43% in 2022 vs. 47%-60% in prior vintages), startup graduation rates are declining (15% Series Seed to A in 2022 vs. 30% in 2018), and distributions remain sparse (less than 10% of 2021 funds have had any DPI after 3 years). Carta's insights team sets a high bar for content and this report doesn't disappoint.

🎲Lucky dip essential reads…

• 50 Tips From Scale-ups To Take Friction Out of Your Sales Process

• The 4 Key Questions on Every Angel Investment Opportunity

• How Companies Got So Good at M&A

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Have a great week!

Josh