Detailed notes, How to Fail at everything and still win: Book review

I write down detailed notes on each book, and in this case a friend who knows this, asked me to share my notes. Here it is. If you dont want to read this, then the short summary book review of How to fail at everything and still win big is available as well.


You need to be selfish, but not too selfish, to get what you want from life.
Maintaining a positive attitude despite the setbacks is key.
The only way you can secure your future fortune is by creating a system.

His formula for priorities is also very simple and easy to follow.

  1. Look after yourself first. This involves eating right, exercising, avoiding unnecessary stress and getting enough sleep.
  2. Look after your economics. That includes your job, your investments, and even your house.
  3. Look after all the other things. Your family, community, country and the world.

Build your life around systems, not goals

Adams first learned about systems from a man he sat next to on a flight. The man said systems had helped him go from employee to CEO, one in particular: going from job to job, always trying to find something better. It was simple enough and the more Adams thought about it, the more he preferred systems over goals in general. He says goals have two problems:

They’re in the future. To get an outcome on an unknown day far out, you have to put in work today. That’s depressing.

They’re specific. Unless you get exactly what you set out to get, you’ll be disappointed, even if you end up with something that’s pretty close or even better.

For example, if Scott had focused on trying to publish 365 comics in a year, each day would have been a potential failure until he had actually drawn something and no individual day would really have felt like a win, because it’s just 1/365th of the mission.

Systems, however, leave room to adjust your plans and make timing irrelevant. When you just focus on, say, publishing a blog post each day, every day when you do it feels like a win, the others are just rest days. And even if it takes 500 days until your work takes off, that won’t matter, because you never set a deadline.

Goofs use goals, winners use systems.

“If you want success, figure out the price, then pay it. It sounds trivial and obvious, but if you unpack the idea it has extraordinary power.”

Scott Adams

“Successful people don’t wish for success; they decide to pursue it. And to pursue it effectively, they need a system. Success always has a price, but the reality is that the price is negotiable. If you pick the right system, the price will be a lot nearer to what you’re willing to pay.”

“I make choices that maximize my personal energy because that makes it easier to manage all of the other priorities. Maximizing my personal energy means eating right, exercising, avoiding unnecessary stress, getting enough sleep, and all of the obvious steps. But it also means having something in my life that makes me excited to wake up.”

Do Creative Work First

In the morning, he is a creator, in the afternoon he’s a copier. Mindless tasks go later in the day. This is the single biggest change you can make to improve your odds of success.

Use space and time to manage your energy

Adams doesn’t believe in finding your passion. He believes in finding your energy. It makes sense. As long as you stay energetic and motivated, it doesn’t matter how many iterations of failure you have to go through until you figure out what works, because you’ll enjoy life along the way.

Scott suggests three specific angles, from which you can look at your energy levels:

Activities. What’s exciting and what’s draining? I, like Adams, hate shopping, for example, but love listening to music.
Space. I need to go to an office in the morning, whether it’s a coffee shop or a library. To me, home is relaxing. When you’re used to doing certain things in distinct places, don’t mix them with others.
Time. Some people are early risers, like me, others like sleeping in and kick into gear late in the day. The more you can adjust your work day to your internal clock, the better.

Don’t worry if you can’t switch to your perfect schedule right away. It takes some time to find and even more to implement, especially if you find you’ll need a different or no regular job to make it happen. But that doesn’t mean it’s not worth trying.

If you can manage your energy well for long enough, you can fail at almost everything and still win big.

Passion is bullshit

Most people think passion causes success, it’s usually the other way round.

Goals vs Systems

Goals are specific objectives while systems are to be followed on a regular basis. “Losing 10 pounds” is a goal, “eating healthier” is a system. Focus on better systems rather than goals. Systems-oriented people feel good every time they follow the system, goals-oriented are always busy chasing their goals and once they have attained it feel miserable (and start looking for another one). There are too many options (distractions) irrespective of the plan, the focus is important.

Deciding vs wanting

A lot of people want something, successful ones decide that they are going to pursue it and are willing to pay the price for the same.

Being selfish is important

Focus on self (be it food, exercise or career), once a reasonable level of success has been attained, you will automatically develop the feeling to start distributing its fruits.

Maximize personal energy
Always try to optimize personal energy (Something which you a positive mental or physical lift), some people enjoy solace, some crowded places, decide what maximizes your personal energy and do those activities in spare time. Maximizing personal energy is selfish but has the best impact on the person and his/her contribution to society in the long run.
Between optimization (doing many things optimally) and simplification (doing just a few things), pursue simplification in the long run since it maximizes personal energy.

Priorities (highest to lower)
Self > Personal finance > family > community > country > world.

A positive attitude is not optional. Daydreaming, positive forms of entertainment, smiling, success (from anything spills into success in other fields), perceptions (even incorrect ones) – all contribute to the positive attitude.

Who you know is important
You don’t need CEOs and billionaires, just knowing friends who know different things than you are sometimes sufficient.

Recognizing your talents and knowing when to quit

Childhood obsessions and tolerance for risk are rough guides are talents.

Deciding when to fight against an obstacle and when to quit is difficult, things which someday work out well, start out well (albeit small success), things which start bad usually never become successful.

Repetition vs Novelty based jobs
Some jobs require a lot of practice (eg. sports), some require a lot of disciplined study and novelty (eg. software engineer, entrepreneur), decide which one suits your nature and choose a career path which is in line with your nature.

Managing your Odds of Success
Every new skill you acquire doubles your odds of success.
It’s better to be good at two complementary skills than excellent at one.
The more you learn, the easier it becomes to learn even more.
Read news about topics which interests you and which are positive in nature (avoid reading a lot about tragic events).

The Math of Success
Some skills increase odds of success – public speaking (Dale Carnegie’s course), psychology (List of biases), business writing(eg, using active over passive), accounting, design(basics – the L-shape), conversation, overcoming shyness, second language, golf, proper grammar, persuasion (being decisive, using write responses), technology and proper voice (pitch).

Pattern Recognition
Learn to recognize patterns in life.
Certain patterns are direct predictor of success.
As per the author, lack of fear of embarrassment, education, exercise and looking at success as learnable skill are major patterns for successful people.

It’s not just a form of entertainment, it helps in developing more social connections as well as boosts personal energy.

Repeat to yourself what you want to achieve while imagining the outcome you want. It improves the odds of success.
The author is careful at pointing out that there might a coincidence or his selection bias in play here.

Timing is luck too
Don’t ignore the importance of timing in success.
The world is like a slot machine where one has to put time, focus and energy and occasional rare payoffs can be big.

Experts are 98% right on easy cases but only 50% on unusually complicated cases.
If your intuition disagrees with experts, go with intuition, it could be an indicator of some pattern recognition which you can’t yet verbalize.

Association Programming
Humans are social animals, we are influenced by people near us.
Spend time with people who most represent what you would like to become. Their good habits and energy will rub off on you.

Happiness has more to do with self than with the situation.
Happiness has more to do with direction than the current situation (when things are going in the right direction, we are happy).
In a career, improvement of skills makes a person feel happy. So, focus on a career where you can improve over time.

The imagination of a brighter future makes a person happy.
Exercise, diet (eat right) and sleeping enough strongly influence happiness.

Routines make us happy since they reduce the number of choices we have at any time (more choice makes us unhappy). Reduce daily decisions for routines.

Help others (after helping yourself).

Food impacts a person’s mood. Pay attention to energy level after eating certain foods.

All humans are different, find patterns in food, which food makes you feel better, which ones make you feel sleepy.
Remove unhealthy energy draining food from home and stock convenient healthy food instead.
Get enough sleep, tiredness causes the illusion of hunger.
Willpower is a limited resource, using that to fight against cravings is a bad idea instead author suggests an alternative, make a list of healthy food items and decide that “you will eat as much of healthy food items as you can”.

Over time, you will stop eating unhealthy food, in the long run, the habits of eating healthy food in limited quantities will become the norm.

Getting recommended dietary allowance with just food is impossible.
If eating for social reasons, choose the lowest calorie options.
Author’s diet consists primarily of complex carbs (like nuts), protein bar, fruits, and fish.
Don’t make healthy food bland by avoiding butter and salt, it’s better to eat healthy food with butter and salt than an unhealthy one.
The author recommends a vegetarian or near-vegetarian diet.
Coffee has higher highs and lower lows which aligns with creative workers, while it does make a person addicted, the trade-off is worth it.

Be active every day – don’t use willpower to decide workout and don’t do things you don’t like. Do anything which feels pleasant, walking is fine too.
Always exercise at the same time (routine).
Try Exercising with the spouse if married.

Don’t burn yourself out so that, the next day you won’t be able to do it.
Reward yourself after workout eg. relaxed reading for a while after a workout.

Failures will happen from time to time, learn from them and come forward because of that learning.

Scott Adams How to fail at almost everything and still win big? Book review and FAQ

How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life by [Scott Adams]

How to fail at almost everything and still win big – Scott Adams

This book was recommended by Tim Ferris in his book Tools of Titans. Scott Adams is the creator of Dilbert and a successful writer, cartoonist and philosopher (as well) now. The book was published in 2013 and is 247 pages.

There are 5 major concepts in this book that I have summarized – they are a) improve your personal energy, b) improve your luck by learning multiple skills, c) focus on systems not goals, d) develop a habit of simplifying not optimizing and e) affirmations work.

There are multiple book reviews of this book since it has been published 7 years ago, so I am going to only focus on the ONE takeaway that I am implementing starting today. I will give you multiple examples of how this has affected my life so far and how I think it will improve it going forward.

Focus on systems not goals

In 2013 I was about 175 Lbs (80 Kgs). I was not overweight but I was heavy. I went for my annual checkup when I learned that I would be a higher risk for diabetes with my weight. So I set myself a goal to be 150 pounds in 3 months. I was exercising daily, sleeping well, but I have a fondness for chocolate and snacking.

In 3 months I hit my goal and then some, I was 146 pounds. Thrilled.

3 months after hitting my goal I was at 155 pounds. Not bad, but not great either.

6 months after hitting my goal I was at 160 pounds.

I set myself a new goal – 140 pounds in 3 months. You know the drill.

I hit the goals I hit consistently, only to not be able to keep up after.

Why Do Dogs Chase Cars? | SlimDoggy
The perennial dog chasing the car

In hindsight it was the classic dog chasing a car. Once I got to the goal, I did not know what was next. I could put a new goal – e.g. Maintain the weight at 145 lbs, but was not as motivating.

The answer according to Scott is to build a system – e.g. change behavior with small habits that is repetable everyday.

This actually makes sense in the context of the weight loss. By limiting what I eat daily to a few set of thing that I can repeat, I create a mechanism to see the long term rewards of my system.

Now that does not meant you dont have goals. I read this as have a goal, but put a system in place to support long term changes and goals.

If you focus on a repeatable system you will likely hit the goal.

Now for the frequently asked questions.

Does this apply to work (as opposed to personal goals)?

I think it does apply to everything. Goals are important, but if you can create a repeatable system (mechanism in Amazon’s vocabulary) you are more likely to see the long term effects of your habit change.

Do systems help with short term or long term progress?

It is easy to say they help with both, but in my experience systems help more with long term changes you want to make.

Should I give up setting annual goals then?

A SMART goal is very useful and important. It helps you focus on achievement. Without goals you are not sure what you want to achieve. How you can sustain that achievement is by putting a system in place.

What role do systems play in motivating you to achieve the goal?

Systems replace motivations with a routine or process. Once you set a goal and hit it, you are likely to focus on the next thing. Sometimes you up your goal. E.g. after my weight reached 145 Lbs I thought the next goal should be to maintain it, but the motivation to stay at that weight was not as high.

It is easy to measure progress toward a goal. How to you measure systems?

Lets take the example above.

The goal: Lose 25 lbs in 12 weeks. Roughly 2 lbs a week. A goal is easy to measure. So I will eat less every day (lets say 1000 calories) to make sure I am making progress towards losing weight. The metric I track is my weight. If it goes up or down a day I will have to adjust my eating the next day accordingly.

Lets say I wanted that goal, but I now put a system in place to eat 1000 calories a day instead of my usual 1200. The metrics I track the # of days I am sticking to that system, instead of tracking the weight. That way the system helps me in the long run by tracking the # of days I stick to 1000 calorie diet.

Top 10 Frequently Asked Questions about SPACs (Special Purpose Acquisition Company)

SPAC IPO Listings on Nasdaq | Nasdaq
Hat tip: NASDAQ blog

1. What is a SPAC?

A SPAC is a Special Purpose Acquisition Company, also called blank check companies. These companies raise money in the public markets without having operations. They raise money so they can acquire a company. The company has an “IPO – Initial Public Offering”, only to raise money from external investors.

In simple terms think of them as getting a mortgage “pre-approved” before you buy a home. It is not exactly the same, but close.

SPACs look for companies that are private, which they can acquire and take public.

SPACs are usually run by experienced management teams who understand a market or industry well and want to buy a company (or a few) and take them public.

2. How many SPACs are there?

According to SPAC databases, in the last 11 years (2009 – 2020) there have been over 380 companies that have raised money in a SPAC vehicle. In 2020 alone, over 130 companies have raised money using SPACs. The most famous SPACs have acquired Virgin Galactic, Nikola, Draft Kings and Pershing Square Tontine Holdings.

3. How do SPACs work?

Similar to an IPO, the management team registers with the SEC, does a roadshow (presentations to potential investors such as pension funds, mutual funds, hedge fund managers) and requests commitments for capital.

Lets say SPAC-You wants to raise $200 Million. They might get commitments from 50 investors to raise that capital. They go public and the stock now lists at $10 per share to start. The money raised is held in a trust until a target company is identified, e.g. MyTechCo.

MyTechCo will now be acquired by SPAC-You, which puts the $200 Million into that investment. MyTechCo is free to raise more money as well, but it reduces the time and effort to go public and the cost as well.

In the old IPO method, 3% – 7% of the money raised goes to the bankers. Typically SPACs only charge 2% of capital raised.

4. Who invests in a SPAC?

Institutional investors such as Mutual Funds, Family offices, Pension Funds, Hedge Funds, Corporate funds, Endowment funds, Private Equity funds and Insurance companies invest in SPACs.

Retail investors (you and I) can also buy shares in a SPAC. They tend to be VERY long term investments. It would take at least 2+ years to see any movement in the stock price.

Stages in the life of SPAC | Download Scientific Diagram

5. How have SPACs performed?

Of the 380+ SPACs there have been about 10 that have outpaced the market, 20 that have performed below par and about 200+ that have still not made any acquisitions.

6. Why is there such a big interest in SPACs?

The main reasons are the cost of going public has been high and there are over 400+Unicorns (private companies with over $1 Billion in market capitalization). Over the last 2 decades the # of public companies has halved in the US. There are more companies going private than going public, and more companies getting acquired.

SPACs give companies capital without a short term quarterly focus on earnings (for a limited time) and have more patient investors.

7. Which are the most successful SPACs?

The most successful (in terms of money raised) have been

Pershing (PSTH.U),

Churchill Capital (CCIV.U),

Flying Eagle (FEAC.U),

Dragoneer Growth (DGNR.U) and

Red Ball Acquisition (RBAC.U).

8. How many businesses can a SPAC acquire?

A SPAC usually merges with one privately held company.

9. How do I go about starting a SPAC myself?

Going public
HBS report on SPAC time line

With a good management team, a banker to help you raise (or put together your own roadshow), you can raise a SPAC with all the legal paperwork to help you register with the SEC and launch one in 2-3 months.

10. What happens to the money in a SPAC?

The money raised by a SPAC is initially held in a trust until there is a target acquisition company.

Bonus Q: Should I invest in SPACs?

Since there is very little information available about SPAC (they have no operations) the founders and the team sponsoring the SPAC is crucial. Research the team well before you invest. You should have a 2-5 year horizon for the funds to generate value (if at all).

Book review and top FAQ: Maria Shriver – I’ve Been Thinking

I'VE BEEN THINKING... | Kirkus Reviews
Maria Shriver I’ve Been Thinking

This book was recommended as a top 100 spiritual books of 2020. It was published in 2018 and is about 240 pages.

Maria Shriver is a well known writer, philanthropist and former first lady of California. She is also part of the Kennedy family – John F Kennedy’s niece. This book is a collection of her top 20 or so prayers, meditations and thoughts to live by.

It was breezy read and took me under 2 hours. I did not “reflect” as much, since most of the key takeaways from this book have been mentioned in multiple books I have read recently. I would give it a 3/5. If you have not read other books in the spiritual genre then this is a good read. The Power of Now by Eckhart Tolle is a much better read.

What is the top takeaway from this book?

To lead a life of purpose, you need to a) live in the present, b) be grateful, c) think positively, d) develop inner strength (intestinal fortitude and e) be empathetic.

What is different about this book than others?

While the pithy’ s are the same 10-12 things (5 of which I have already mentioned), the difference in this book versus others is the prayers that are included. These tend to be 5-10 lines each.

For e.g. in the chapter on “The Power of Letting Go”. instead of a personal story, the prayer is

“Some people believe holding on and hanging in there are signs of strength. However, there are times when it takes much more strength to know when to get go and then do it.”

Ann Landers

What are the key often repeated statements to find purpose?

  1. I am who I choose to become (believe in yourself.
  2. Work on intestinal fortitude. Be strong of mind
  3. Life is yours to create – you control your destiny
  4. Power of peace starts from within – look to change yourself
  5. Power of Gratitude – be thankful for what you have
  6. Power of the mind – train your brain
  7. Power of pause – slow down
  8. Power of Listening
  9. Power of Empathy
  10. Power of Letting go – dont have regrets
  11. Power of thank you
  12. Power of laughter
  13. Power of faith
  14. Power of prayer and meditation
  15. Power of forgiveness
  16. Power of your story
  17. Chasing the illusion of perfection
  18. Acceptance is the path to finding peace
  19. Courage to care – for others
  20. When life throws you a curveball – walk into the woods – find a mentor
  21. It is okay to grieve
  22. Give up on complaining
  23. Stop trying to go it alone
  24. Looking for a light in the cracks – silver lining
  25. Why we need time to think and reflect

H1B Change to salary are less of an impact than educational Qualifications for the visa

The US government announced dramatic changes to the H1B visa which is used by over 85K individuals each year to work in the US. By some estimates there are over 500K workers using the H1B visa in the US.

Now, the estimate is to cut these by a third with new rules that change how much employers pay H1B employees.

Below is the list of the top 20 H1B employers in 2020 (to date) and the average salaries they have paid H1B employees.

RankH1B Visa SponsorNumber of LCA *Average Salary
1Cognizant Technology Solutions28,526$86,456
3Tata Consultancy Services11,868$86,453
5Ernst & Young8,893$122,887
7Deloitte & Touche8,258$91,413
8Amazon.Com Services7,705$134,117
12Hcl America4,688$92,901
14Tech Mahindra (Americas)4,175$85,711
15Larsen & Toubro Infotech3,625$93,122
17Wal-Mart Associates2,277$121,993
18L&T Technology Services2,117$83,366
20Jpmorgan Chase1,796$122,750
Credit: MyVisaJobs

While the Indian outsourcing companies pay about $85K, the US multinationals pay about $115K on average.

Under the new rule, which is due to be published later this week and which will take effect immediately, H1B applicants will need to be earning a salary equivalent to the 45th percentile of their profession’s salary if they’re an entry-level worker, rising to 95th percentile for higher-skilled workers. 

In the past, the boundaries were set at the 17th and 67th percentiles respectively. 

So what will these employers have to pay?

Depending on where they are hired (city in the US) and their role, the average increase in salary to get an H1B approval for a outsourcing company goes to $115K and for a multinational to $130K.

While it is an increase, it won’t be that dramatic in terms of the pay.

The other changes are the qualifications for the H1B. As outlined by Quartz and the WSJ:

The Department of Homeland Security’s rule would narrow who qualifies for H-1B visas based on their specific education. Currently, foreigners with a college degree or the equivalent amount of experience can apply to work in what is known as a specialty occupation. Under the changes, an applicant must have a college degree in the specific field in which he or she is looking to work. A software developer, for example, wouldn’t be awarded an H-1B visa if that person has a degree in electrical engineering.


This is the major change. If you look at the filings of H1B visas at MyVisaJobs, then you will see that over 80% of the H1B visas awarded were for software developers who did not have educational background in computer science.

Podcasting and Radio advertising markets: A quick overview

US Radio market is $18B according to Market Charts

The US Radio advertising market is about $18 B according and the Podcasting market is about $1B.

The PWC report on podcasting talks in more detail about podcast advertising and the formats of advertising (length of ads, type, industry, topic, etc).

Nearly 115 Million adults listen to radio each month, with Country music, News/Talk and Adult contemporary being the top formats.

104 Million adults listen to a podcast every month, with News, Politics, Sports and Humor being the top formats.

Not surprisingly, the car tended to be where most people listened to radio, while podcasts were listened to while walking, working out or at home.

If you want to compare apples to apples, there are 1700 talk radio stations in the US alone. There are over 850K podcasts, with 120K of them active monthly.

In terms of time spent, because of Covid and reduction in commute hours, the # of radio listeners and hours listened should have gone down, but the numbers indicate otherwise.

According to the BBC, the time spend listening to radio post March 2020 has increased 15%.

The main trends in podcasting are the rise of programmatic advertising and use of location data to personalize ads.

Book review – Hatching Twitter, Frequently Asked questions Hatching Twitter: A True Story of Money, Power, Friendship, and  Betrayal (9781591847083): Bilton, Nick: Books

Hatching Twitter, 321 pages, published Nov 2013

I just finished reading the book Hatching Twitter. A little late, since the book was published in 2013. In my defense, this book was more “gossip” than “insightful”, so I deferred reading it until I had time.

At the outset, it was a good read. If this were a work of fiction I would believe it. As a narrative, it was a quick, fast paced read. I would recommend reading it, if you want a quick weekend break. 4/5 is my rating. Here are my top questions and answers.

Does the book tell you anything you did not know?

The founding story of Twitter with the 3 founders (Biz, Ev, and Jack) + 1 (Noah) is pretty well known. It was interesting to know that Noah was one of the founders who got sidelined. It is typical of many startups I know of. There are issues among founders that derail the startup as much as customer traction and growth.

Does the story make you feel any different about Venture Capitalists?

The 3 key VCs in the story are Fred Wilson, Bijan Sabet and Pete Fenton (Benchmark). They invested early with Fred in Series A, Bijan in Series B and Peter in Series C. During all these 3 rounds, Twitter had no revenues. They invested nonetheless.

They were ruthless however, in getting removing Jack from the post of CEO first, followed by the removal of Ev from the post of CEO.

One can say they were trying to protect their investment. However, the other part is that most founders should know that the VC is not your friend.

Why did Ev get removed from the post of CEO even though he was the largest individual shareholder?

Even though Ev financed Twitter with his own money (from his sale of Blogger to Google), by the time it was series C, he had only 1 vote on the board. The board comprised of the investors and Jack, who had more votes, even though Ev was the largest individual shareholder.

This is the main reason who companies such as Palantir, Facebook and others have multiple classes of stock with different voting right.

Who is the hero and who is the villain in this story?

Reading this book, it was hard not to feel sorry for Ev and Noah Glass. Even though Ev had many faults (slow in decision making, avoiding conflict at all times), I felt most sorry for his treatment towards the end.

I oscillated between Jack Dorsey, Peter Fenton and Bill Campbell as the key villains, but Jack was clearly the main villain, plotting to bring down his “friend” Ev after he was ousted as CEO himself.

What role did Dick Costello play in the removal of Ev?

Even though his “friend” Ev, brought Dick into Twitter, I get a sense that Dick was more interested in becoming the CEO after he got there. Since he came at the the phase of “growing revenues”, I believe he would have felt best suited for the role, compared to the more cerebral Ev. He certainly colluded with Jack during the period when Ev was oblivious to the decision to remove him from the post of CEO.

Twitter Story - CEO, Founder, History | Famous Companies | Success Story
At the IPO – Jack, Biz, Ev and Dick

What is the one big takeaway from this story?

Pivots work – sometimes.

Twitter started as a podcasting (voice notes) app, then transformed into a “status update) app, then a microblogging platform. While they had a hard time explaining “what” Twitter was, users were adopting it for different use cases. Traction beats all else.

Winged Unicorns: The next publicly held Trillion Dollar companies

Rainbow Winged Unicorn Figure - A2Z Science & Learning Toy Store
Winged Unicorn: The next public trillion dollar companies

While unicorns (434 as of Oct 2020) are private companies with $1 Billion in valuation, the public companies with $1 Trillion in market capitalization are only 4 – Apple, Microsoft, Google and Amazon.

If we were to predict the next trillion $ in market capitalization companies, the obvious ones are Alibaba ($BABA), Tencent ($TCEHY) and Facebook ($FB).

Beyond these if we look over the next 10 years the companies with the highest potential to be $1 trillion are likely companies with fast growth and incredibly large market potentials.

There are 5 sectors that I believe are large enough to support the next trillion dollar companies.

  1. Finance (Square, Paypal, Visa, Mastercard)
  2. Technology (Salesforce, Adobe, Nvidia)
  3. Retail and commerce (Shopify, Mercardo Libre, Etsy)
  4. Pharma and health (None I believe yet can get there in the next 5 years)
  5. Automobile & Media (Tesla, Netflix)

In each of these segments there are established companies such as JP Morgan, Goldman Sachs, Intel, Walmart, J&J, Pfizer, Merck, GM, Toyota.

I don’t think any of these companies (except Walmart) have any chance of being a trillion $ company, unless they actively acquire other companies in their space – which will invite antitrust concerns.

As of Oct 2020, here is the market cap of these companies.

CompanyTicker SymbolMarket Cap
Mercado Libre$54B
Trillion dollar market cap targets
Companies by smallest to largest in current market cap

Why are there so many more acquisitions than IPOS for Venture Funded Companies?

Assets under Venture management has been growing

In the early part of the 20th century, startups were funded largely by wealthy families and individuals. Today, we would call them “angel” investors. Examples include firms such as Pan American World Airways, Eastman Kodak, and Ford Motor Company.

The formation of American Research and Development Corporation (ARD) is often associated with the birth of the venture capital industry as we know it today. Founded in Boston, Massachusets by prominent bankers, academics, and businessmen, ARD raised $3.5 million for a closed-end fund in the fall of 1946, with more than one-half coming from institutional investors.

One of the founders of ARD was General Georges Doriot, then a professor at Harvard Business School. He taught a course called manufacturing that was really “all about starting companies and technology.” A number of his students and disciples went on to be prominent venture capitalists, including Tom Perkins (Kleiner Perkins), Don Valentine (Sequoia), Bill Elfers (Greylock Partners), Arthur Rock and Dick Karmlich (Arthur Rock & Company), and Bill Draper and Pitch Johnson (Draper & Johnson Investment).

The venture capital industry then went through its greatest period ever starting in the mid-1990s. This was in part fueled by the adoption of the Internet, ushered in by the meteoric rise of Netscape, an Internet browser, following its IPO in August 1995.

The fee structure for venture capital funds is similar to that of buyouts. The management fee is typically 2 percent of the total amount raised by the fund, and the incentive fee is commonly 20 percent of profits. But venture capital and buyouts differ in their ability to scale. In buyouts, doing large deals is not materially different than small deals. As a result, buyout firms can grow their AUM with less degradation of expected returns than can venture firms.

Exits. The return for any fund is a function of the difference between the purchase and subsequent sale of investments. From the beginning of the venture industry through the mid-1990s, an IPO was the most common way to profitably exit a venture investment. In the late 1990s through 2000, both IPOs and a sale of the business were popular. But since 2000, IPOs have declined substantially, and a sale, either to a strategic buyer or a buyout fund, has become the preferred vehicle for exit.

There are a number of drivers behind the trend of fewer exits through IPOs.

First, because the cost to list has risen in recent decades, only larger and typically older companies are in a position to list. The age of a company doing an IPO has risen as a result.

Second, the motivation to go public has shifted. Young companies today don’t need to raise capital from the public market because they are generally less capital intensive than their predecessors.

Third, even those companies that are in very competitive industries have been able to stay private because there is a huge amount of capital available via late-stage funds.

Finally, there are now ways for employees who are compensated in equity to sell shares. In some cases, funding rounds give employees a chance to cash out.

These drivers have important consequences for investors.

There is now a sizeable population of companies that are very valuable on paper. For example, CB Insights, a platform that tracks market intelligence in the technology industry, counts 225 “unicorns” in the U.S. worth a combined $662 billion as of July 2020.

Another consequence of staying private longer is that more wealth is created in the private market and less in the public market.

Despite the decline and delay of IPOs, many venture capitalists view an exit into the public market as attractive due to the accountability and transparency associated with being a listed company. At the same time, it has become more common for entrepreneurs and investors to consider a sale to a special purpose acquisition company (SPAC) or a direct listing as alternatives to a traditional IPO.

A SPAC is a company that goes public with the goal of using the offering proceeds to make an acquisition. In an IPO, a SPAC offers a unit that includes a common share at a set price and warrants. SPACs are sometimes referred to as “blank-check” companies and can provide public market investors access to private companies.

With a direct listing, a stock exchange builds an order book, whereby buyers and sellers express their interests in terms of price and volume. The exchanges do this every day for every stock. The opening price reflects the intersection of supply and demand. Buyers include any investor, and sellers include shareholders, such as employees and early-stage investors. Neither buyer nor seller has an obligation to transact.

A final consequence of staying private longer is that the combination of steady flows of capital into venture and later exits means a much larger share of the industry’s total investment is late-stage. For example, in 1980 around 10 percent of investments were late stage. By 2006, roughly 20 percent of dollars went to investments of $50 million or more, and that figure was closer to 60 percent in 2019.

Why are more firms going private than remaining public in the US?

In 40 years through 2019, the S&P 500 Index had a total return of 11.8 percent.

We now examine three considerations that are relevant for the multi-decade shift from public to private firms, as well as the composition of the firms that remain public.

The first is the rise of intangible assets. Paul Romer, an economist who won the Nobel Prize in Economics in 2018 for his work on endogenous growth theory, poses a basic question:

“How can it be that we’re wealthier today than people were 100 years ago?”

The underlying quantity of raw materials has not changed over time.

The answer is we can now arrange resources in ways that are more valuable than before.

Traditional models of economic growth are based on inputs of capital and labor and treat technology as exogenous. Robert Solow, also a Nobel Laureate, created a model that made technology endogenous. Romer’s contribution was to make technology “partially excludable,” or a private good.

This allows firms to benefit from their investments. Romer emphasizes the importance of intangible assets, including instructions, formulas, recipes, and methods of doing things. He argues that “growth takes place when companies and individuals discover and implement these formulas and recipes.”

What’s important is that these intangible assets have characteristics that are different from physical capital or labor. Economists call them “non-rival” goods, which means that more than one person can use the good at a time. A physical book is a rival good that only one person can read at a time. A digital book is a non-rival good that can be read by many simultaneously. Under certain conditions, intangible-based companies can defy the conventional economic concept of diminishing marginal returns and in fact realize increasing returns.

This shift has a few implications for our discussion. To begin, companies need less capital because they need fewer physical assets. For example, sales per employee for Facebook, Inc. were nearly double those of Ford Motor Company in 2019. From 1956 to 1976 the number of public companies grew fivefold, as many companies needed to finance “their mass production and mass distribution.”

Today, companies simply do not require as much capital as they once did. This, along with freer access to private capital, allows private companies to remain private longer.

Second, implication is that the rate of change, which we can measure by longevity, appears to be speeding up. The idea is that if longevity is decreasing, the rate of change is increasing. About 1,500 companies went public during the 1970s, 3,000 in the 1980s, 3,900 in the 1990s, and 2,100 in the 2000s. Companies that had listed before 1970 had a 92 percent probability of surviving the next five years, and those listed in the 2000s had a probability of only 63 percent. The chance of survival has dropped in each successive decade.

Third, the main reason companies delist is that they are acquired. This contributes to the last implication. In corporate America, the strong are getting stronger. This is giving rise to “superstar” firms.

For example, the gap in return on invested capital between a U.S. company in the top 10 percent and the median has risen sharply in recent decades.52 Consolidation explains a large part of this. Measures of concentration, such as the Herfindahl-Hirschman Index, have shown a substantial increase for many industries since the mid-1990s. These include industries that rely on tangible assets.

M&A is by far the leading explanation for delisting.

First, the companies that are public now are on average much larger and older than companies in the past. Vibrant M&A has led to more concentration in most industries, and a handful of very large technology companies have attained strong market positions. As a result of where they are in the industry lifecycle and the profitability they enjoy, listed companies also have a high proclivity to
pay out capital.

Following the introduction of a safe harbor provision for buying back stock in 1982, the preferred means to return capital to shareholders has shifted from dividends to share buybacks. Second, buyout and venture capital funds have not included many Main Street investors. This could change with the Department of Labor’s instruction letter, written in 2020, that may allow private equity as an option for defined contribution plans.

Finally, there has been a large shift away from actively-managed equity funds to funds that track indexes or are rules-based.

The personal blog of Mukund Mohan