What Are We Looking For?

The Non-Obvious Truths

“Fast learns, slow remembers. Fast proposes, slow disposes. Fast is discontinuous, slow is continuous. Fast and small instructs slow and big by accrued innovation and by occasional revolution. Slow and big control small and fast by constraint and constancy. Fast gets all our attention, slow has all the power.”

From Pace Layering: How Complex Systems Learn and Keep Learning

Narratives are not for the investors or founders but for the consumers and traders. For a long-term investor, paying attention to narratives is not an optimal strategy. You either want to be at the inception of something that has the potential to become a narrative or wait until the dust settles to make your move.

As crypto earned a reputation for overnight generational wealth, entrepreneurs flocked to the industry mainly in the 2017 to 2021 period. The founders in the space became less genuinely interested in problem-solving and much more interested in selling pitches to venture capitalists (us), capitalizing on attention flows. And we fell for it.

What happened is that crypto shifted its founder culture from substance to process. Everyone began optimizing for the same playbook and buzzwords that might have worked for someone else before them. The problem is that if everyone does process and optimizes for the same thing, the process stops working.

We don’t believe relying on process solely can lead to great outcomes but imagine if everyone does KOL marketing, how do you differentiate from all the others who are doing the same KOL strategy? The upside gets eaten by the heat of competition fast.

What has become increasingly rare in crypto and the founders we have talked to is actual genuine curiosity. People start with buzzwords and narratives and try to build a product, or just “try to raise the round” around those. The pitch deck becomes their product.

People confuse fashion with culture. They rely on disposable narratives rather than build from first principles. Suddenly most products become one as the imitation escalates. Founders and investors forget how to think independently as in crypto the noise and the fashion are seemingly the quickest path to generational wealth.

No one in crypto is building a monopoly because they compete in the narrative game. To build a monopoly one has to find inspiration and motivation in a bottom-up way.

Therefore, to answer the question of “what we are looking for?” has, through all the mistakes and missteps, become increasingly easier. We look for genuine curiosity and unique conviction that is independent of fashion (the fast). We believe to build something great one has to be able to build and embed its idea and a product much deeper - at the culture level.

Buzzwords and narratives are fashion. These are easily replicated or imitated. Notice that during mania everyone ends up doing the same thing because they optimize for the surface attribute. The founder mindset is “I’m discovering X” where X is the hot buzzword or fits well into the narrative.

Most founders achieve substance through tinkering serendipitously. At the core, there’s almost always genuine curiosity. Their approach is “I’m working on this problem and let’s see where it takes me.” That’s the foundation of a great effort to build something meaningful. Ideally, this also coincides with identifying an unobvious truth.

You Against The Market

Perhaps this is only a rehashed version of Peter Thiel’s “Secret” but here goes our framing. If you listen to chatter and narratives these days what do you think is the obvious truth and what is obviously false? What is the non-obvious truth and what is non-obviously false?

The difference between obvious and non-obvious could be reframed into popular vs unpopular or knowable based on available data and unknowable. An example looking at crypto in the 2021-23 period would be:

Obvious truth:

Crypto will suffer from rate hikes DeFi Yields are unsustainable Conflict is bad for crypto

Non-obvious truth:

FTX is a criminal operation L2s present liquidity fragmentation Stablecoins are crypto PMF

The non-obvious truth requires a unique insight while the obvious truth can be seen from afar, yet still not being 100% certain because nothing really is. The division between these does not have to be a binary and perhaps is more scalar.

Here is an example of fitting these into the 2x2 presented above:

What about false narratives and statements from that period? What things that you’ve heard were obviously not going to happen and what were less predictable things?

Here’s what we’ve got:

This works neatly in retrospect. Prospectively, it’s all a guess but assessing founders’ beliefs when building a product gives a hint of the independence of his conviction. Because if a founder bases his opinions on merely obvious things and the product is not built on any non-obvious truth or falsehood, how is it going to become a great company, project or asset?

Some people talk about contrarianism but that’s not a good way to think about it. While a hypothesis may appear to go against consensus it is not reached by looking at consensus and establishing an anti-opinion. The hypothesis should be reached by analyzing a thing from first principles regardless of the consensus.

The examples above were of a macro nature but let’s assess a specific successful crypto project in recent years. If you were lucky enough to have Solana pitch deck in your inbox in 2019 one way to analyze this through the 2x2 could be the following.

The non-obvious truth hypothesis has played out well for Solana so far. It also forced the modular vs monolithic debate which was not a thing before. Everyone thought in modular ways before. It also had a unique insight into believing sharding is a dead-end.

When embarking on the journey of a founder it is good to be able to identify each of the boxes. If your insights are only in the obvious dominion - you probably have nothing unique to offer and are only going to compete with many others.

If your beliefs are purely based on the non-obvious, you might be building in a vacuum, there might be no market for it, you’re too early or you might be just purely guessing (which is fine if you’re ok with this fact - just be aware).

In case you only build on truths you might fail to understand what’s wrong with existing products or product paradigms. If you’re building just based on falsehoods or what you believe is wrong you end up making up problems that are not real e.g. creators' income is unequal, or the market leader’s take-rate is too high.

Ideas Worth Exploring

People building from a position of genuine curiosity are best at solving problems. Running your unique conviction through our 2x2 framework only helps to gain clarity of where you stand in the market and what you have to offer.

How you execute on unique conviction matters as much as your curiosity. Great ideas are hard to come by but great execution is just as scarce. Shipping and iterating fast is a rare skill. Usually, not reaching for playbooks before doing things that don’t scale is an example of embracing the individual path.

There's a place for best practices (aka patterns) and playbooks but one needs to reach for those at the right moment. These are usually not the things that one should rely on initially. Leveraging them when the time is ripe leads to the market itself forming narratives and buzzwords around your product.

People often start businesses the other way around - buzzword first. Perhaps the majority of founders do. But for early-stage startups, substance is what matters. Process only helps to scale the substance.

Again, instead of “I’m discovering X” what usually works better is a mindset of “I’m working on this problem and let’s see where it takes me.” It’s almost an aesthetics thing. In other words:

“Nothing to keep, nothing to lose…in this mood it is possible to do exactly what makes sense, and nothing else: there are no hidden fears, no morals, no rules, no undercurrent constraint, no subtle sense of concern for the form of the people around you are doing, and above all no concern for what you are yourself…There are no guiding images in his behavior, no hidden forces; he is simply free…

…when we are not on guard at all – these are the moments our most important show themselves…the conscious effort to attain this quality, or to be free, or to be anything, the glance which this creates, will always spoil it.”

From The Timeless Way Of Building - Christopher Alexander