Yishi’s Stock Portfolio Q3 2020 Review

Here is an overview of my personal stock portfolio as of September 30th, 2020.

The 15 companies I own span a wide variety of industries.

  • US centric with global revenues: Most of my portfolio companies are headquartered in the US. The rest are all based in Western countries. However, much of the collective revenue is global.
  • Predominantly B2B: With the exception of Match Group, the entirety of my portfolio is B2B. A few others–InMode, Slate Grocery REIT– sell to businesses, but are closely driven by consumer spending.
  • Mission critical: Many of these companies are mission-critical businesses (Equinix, Kinder Morgan). Their customers would be in serious trouble if they disappeared.
  • Diverse value drivers: Some are riding unique, long-term trends (Silvergate, EOS). Some are cyclical (Schlumberger, Total).
  • Diverse stages: Some are in high growth mode and reinvesting capital back into the business (Bill.com, Ayden). Some are stable and spitting out double-digit dividend yields (Total, Slate Grocery REIT) or repurchasing large amounts of stock.
  • Software Focus: Much of this portfolio is software. Some sell across industries (Atlassian). Others are focused on specific industry verticals (Constellation, Enghouse, Duck Creek).
  • Understandable: Most of the tech companies in my portfolio depend less on any cutting-edge technology and more so on their integrations, ecosystems, customer lock-in & network effects.

I’ve bucketed my portfolio into 4 categories to reflect my thinking (More to come in a future article).

Why I’m publicizing my portfolio

Disclaimer: I am not a registered investment advisor. Nothing I write should be construed as investment advice or the solicitation of investment.

I used to be a professional hedge fund investor. I’ve been investing out of my personal portfolio for some time. I’ve done alright over the past few years, and I find the experience fun.

The reason I’m publicizing my portfolio is because I want you to be my thought partner.

I want you to challenge my beliefs and try to poke holes in my thesis. Please tell me what I’m missing.

I want you to tell me about public companies that I may not know about. And I want you to teach me more about the companies that I already know.

I think investing in public companies helps me become a better entrepreneur & vice versa.

In the coming months, expect to see a series of articles analyzing these companies and discussing my investment philosophy.

Welcome to the combination of value-investing + entrepreneurship.

Drop me a line if you have any questions / comments or just want to get in touch!  yz@yishizuo.com

Next post: Yishi’s Stock Bucket #1 – Stable Cash Generators

“We win, they lose” – Radically Reframing the US Immigration Debate

 

My parents brought me to America when I was 6 years old. Not a day goes by do I forget how fortunate I am to be a naturalized US citizen.

Now, as a tech entrepreneur who has created American jobs, I’ve witnessed the absurdity of the American immigration system up close.

Immigration is a topic that hits close to home as a significant number of friends I’ve met in the USA are foreign-born. What many Americans don’t realize is how incredibly tough it is for even highly skilled foreign students, who attended some the best universities in this country, to legally stay and work in the USA.

In recent years, I’ve personally witnessed many of my foreign-born friends be forced to leave the country. I’ve seen vibrant companies shut down, American jobs lost, and lives uprooted. I’ve indirectly experienced, via consoling friends and coworkers, the needless stress created by an immigration system that only benefits other countries and hurts the USA.

Our politicians need a wake-up call. America shouldn’t be expelling some of our best and brightest to help other nations create jobs.

According to a 2019 Gallup poll, 75% of Americans think that immigration is a good thing for this country, but 75% support restricting illegal immigration.

Over the past few years, President Trump has done a masterful job of framing the immigration debate as a national security issue. By engaging on Trump’s terms and focusing on issues such as detention camps at the border, the Democrats play into his hand. Not only do they look weak on national security, but they appear to be supporting illegal immigration –which is opposed by an overwhelming majority of the electorate.

In “The Art of War”, Sun Tzu dedicates an entire chapter to choosing the right setting to face your foe. By allowing Trump to focus the immigration debate on border security, the Democrats are losing this war of public opinion.

Fundamentally, the Democrats should reframe their message to appeal to the 75% of Americans who support immigration but want to restrict illegal immigration.

So I challenge the Democrats to shift the debate to skilled immigration.

To ensure that the message resonates, they should take it one step further and engage the public at a simpler, emotional level.  The Democrats should take a page out of Trump’s populist playbook.

I dare the Democrats to explicitly tell voters that the United States will steal the best, brightest, and hardest-working people from other countries and transform them into Americans.

In practice, this is what America has always done—use brain drain to our advantage. However, to my knowledge, no major political leader has ever made this argument in favor of skilled immigration in such explicitly stark terms.

Essentially, this is framing the immigration debate as: “We win, they lose”. As arguably inaccurate as this framing is – it is a powerful, visceral message.

“We are the best. We are exceptional. We are fierce competitors. We will continue to WIN by recruiting the best from other countries to join Team USA!”

Such a message appeals to our national pride and our natural confidence. A clever politician can use this message to co-opt America’s nativist elements.

Republicans can also embrace the “We win, they lose” approach to immigration and use it to win votes. But they don’t need to. Because at the moment, they have the upper hand in that debate. And because they don’t need to, they almost certainly won’t – so my message is addressed to the Democrats.

Despite my advocacy for more skilled immigration, I have not forgotten America’s history and our moral obligation to help the tired, the poor, and the huddled masses.

Unfortunately, our political system has Lady Liberty pinned under heavy crossfire. In order to win the war of words in the immigration debate, we must equip Lady Liberty with the most powerful weapons in our arsenal. Skilled immigration is the just the superweapon that she needs. The best & the brightest must serve as the valiant vanguard which fights to relieve the siege and protect the huddled masses.

I sincerely hope that some politician will dare to try this unorthodox approach—that he or she will use this message to WIN, solve the immigration impasse, and do good for America & the world. And I will savor the satisfaction of knowing that I have done my little part to build a better reality.

**

About the author: Yishi is a former hedge fund investor and current entrepreneur who writes in his free time – mostly about business topics.  http://www.yishizuo.com/about/

He is the CEO of DeepBench. We connect users with experts on any topic in any industry, and we also license our software to enterprises to better unlock expertise internally. (Check us out if you are interested in joining our network or using our product!)

Poker + business + applied lessons from Nassim Taleb

This summer, a casino opened up right by Boston. And I’ve swung by a few times to play Texas Hold’em — low stakes cash games.

As mentioned in my Liar’s Dice article, I love games that involve incomplete information, strategic deception, and reading people. Pokers offers an exciting challenge that complements my career.

As a start-up CEO, I’m constantly communicating with people via meetings, calls, emails — etc. At a poker table, it’s nice to be able to just sit back, relax, gather insights and make quick decisions.

Poker, like investing — is a highly analytical, solitary affair involving incomplete information — and it certainly embodies parts of my old hedge fund job that I miss.

How I play poker

My playing style is very much aligned with my personality.

I try to be very disciplined.

In general, I try to limit my losses, and really press my advantage when I have it.

At the poker table, what this means is that I will slowly lose small amounts of money, on average, for an extended period of time. And once in a while, the losses will be punctuated by a big win that will more than make up for everything.

For those of you who’ve read Nassim Taleb– this strategy should sound somewhat familiar. Taleb wrote in The Black Swan about how he became financially independent. His investment strategy was to lose money year after year. But when a previously unthinkable event happened, i.e. the 2008 financial crisis — BOOM –he made back his losses manifold.

So an hour in my shoes at the poker table might look something like this.

This is a relatively volatile strategy, but what is unique is that it is only volatile in one direction. (High Sharpe ratio, low Sortino ratio)

There are generally only positive surprises. And that is exactly what I want out of poker and in general, what we all want out of life … right?

To my knowledge, no one else plays cash poker like this. And this strategy is working out decently for me so far. Perhaps it won’t work at higher stakes tables — but we shall see.

Business — the most complex and exciting game of all

The concept of stomaching small losses and doubling down when there is a clear advantage is uncannily similar to my own business experience.

At DeepBench, we are constantly running little experiments. Sometimes they work, sometimes they don’t. We have a core business model that enables us to experiment. You can think of us as one big stack of poker chips, and we are at the table making bets.

Sometimes our experiments open doors for us and lead to areas where we want to double down. Or we are forced to do so by necessity. When the odds are in our favor — we are always prepared to go all-in with our chips. (Note, this experimental mentality is a hallmark of Amazon’s success.)

One key difference between business vs. poker decisions is that there are more things we can do in business to stack the odds increasingly in our favor. And sometimes, we can choose an entirely different game to play.

That is what makes business a much more complex and exciting game for me.

So while the stakes for running a start-up are far higher than your average poker game, ultimately, my philosophical approach to both business & poker is one and the same.

Work life harmony + freedom

About a year ago, my friend and VC investor Li Jin told me that she doesn’t believe in work life balance, but rather — she embraces work life harmony. Her words resonated strongly with me given the lessons I’ve learned from studying Warren Buffett.

For me, work life harmony means merging the professional and the personal so that work and play become one and the same. The beauty of this approach is that you will never be bored.

In contrast, I have another friend who like myself is a startup founder who likes poker. She is quite good at it — far more so than me. However, she does not tell people she plays, because she is afraid of what people like her employees & investors would think.

I can see this friend’s point of view and respect it — but I have a different approach. For me, the only way to be happy is to be free. For me, freedom requires authenticity & transparency — and that come with a risk. But as Nassim Taleb says:

I try to be purposeful with how I spend my time. And I feel fortunate to have a found a hobby in poker that aligns well with my strengths & long-term goals.

**

About the author: Yishi is a former hedge fund investor and current entrepreneur who enjoys thinking about businesses in his free time. http://www.yishizuo.com/about/

He is the CEO of DeepBench. We connect users with experts on any topic in any industry, and we also license our software to enterprises to better unlock expertise internally. (Check us out if you are interested in joining our network or using our product!)

My Personal Mission & How I Arrived Here (Part 3 of 3)

 (Note, this is Part 3 of a 3 Part Series titled “My Personal Why”. Part 1 – Switching from Hedge Fund Investor to Software Entrepreneur, Part 2 – Warren Buffett, Charlie Munger, and the Principles of Entrepreneurship)

An interesting shaving story

A little over a year ago, I was in Las Vegas with a few business school classmates celebrating the end of the semester.

One afternoon, I found myself happily exploring storefronts along the Venetian’s indoor promenade.

I stumbled across a store called “The Art of Shaving”. The name seemed intriguing and vaguely familiar so I wandered in.

Now, my shaving habits are pretty simple. I use a mass-market razor and buy cartridges & cream in bulk from Amazon.

As I entered The Art of Shaving, it was like entering a different world. I was blown away by how complex shaving could be. There were so many blades, brushes, and ointments of all sorts – I felt overwhelmed.

Luckily, the store wasn’t very busy, and the saleswoman was ready to help. We chatted about their products for a bit, but soon the conversation migrated toward their business model.

Among the things I learned were:

  1. Procter & Gamble (owners of Gillette) bought The Art of Shaving nearly 10 years ago.
  2. Some of the store’s best revenue generators and highest margin items are razor cartridges. (And of course, they only sell Gillette cartridges.)

That was fascinating to me. Within the store (and as I would later discover online), the Art of Shaving advertises everything but its cartridges – which makes sense, since the store bills itself as a high-end brand, and the cartridges that they sell are pretty much the same ones you can buy at CVS.

It surprised me that despite all the fancy oils, creams, and gels that the brand advertises – the basic razor cartridge is still one of their biggest money-makers. And it made me think again about why Dollar Shave Club was so disruptive.

I also hypothesized that Procter & Gamble bought The Art of Shaving in 2009 to lock down a premium distribution channel and ward off potential competitors to its cash cow cartridge business. The saleswoman agreed with me – but who knows if we are right.

Ultimately, the conversation lasted a good 30 minutes. I walked out with a $28 bottle of shaving oil – partly because I felt the need to reciprocate for the saleswoman’s time and insights.

 

Where my mind wanders

Now I do this a lot. I’m not talking about buying boutique consumer products, but rather the act of asking everyone – from friends to strangers about business models and unit economics.

To paraphrase one of Paul Graham’s essays: It is important to pay attention to where your mind wanders when it’s free.

Well, this is where my mind frequently wanders—on vacations, on airplanes, at dinners—anywhere, anytime.

When socially acceptable, I try to steer conversations in the direction of business topics. I do so because I’m constantly seeking to better understand how the world works, and things become just a bit more REAL when the exchange of money is involved. With real stakes on the line, you truly see how incentives and human psychology come into play, and I find it all very exciting.

 

But what else

While I feel fortunate to have recognized this facet of my personality, that alone isn’t specific enough for me to figure out what I want to do with my career in the long-run.

I know I can grind away and get work done and motivate my teammates to do the same. But I also know that I don’t enjoy leading in such a manner, and it won’t be scalable as I grow older.

What I do enjoy, however, is curiously inquiring (like to that saleswoman), understanding people’s needs, and crafting creative deals.

It also makes me genuinely happy to connect intelligent and motivated people. (Fittingly, I co-founded a business that connects expertise.)

Much like how my mind often wanders toward business topics, it is also on the lookout for potential intros. And I have a tendency to act on those thoughts. My rationale is that, after all, 15 minutes of effort from me crafting emails could change the course of 2 people’s lives and lead to something that could change the world.

As an example, I was at a friend’s wedding last month where the bride told me that her mom is the global head of corporate travel for a prominent tech company. My thought immediately went to my friend Alex Jara who is working on an innovative travel start-up called Deal Engine that should be of great interest to her. I laid the groundwork, and when the time is right, I’ll make that intro.

 

Putting it all together to arrive at my personal mission

In thinking about what I want to do with my life, I try to take a pragmatic approach.

I recently made an effort to triangulate to the intersection of a) what I am good at, b) what I enjoy doing, and c) what is good for me in the long run. And I’ve come up with this diagram.

I’ve concluded that my personal mission will be to connect people to capture business opportunities together.

I’ve decided that I will use this blog as a means of broadcasting business ideas + my own analysis + personal anecdotes with the explicit goal of connecting people. I will continue to write about things I find interesting, and I will go out of my way to connect those who also find those topics interesting.

I can see how this could evolve into an investment vehicle down the road (and perhaps even merge with my current company), but for now, I will just do it for fun – in my free time.

I should mention that I don’t need to be the person to come up with these future ideas. As everyone knows, ideas are a dime a dozen, it is the execution that is hard – and my goal is to help people execute in the way that feels most natural and fun for me.

So if you think of a business opportunity that you wish to share publicly—let us discuss, and I may write about it! Together, we can spread the word and help you find the right people to connect with!

 

**

About the author: Yishi is a former hedge fund investor, current entrepreneur & MBA grad who enjoys thinking about businesses in his free time. He can be reached via yz [at] yishizuo.com

He is also a co-founder & CEO of DeepBench — We connect users with experts on any topic in any industry, and we also license our software to enterprises to better organize and monetize expertise. (Check us out if you are interested in joining our network or using our product!)

Warren Buffett, Charlie Munger, and the Principles of Entrepreneurship

Over the years, I’ve invested hundreds of hours in trying to absorb the worldly wisdom of Warren Buffett & Charlie Munger. (Saved here are the best Munger / Buffett materials that I have come across– please feel free to read, learn and share!)

The core tenets of Buffett and Munger have profoundly shaped the way that I approach life, and below are 4 of their key principles that I believe are most relevant to entrepreneurship.

 (Note, this is Part 2 of a 3 Part Series titled “My Personal Why”. Part 1 – Switching from Hedge Fund Investor to Software Entrepreneur. Part 3 – My Personal Mission & How I Arrived Here)

 

Principle #1: Circle of competence

“Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”   

– Warren Buffett, 1996 Berkshire Hathaway Annual Letter

For entrepreneurs, our circle of competence comprises of all the resources that we have available.

Within one’s own circle of resources – somewhere, there needs to be some advantage.  It doesn’t have to be a huge advantage. It could be as simple as one or two key insights – combined with your skills, your network, your reputation, and your energy.

Here is a concrete example from my personal experience — at DeepBench, the start-up that I co-founded in business school, we targeted an industry that we were very familiar with. We combined our insights, experience, and grit with the resources that MIT had to offer.

Over time, we built on those limited resources that our start-up possessed, and our circle of competence grew to where we are today.

Buffett uses the following baseball analogy to reiterate this concept:

“We try to exert a Ted Williams kind of discipline. In his book The Science of Hitting, Ted explains that he carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his “best” cell, he knew, would allow him to bat .400; reaching for balls in his “worst” spot, the low outside corner of the strike zone, would reduce him to .230. In other words, waiting for the fat pitch would mean a trip to the Hall of Fame; swinging indiscriminately would mean a ticket to the minors.

 . . . 

In investing, I’m in a no-called strike business, which is the best business you can be in. I can look at a thousand different companies, and I don’t have to be right on every one of them or even 50 of ’em so I can pick the ball I want to hit. And the trick in investing is just to sit there and watch pitch after pitch to go by and wait for the one right in your sweet spot

— (Paragraph #1 – 1997 Berkshire Hathaway Annual Letter, Paragraph #2 – Becoming Warren Buffett – 2017 HBO Documentary)

It’s clear to me that Buffet’s baseball analogy misses the mark for entrepreneurs, and it must be reinterpreted.

Where does a start-up’s circle of competence truly lie? There are so many rapidly moving pieces that make the boundaries of that circle very difficult to discern.

As entrepreneurs, we are forced to stretch the boundaries of our circle of competence far more frequently than investors are. Entrepreneurs don’t have the luxury of waiting for the perfect pitch in our sweet spot. A start-up must keep swinging and reaching for new opportunities. An entrepreneur must do things that do not feel comfortable.

I’ve personally learned to embrace the discomfort — that is the biggest mentality shift.

Entrepreneurs must sell our vision & capabilities to investors, the media, our customers and our employees. We must set stretch goals to motivate each of those constituents.

Unlike investors who are generally passive, entrepreneurs have the opportunity to create self-fulfilling prophecies. In fact, we must do so, otherwise we cannot grow.

 

Principle #2 Choose the right business model

Image credit: Garth von Ahnen http://www.artbygarth.com/

‘I always used to tell [Bill] Gates that a ham sandwich could run Coca-Cola. And it was a damn good thing, too, because we had a period there a couple years ago where, if it hadn’t been that great of a business, it might not have survived.” 

— Alice Schroeder quoting Warren Buffett in The Snowball (2008 Biography)

Note: Buffett disputes the context of this quote in a 2014 CNBC interview. However, I’m guessing that: 1) Buffett is backtracking in order to minimize offense and / or 2) The quote came from Charlie Munger if not Buffett, so I’ve decided to feature it with that caveat.

In any case, I think the sentiment is clear and makes logical sense. Buffett’s implicit advice is: Invest in businesses so good that morons can run them, so that you have an extra margin of safety.

To paraphrase another quote of Warren’s: When a great management team meets a tough business model, it’s the tough business model that wins. The business model is paramount.

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

— Warren Buffett, 2011 interview with the Financial Crisis Inquiry Commission

As an entrepreneur, finding the right business model is easier said than done. Every market and every opportunity is slightly different. Micro-economics (i.e. customer acquisition costs, churn rates) matter. Customer personas matter.

You won’t know for sure whether your business model will work unless you invest resources to figure it out. A useful mental model to save some effort here is a concept from the investment world called “economic moats”.

Moats are essentially barriers to entry, and here are a few great examples.

If you think about it, the phrase “a start-up’s moat” is an oxymoron, given how vulnerable a young start-up is. However, to borrow a lesson from Peter Thiel’s book, From Zero to One : if you pick your market carefully, you can create your own tiny monopoly. Then over time, you use your monopolistic power within that niche to expand your moat and circle of competence.

Even if there are no barriers to entry today, a great start-up should have a credible path to creating barriers down the road.

Personally, with DeepBench, we’ve chosen a capital-efficient, network effect business model with SaaS and content components that should result in customer stickiness and a strong competitive moat in the long-run.

 

Principle #3 – Understand your edge and don’t be a sucker

Matt Damon’s quote above from Rounders is a poker aphorism that surfaced in the late 70’s and was used by Warren Buffett in the 80’s. This phrase has now become very popular in the investment world.

This concept is closely related to the circle of competence. The lesson here is that you have to understand what you are investing in. To bring up Buffett’s baseball analogy again: you don’t need to swing the bat unless a pitch is in your sweet spot.

Moreover, you need to know WHY the buying opportunity exists. If you think something is cheap, you better be able to explain why. Otherwise, you are the sucker at the table.

“If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.”

— Charlie Munger, Art of Stock Picking

As mentioned in my previous article, inefficiencies exist in both the entrepreneurial and stock market worlds.

In the stock market, for every buyer, there is a seller. When you take an action, you imply that you see something that the market does not.  As a stock market investor, it takes a dose of confidence bordering on arrogance to say that you are smarter than the market.

From a psychological perspective, this is the exact same “arrogance” that entrepreneurs must embrace when taking the plunge. You are more capable than the other entrepreneurs that have failed before you, and you are smarter than the incumbents in your industry that are somehow unable to act on this opportunity that you see. You are able to do something that people with more experience, connections, and capital cannot.

To determine where an entrepreneur sits along the boundary of calculated confidence vs. delusional arrogance, venture capitalists will often ask entrepreneurs some version of: “Why you? Why this team? Why now?”

I try my best to answer that question using the circle of competence framework. I strive to understand my own edge as well as Charlie & Warren do for themselves. And I aim not to be a sucker 😉

 

Principle #4 – Live a life that makes sense for yourself

Not too long ago, Warren Buffett was reading a 10-Q financial filing on a Saturday morning.

He then called the CEO of that company to ask a few questions.

The CEO replied to Warren, jokingly – “Is this what you do on Saturday mornings, read 10-Qs for fun?”

Warren replied matter-of-factly, “Yes”, and proceeded straight to his questioning.

I aspire to live a life such that my day-to-day business activities do not feel like “work”. I want my Saturday mornings to feel as equally enjoyable as my Tuesday afternoons.

I want to live life with a purpose. I want to voluntarily “work” weekends and evenings, even if I had enough resources to retire and live very comfortably for the rest of my life.

That is the life that I try to lead, as well as the mentality I look for in my current and future business partners.

Over the decades, Warren Buffett has carefully arranged his life in a way that is catered to his own peculiar strengths and needs – in other words–his own circle of competence. I think that this is one of the most critical pieces to his success.

As an example, Buffett has famously described his management style as “delegation to point of abdication”– where he will often go months or even years without talking to some of his portfolio CEOs.

The environment that Buffett has thoughtfully crafted for himself affords him the freedom to do what he does best and what he most enjoys doing: Warren Buffett has ample uninterrupted time to read, think, and make decisions.

On a related note, Jeff Bezos espouses a very similar concept called work-life harmony. Bezos states that the word “balance” in the conventional terminology of “work-life balance” implies a trade-off, and that is a limiting way to think.

I agree with him.

Personally, I’m still in the process of figuring out what my own work-life harmony looks like. I do think that it is a lifelong process that requires constant reflection and adjustments, and I feel like I’m closer than I’ve ever been.

The implications of Buffett & Bezos’ life approach for entrepreneurs are clear.

Every entrepreneur is different, and every start-up is unique. We must choose a path that fits us—a path that is uniquely tailored to our strengths and weaknesses. We must craft an environment that is authentic to our working style and our life goals.

You don’t need to be a billionaire to start making tweaks to your environment and shifting your mentality. Success won’t happen overnight, but that is no excuse to not try.

 

Conclusion

If there is anything I’ve learned from Buffett and Munger, it is that their tenets are best considered holistically.

You can’t have happiness without work-life harmony.

You can’t achieve work-life harmony unless you understand your life goals and circle of competence.

Your circle of competence defines a) your edge and b) what business models make sense for you to pursue.

If you want to get better at these things, and whether you are an entrepreneur or not, my only advice for you is to read and reflect—and Buffett and Munger’s writings are a great place to start.

If this type of thinking resonates with you, I’d like to invite you to join me on a life-long journey.

Next post, I’ll discuss my own long-term goals and how I hope to get there with your help!

**

About the author: Yishi is a former hedge fund investor, current entrepreneur & recent MBA grad who enjoys thinking about businesses in his free time. He can be reached via yz [at] yishizuo.com

He is also a co-founder & CEO of DeepBench — We connect users with experts on any topic in any industry, and we also license our software to enterprises to better organize and monetize expertise. (Check us out if you are interested in joining our network or using our product!)

 

My Personal Why – Switching from Hedge Fund Investor to Software Entrepreneur (Part 1 of 3)

(Note, Part 2 has been published: “Warren Buffett, Charlie Munger, and the Principles of Entrepreneurship“)

I enjoyed my last job as a hedge fund investor. I found the work highly intellectually stimulating.

Being an investor aligned well with my lifelong desire to better understand how our world works

But I felt like something was missing.

 

Ultimately, I switched career paths and became an entrepreneur for 3 key reasons:

Reason #1 – I want to better understand business operations and the nuances of management in order to become a superior investor in the long-run.

Reason #2 – I am at the right stage of my life to take a risk. I have no kids, and my parents are doing OK financially and health-wise. From a personal perspective, I can afford a career reset if all goes south.

That is my personal Margin of Safety.  Nevertheless, I wouldn’t have made the career switch if I didn’t think that the decision would be positive Net Present Value (NPV) — which brings me to the last and most important reason.

Reason #3 – I believe that the long-term, risk-adjusted NPV of being an entrepreneur is higher than any other course of action I could have taken. This is somewhat of a contrarian view, so I will use this post to explain in detail.

 

I’m going where the market inefficiencies are.

As a former investor, I know that markets are inefficient for good reason. There are more unknowns, less liquidity, and more risks. But I firmly believe that if one is willing to do more legwork to address those risks, then the best returns can be found in the most inefficient markets.  

The above diagram illustrates my assertion that the best opportunities of all are found markets in which no company exists yet.  And the table below illustrates how I think about the similarities and differences between being an investor vs. entrepreneur.

Clearly, the critical process of execution is very different for an investor vs. an entrepreneur, as are the skills required to succeed. However, I assert that the high-level conceptual framework is the same.

After all, both entrepreneurs and investors look for market opportunities and capture them – the method of execution just varies, depending on how involved you want to be. Either you sit and wait (buy-and-hold hedge fund investor), or you actively build new products to serve customer needs and find more of those customers (entrepreneur). And there is everything in between (activist hedge funds, turnaround private equity shops, hands-on VCs).

Ultimately, just as hedge fund managers arbitrage market inefficiencies to generate “alpha”, so too do companies eliminate market inefficiencies by delivering value to customers. The way all companies (not only start-ups) generate “alpha” is to just keep a slice of that value created for themselves.  This is illustrated by the simplified diagram below, using Uber as an example.

Seeking like-minded people

In conclusion, I want to go where the most inefficient markets are, deliver enormous value to our customers, and capture a slice of that value for myself and my business partners, and I want to do it at scale.

Based on my conversations with other entrepreneurs and investors – I feel that very few people share my philosophical approach and see the same link between entrepreneurship and hedge fund investing as I do. If you are one of the few people in the world who thinks this way – please reach out to me!

(Part 2 – Warren Buffett’s influence on how I think about entrepreneurship, and To come: part 3 – Long-term goals and how I hope to get there (with your help!). Sign up for email updates at www.yishizuo.com)

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About the author: Yishi is a former hedge fund investor, current entrepreneur & recent MBA grad who enjoys thinking about businesses in his free time. To contact him about this article, or suggest new future topics – he can be reached via yz[at]yishizuo.com

He is also a co-founder & CEO of DeepBench – a company that 1) connects those who have expert insights with those who need them and 2) provides expert network software as a service. If you wish to organize knowledge within your enterprise as well as offer that expertise externally, DeepBench can provide the tools to do so!

$100,000 in Year 1 Revenue as Student Entrepreneurs – Our Personal Story

Starting a company is not easy. Business school is not cheap: $140,000 in tuition over 2 years, 2-4x that amount in foregone income. Plus, our classes and all those MBA social activities can take time away from the arduous task of company-building.

Despite these challenges, there is enormous value in simultaneously pursuing an MBA & entrepreneurship.

While I was a first-year student at MIT Sloan, I co-founded DeepBench, a micro-consulting platform that connects knowledge seekers with knowledgeable advisors. This is the story of how DeepBench got started, and how being at MIT has helped us generate over $100,000 of revenue in our first year.

 

The most critical part of any start-up is the founders, and our founding team came together thanks to MIT Sloan entrepreneurship classes.

MIT Sloan has an entrepreneurship track, which is how DeepBench’s founding team met – we are a balanced team of engineers & MBAs. (Nikhil, Derek, Devin, and myself)

MIT is relatively integrated across departments compared to other top schools. At Sloan, there are a lot of cross-listed courses, and there are engineers and programmers in many of our classes. The shared curriculum and collaborative working experiences help form critical bonds of trust amongst students with complimentary skillsets.

As a whole, MIT’s institutional culture encourages students to pursue our own paths. Sloan is no different.

Sloan’s core schedule is only 1 semester (whereas some other schools have 1 full year) – giving us more opportunity to take elective classes. Many of our classes have group projects, and it is relatively easy to choose projects that are tailored for our personal interests. So entrepreneurial students can receive academic credit for learning while working on our own start-ups.

 

The first sales for a start-up are always the hardest, and the MIT network made that happen for us.

There is a saying at our business school called – “Sloanies helping Sloanies”. For me, that phrase has truly resonated.

Story #1

Our very first customer was a Sloan alumnus. Our first piece of revenue in the history of DeepBench was to connect that client with one of my current MBA classmates who happened to have exactly the background that the company was looking for.

That consultation worked fantastically, and that client is now one of our best customers who provides us with a steady stream of repeat business.

Story #2

A few months ago, I hopped in an Uber Pool around the Sloan campus. In that Uber Pool was a woman about my age. She asked me if I was a student and I said yes. She told me that she graduated from Sloan a couple years ago, and now works for a large consulting company.

Of course, I immediately asked her if her company could use DeepBench’s services. She said yes and offered to make an intro and spread the word. Long story short, that consulting firm now generates thousands in revenue per month for DeepBench, with high potential for future growth.

 

We didn’t have a lot of resources, so we leveraged the positive connotations of the MIT brand for our sales and marketing campaigns.

First, MIT is well-known for cutting-edge technology, and the brand association is very helpful for a software + services start-up like DeepBench

We tell the world that are a tech-enabled company built by MIT engineers – a true statement that lends instant credibility. That line is not enough to close the deal, but often it is enough to get a foot in the door. And usually a foot is all we need.

Second, people have an image of MIT as smart engineers building things to help the world, which makes people want to help us

For example, in the first few months of DeepBench’s inception, we sent mass cold emails using our MIT.edu email addresses. Even when the email recipients were non-alums, we routinely received 30% response rates (which is incredibly high).

When we don’t have a lot of resources, we learn to make use of what we what we have. People like helping entrepreneurs, and they like helping students. A student-entrepreneur? Even better!

 

MIT has directly & indirectly provided us with thousands of dollars in cash & cash equivalents

A few examples:

  • A program called MIT Sandbox granted us some equity-free funds to get us off the ground.
  • We used free office space generously provided by the MIT Legatum Center and MIT Martin Trust Center for Entrepreneurship.
  • Thanks to our MIT affiliation, we were able to negotiate generous terms with top-tier law firms with deferred payment structures until we fundraise.
  • Last summer, we joined an MIT Start-up Studio in New York City. MIT provided each student co-founder with a living stipend, plus amazing free office space thanks to a partnership with a VC firm.

Beyond those resources, the MIT ecosystem has provided a lot intangible benefits.

For example, there are great advisors at the Martin Trust Center from whom students can seek start-up advice. We’ve had access to MIT professors who have given us valuable strategic insights and helped us with introductions.

Now that we are closer to graduation, we plan to be more active in our fundraising efforts. There are active angel investor communities at MIT and the broader Boston Ecosystem that we look forward to connecting with!

 

The future is exciting

We still have 3 months of school left. DeepBench is in a good position to fundraise, our team is committed, and we feel good about where we are at. 

  • If you are interested sharing your knowledge and getting paid, please join our network.
  • If you would like to use DeepBench’s service to find advisors and potentially become a client, please fill out this 30-second form.
  • If you are interested in making a seed investment or in discussing a potential partnership, please email me directly: yishi [at] deepbench.io
  • If you are interested in learning more about entrepreneurship & business school in general, shoot me an email as well – happy to chat!