Thursday, October 31, 2019

It all started with a song (LCA 3Q19 letter)

Five years ago Halloween I decided to start my business, and it all started with a song.

I was a month into a job at a hedge fund, a job I'd wanted for a very (very) long time but quickly realized wasn't going anywhere. And up on Spotify popped “When I Paint My Masterpiece” …

“Someday everything is gonna sound like a rhapsody,
When I paint my masterpiece

Someday, everything's gonna be different,
When I paint my masterpiece”

… and when I noticed that I was getting choked up, I realized I had already taken my first steps towards entrepreneurship. I was pretty terrified.

Two years earlier, I’d left behind a career as a sell side analyst, seeking a buyside role. While looking, I continued to invest on my own and gave voice to things I'd long thought about; consulting, public service, volunteering, parenting, etc. (Parenting is by far the hardest and the pay sucks but it's oddly rewarding for the rare moments your "bosses" offer gratitude).

Over that time, I'd met a handful of folks who’d started their own funds, some starting with $2M and growing it to +$25M (and beyond), others who had started with $2M and grew it to $1M (or less), everyone unanimously telling me it was the greatest experience they’d ever had. And everyone encouraged me to do it.

But I thought I needed experience first - took me a while to realize that was fear talking - so I got a job as an analyst, a job that lasted a month and a song.

That night I had dinner with a friend who'd started a few years earlier his own (incredible) architecture firm. He was like, “oh, yeah. It’s fucking terrifying. But go get your LLC and see where it goes.”

And that's what I did.

I had three primary tenets when I opened my business:

1. I want to solve a problem for my clients, not for myself. I wasn't doing this for validation, or to justify my existence. I needed to get a return on capital while offering something different and hopefully better than other available solutions.

2. I want to be available and accessible to traditional hedge fund investors as well as to people who don't normally have access to deeply researched, unique and unusual portfolios.

3. I decided back then (and I still say now), that if I saw signs of failure I’d stop and do something else. Failure doesn't just mean bad returns, which is inevitable from time to time, but failure to deal with stress, with OPM, with down periods and up periods, with the administrative rigmarole, with the professional aspect that you get up and do it even on the days you don't want to. Etc.

And now I'm four years in and I remain committed to those three tenets. There's still much to learn and my awareness is growing. I'm developing a deeper list of ideas, an important tool of portfolio managers, and continuing to keep my mistakes manageable. I've written about other thoughts in LCA's 3Q19 letter.

At the start, a lot of folks told me I'd fail. That's fine; failure is the baseline. Entrepreneurship is hard. I respect anyone of any stripe who starts their own business, including the oddly large cohort of folks around where I live with CBD infused pet food businesses.

Here's a sampling of things other entrepreneurs have said to me over the years ...

A friend who started a brewery: “my head is exploding every day.”
An old camp friend who is a serial entrepreneur and is one of the most upbeat humans I've ever met: “I look optimistic b/c I have to, but it’s so fucking hard”
A fellow fund manager whose daily mantra is "this shit is hard.”

... starting out takes a lot of support and persistence, some experience and undoubtedly some luck. If you're thinking about it, don't let fear hold you back.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.