Lauren Loktev, Kanyi Maqubela, & Craig Shapiro - Watching a Venture Fund at Work - [Invest Like the Best, EP.19]

Here is the translated investment research report in natural, professional English.

At a Glance

This episode features three partners from the New York-based venture capital firm Collaborative Fund: Lauren Loktev, Kanyi Maqubela, and Craig Shapiro. They share the firm's thematic-driven investment methodology, which involves first identifying global structural changes and then building a portfolio around those themes. Kanyi Maqubela argues that in seed-stage investing, the speed at which a founder "discovers unknown unknowns"—their ability to gain first-hand market insights through rapid experimentation—is the core metric for evaluating their potential, more important than the precision of their business plan.

Topic Sections

1. Seed Round Valuation: Paving the Way for Future Funding, Not Pursuing Precision

Craig Shapiro believes that early-stage valuation cannot be calculated using a precise DCF model. Its core goal is to "pave the way for the company's success," meaning setting a price that allows the company to smoothly secure its next round of funding.

• Mechanism Breakdown: The three partners point out that early-stage valuation is primarily determined by market supply and demand, not financial models. Lauren Loktev emphasizes that while seed round valuations are currently rising, Series A investors are becoming more cautious, leading to a mismatch in valuation expectations. "No one wants to lead a Series A 'down round,'" meaning that if the seed round valuation is too high, the company will face significant difficulties in subsequent fundraising. Therefore, the key to pricing is ensuring the company has enough room for future growth to achieve a higher valuation at the Series A stage.
• Data Chain: Craig Shapiro mentions that tools like "current revenue multiples" or "expected profitability" cannot be used in the early stages. The core of the decision is to judge whether the market is large enough to support a "billion-dollar company."
• Deduction & Uncertainty: Kanyi Maqubela adds a counterintuitive point: many successful companies had valuations that seemed "painfully high" at the time of their early rounds but later proved to be "ridiculously low." Therefore, they do not try to time the market but instead deploy capital evenly over their investment period (about 4 years) to achieve "cost averaging" and hedge against valuation risk.

2. The Three Dimensions of a Brand: Visuals, Experience, and Community

Kanyi Maqubela proposes that a strong brand is built on three dimensions: visual design, user experience, and community relationships. All three are indispensable.

• Mechanism Breakdown:

1. Visual Design: This is the most intuitive dimension, encompassing fonts, imagery, etc. Kanyi half-jokingly cites "serifs are out of style" and uses their portfolio company Simply Gum as an example, where its "clean" design aesthetic is part of the brand.

2. User Experience: This is the core of the brand. Lauren Loktev points out that Zappos' free return policy and the experience of simply getting out of an Uber/Lyft without paying are seemingly small details that become iconic brand features.

3. Community & Relationships: Kanyi uses Supreme as an example, stating its brand is its fervent community of "young, Black, Latino, Chinese, and Japanese skaters." The best brands are themselves a "movement" that can change consumer behavior.

• Unique Judgment: Lauren Loktev adds that a brand is a highly efficient form of communication. It can convey in an instant what would require "a thick book" to explain, thereby changing a consumer's identity. This aligns closely with the persuasion theory of "appealing to identity."

3. Finding Founders: A Combination of High Conviction and an "Experimenter" Mindset

Kanyi Maqubela believes the best early-stage founders possess both "extremely high conviction" and an "experimenter mindset." They discover unique, first-hand market insights through rapid, closed-loop experiments.

• Historical Context: Craig Shapiro observes that the first generation of internet entrepreneurs (e.g., Foursquare's Dennis Crowley, Google's founders, Facebook's Zuckerberg) were often solving their own needs. Now, this cohort is becoming parents, and their entrepreneurial focus is shifting towards solving the needs of the next generation, such as children's education. This constitutes one of Collaborative Fund's investment themes.
• Mechanism Breakdown: Kanyi uses their portfolio company Osmo as an example, which creates a "magical" children's educational experience by combining physical toys with digital interaction. Craig emphasizes that when evaluating such companies, competitive landscape analysis is important, but "stress-testing the founder" is even more critical—observing how they react to setbacks like being rejected by a store or facing a new competitor.
• Deduction & Validation: Kanyi cites their portfolio company founded by Shivani Siroya (later developed into Tala). Targeting the global unbanked population, she simultaneously ran experiments in India, Kenya, and the US. "The experiments have closed-loop feedback," meaning she could quickly learn from each experiment, thereby accumulating first-hand market knowledge. This speed of "discovering unknown unknowns" is a key signal of whether a founder can find product-market fit after the seed round.

4. Advice for Entrepreneurs: Define Your Business Model and "Over-Invest" in Brand

The three partners unanimously agree that entrepreneurs must be clear whether their business model is "winner-takes-all" or a "lifestyle business," and they advise all companies to "over-invest" in their brand.

• Mechanism Breakdown:
• Define Your Business Model: Lauren Loktev warns that the worst situation is the "middle ground"—lacking both the capital efficiency needed to pursue exponential growth and the discipline to pursue profitability. If the market is winner-takes-all, rapid expansion is necessary; if it's a lifestyle business, the focus should be on cash flow and profitability.
• Fundraising is Not a Business Model: Kanyi Maqubela emphasizes that many tech companies become addicted to fundraising, structuring their operations around it, which is dangerous. Capital efficiency and discipline regarding the path to profitability are key to long-term sustainability.
• Brand is the Ultimate Moat: Kanyi argues that many large 20th-century companies ultimately became "just a brand," where the actual business was less important than the feeling it gave consumers. Therefore, "over-investing" in the brand is worthwhile.

5. The Exit Problem: From "No Exit Fund" to a "Long-Term Stock Exchange"

Craig Shapiro uses a "farm" analogy for the investment ecosystem, arguing that the current "harvesting tools" (the IPO market) are broken, trapping significant value. This is the core rationale for their investment in the Long Term Stock Exchange (LTSE).

• Historical Context: Craig notes that the number of IPOs has plummeted, with the number of public companies being only half of what it was decades ago. They once considered creating a "No Exit Fund" to provide liquidity for founders who didn't want to go public, but eventually realized the problem wasn't "no exit," but rather "the right exit."
• Mechanism Breakdown: Current problems with the IPO market include: shortened CEO tenures (the average tenure for an S&P 500 CEO is about 6 years), leading management to avoid long-term risks; regulations like the Sarbanes-Oxley Act increasing the cost of going public; and mechanisms like high-frequency trading being detrimental to long-term shareholders.
• Deduction & Validation: The LTSE aims to reward long-term shareholders by changing regulations and trading mechanisms, allowing company management to invest in projects with a 10-15 year horizon, as Larry Page described. Craig believes the LTSE is just one piece of the puzzle, requiring joint efforts from the government and investors.

Position Moves

Position	Analyst Stance	Key Data
Simply Gum	Bullish (Brand Case)	Visual design is "clean," demonstrating brand execution.
Osmo	Bullish (Invested)	Team from Google; creates children's educational experience via hardware + digital interaction; potential partnership with Sesame Workshop.
Tala (Shivani Siroya's company)	Bullish (Invested)	Targets the 2-3 billion unbanked globally; enters via mobile payments like M-Pesa; has "hundreds of thousands" of customers.
Supreme	Bullish (Brand Case)	Community is its brand core; "young, Black, Latino, Chinese, and Japanese skaters" line up to buy.
Zappos	Bullish (Brand Case)	Free returns policy is a defining brand experience.
Uber / Lyft	Bullish (Brand Case)	The experience of not having to pay upon exiting the car was key to their early brand success.
Long Term Stock Exchange (LTSE)	Bullish (Invested)	Aims to solve the broken IPO market, reward long-term shareholders, and change CEO short-termism.
Berkshire Hathaway	Neutral (Analogy)	Referred to by Craig as another name for a "No Exit Fund."
Google	Bullish (Strategy Case)	Larry Page believes long CEO tenure (like his and Sergey's) is a strategic advantage, allowing investment in 10-15 year projects.

Memorable Judgments

1. (Kanyi Maqubela) The speed at which a founder "discovers unknown unknowns" is the core metric for seed-stage evaluation. Support: Through rapid, closed-loop experiments, founders accumulate unique first-hand market insights, which are more valuable than any business plan. Tala's founder found the "wedge" of mobile payments through experiments in different countries.

2. (Lauren Loktev) The core goal of a seed round valuation is to "pave the way for the company's success," not to pursue precision. Support: An excessively high seed round valuation can lead to a Series A "down round," trapping the company. Pricing must leave room for growth in subsequent funding rounds.

3. (Kanyi Maqubela) A brand is the most efficient form of communication, capable of conveying in an instant what requires "a thick book" to explain. Support: The best brands are "movements" that change consumer behavior. Supreme's brand is its community; Zappos' brand is its return policy.

4. (Craig Shapiro) The current problem in the investment ecosystem is that the "harvesting tools" are broken, not that there is a shortage of "seeds." Support: Using the farm analogy, he argues that capital (water) and talent (fertilizer) are incredibly abundant, but the IPO market (harvesting tool) is inefficient, trapping significant value.

5. (Lauren Loktev) Entrepreneurs must be clear whether their business model is "winner-takes-all" or a "lifestyle business"; the "middle ground" is the most dangerous. Support: The former requires rapid expansion and capital; the latter requires profitability and efficiency. Being in the middle ground means failing to win the market or achieve profitability.

6. (Kanyi Maqubela) Do not "underestimate investing in the brand." Support: Large 20th-century companies ultimately became "just a brand," where the feeling they gave consumers was more important than their actual business. "Over-investing" in the brand is a way to build a long-term moat.

7. (Craig Shapiro) The short tenure of CEOs (about 6 years) is a fundamental reason why companies are unwilling to take long-term risks. Support: Larry Page believed Google's strategic advantage was that he and Sergey planned to stay long-term, allowing them to invest in 10-15 year projects. The LTSE aims to solve this by changing incentive structures.

8. (Kanyi Maqubela) The early-stage valuations of many successful companies seemed "painfully high" at the time but later proved to be "ridiculously low." Support: This explains why early-stage companies cannot be valued with precise models and highlights the importance of a "cost averaging" strategy.