Michael Tan
@TheManMikeTan
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Investing @tidemarkcap | prev @glossgenius , @check_hq , @contrary , @goldmansachs | @dukeU
San Francisco, CA
Joined September 2015
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Of course that’s your contention, you’re a new VC who just expensed a meal at Nobu and saw a Toast card reader for the first time when you paid. You started down the Vertical SaaS rabbit hole, probably just read the Bessemer Toast memo. You’re gonna be convinced of that until…
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Many of my startup friends see that I used to be an investment banker and have consequently asked me to explain to them what's going on with SVB as I would explain it to a 7 year old, so here goes:
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My hometown of Fremont, CA is looking like Switzerland this time of year. The Bay Area is so back.
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21/ This leads to a downward spiral because more withdrawals —> exacerbates liquidity issues —> leads to even more depositors withdrawing —> and so on
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20/ Also there’s some prisoner’s dilemma game theory here because even if you think the bank is OK, if everyone else withdraws, then it becomes not OK and you end up losing all the money you deposited in the bank if you stay in while everyone else pulls out
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Of course that’s your contention, you just listened to an episode of “The History of Rome Podcast” for the first time after getting bombarded with “every guy thinks about Rome daily” tweets on your timeline. You’re gonna be convinced of that until…
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You gonna plagiarize all of VC Vertical SaaS thought leadership for us? You have any thoughts of your own on this matter? Or, is that your thing — come onto Twitter, read some other seasoned VCs’ blog posts, and then try to pawn it off as your own to impress founders?
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@CorpFinScum
Sorry to inform you that the next generation of PE and Growth investors have already been conditioned to outsourced diligence to McKinsey and Bain
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1/ Banks take deposits. When they take a deposit this creates a liability because the depositor can ask for the deposited money back whenever
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11/ Why? Because now investors can access ~5% yields risk free from the government (US Treasuries), which decreases what people are willing to pay for securities that yield just 1.56% with similar duration.
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9/ It just so happens that most of SVBs depositors are startups, and with the bad macro disproportionately affecting growth tech, some startups have become more likely to ask for their deposits back to use for whatever reason.
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18/ OK so back to the first option to get more cash — SVB goes ahead and sells ~$20bn of bonds, taking a ~$2bn loss. Now this made ppl freak out. Was their liquidity position so desperate that they were willing to take a $2bn loss just to get some liquidity?
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2/ Banks lend these deposits out to earn interest. This is how banks make money. Banks lend some proportion of deposits out because not everyone will withdraw at the same time.
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5/ So SVB had a ton of deposits that it needed to make money off of by lending out. So it used those deposits to buy a ton (~$90bn) of very very safe bonds and 10-year duration mortgage-backed securities.
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12/ This means that SVB put a ton of deposits in low-yielding bonds that have lost value due to recent rate hikes. AND they have a depositor base that is more likely to withdraw deposits now.
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I moved from NY to SF almost exactly a year ago. After a year of experiencing SF, I've come to the conclusion that NY is far superior. Moving to SF was a mistake. NY friends, I'm excited to announce that I'll be coming back to NY next month!
The views were overhyped.
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19/ All depositors see this and are like oh shoot, better safe than sorry, and start withdrawing all their deposits. No one wants to be a depositor in a bank that has even a whiff of liquidity issues
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“As a matter of fact, I won’t because VCs drastically overestimate —"
—VCs drastically overestimate the attach rate of new adjacent product lines onto the core vertical SaaS platform? “Invest Like the Best — Building Uber Eats” episode. Yeah, heard that too.
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4/ Ok so our friendly neighborhood bank SVB got a TON of deposits because many well-funded startups banked with them during the last decades’ startup boom. Startups deposited their funds with SVB
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10/ Simultaneously, with large interest rate rises by the Fed recently, all of those securities that SVB had invested in that was yielding 1.56% now lose value
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6/ This was also back in 2021 when interest rates were really low so (harken back to all the ZIRP memes), so all of these securities yielded just ~1.56%. A low yield, appropriate for a safer security in a low interest-rate environment.
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8/ However this means that there are a ton of $$$ that SVB doesn’t have access to draw on in the case that a ton of depositors come asking for their money back from the bank (because those $$$s are locked up in those securities)
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3/ This means if a bank has $100 in deposits, they don’t need to keep $100 in the bank at all times. They can lend out some portion of that $100 to make money, and just need to make sure they have enough in the bank to satisfy any regular withdrawal requests.
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15/ The first is by selling some of the securities they have that they are not holding to maturity (these are called available for sale, or AFS). These securities have also lost value because of those rate hikes
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...you find out about the Tidemark Vertical SaaS Playbook. Then you’ll be talking about “extending through the value chain” and becoming “multi-product” and you'll talk about how companies like Toast and ServiceTitan are exemplars to be followed...
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17/ The second thing SVB did was to do a fundraise — SVB said it would raise $2.25 billion, including $500 million from private-equity firm General Atlantic and offering $1.25 billion of convertible preferred and common stock to investors.
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13/ To be able to face those potential withdrawals and fulfill them, SVB had a sudden need for cash to fulfill any withdrawal requests.
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16/ However if the need for cash is very acute, then SVB would be willing to take that hit in value in exchange for getting access to all that tied-up money in cold hard cash that it can use to fulfill withdrawal requests
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7/ So now SVB has $90bn of deposits locked up in 10-year duration securities that are pretty safe.
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@SamoBurja
You gonna plagiarize all of Roman history content for us? You have any thoughts of your own on this matter? Or, or is that your thing — come onto Twitter, watch some 10 minute Youtube video on Rome, and then try to pawn it off as your own to impress girls?
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14/ So how can they get that cash if they have so much $$$ locked up in those long-dated securities? By doing 2 things:
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... you find out Edward Gibbon’s “The Rise and Fall of the Roman Empire.” Then you’ll be going on about how Christianity led to the gradual loss of civic virtue among the citizenry, leading to the fall of Rome.”
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Very underrated consideration in choosing a place to live: Can you walk out of your house on most days and experience a glimmer of the Sublime from your surroundings?
I find that SF allows me to answer "yes" to this question to a much higher degree than NY does.
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“As a matter of fact I won’t because Gibbon drastically overestimates..”
…Gibbon drastically overestimates the impact of Christianity, especially in comparison to the failure of Rome to build lasting institutions that could consistently solve the succession problem…
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@micsolana
VCs subsidizing 75% of my grocery spend and getting the groceries delivered to me in 15 minutes
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…instead relying on Diocletian’s overly complex Tetrarchy which led to frequent devastating civil wars?
@SamoBurja
— "How Roman Emperors Handled The Succession Problem." Yeah, heard that too.
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If cities are a product, Mayor
@FrancisSuarez
has lowered Miami’s CAC by degrees of magnitude
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Zuckerberg turning down Yahoo's $1bn acquisition offer for Facebook is the modern day equivalent of Alexander The Great turning down Persian King Darius's offer of ceding him all the Persian territories west of the Euphrates in exchange for ending his invasion
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As a former vertical SaaS operator with
@glossgenius
and
@check_hq
, I've developed a ton of respect for
@davelyuan
and the team over the years. Excited to be officially joining the team
@tidemarkcap
. DM me if you want to chat about platforms, vSaaS, fintech, or anything else!
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@blader
They should make the Mathcounts countdown round a national event like the super bowl to instill belief in society that 100x engineers exist
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Can confirm the Fed has successfully broken the back of inflation — I just got 20 McNuggets for $6
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Everyone talking about Sequoia and Benchmark but what about King Ferdinand and Queen Isabella's family office earning a 1,000,000x markup on the stake they acquired when they lead Christopher Columbus's seed round
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Years ago, I lived in Tel Aviv for 2 months. The same streets I would walk down are now subject to rocket barrages. Israel is an amazing place. It’s a story of a people who, after millennia of persecution, strove to build a strong and humane society with liberal values. The…
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“Life can be so much broader, once you discover one simple fact, and that is that everything around you that you call 'life' was made up by people who were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use.”
Have met ultra-successful people from all walks of life with completely different styles, and my biggest takeaway is this: There are almost no rules. Do what's best for you. Everything works... but you need to be really, really, really good at whatever you commit to.
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Two of my most exceptional founder friends are building a freight tech startup and they’re hiring full-stack engineers. They got preempted by a top fund for their Series A and are going from 0 to >$1M in ARR in a matter of months. DM me if interested. More details in thread 🧵.
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Today my doorman told me “be safe” instead of the usual “bye” or “see you later.” Was confused for a second and then felt very conscious of my ethnicity.
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I wrote a short philosophical novella on AI in college, and it became a
#1
Amazon Bestseller back in 2020.
@_rachelbraun
and
@TWiStartups
had me on last week to chat about the book and share predictions on AI — it was a blast, so check it out!
+link in bio for the book
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@gbrl_dick
Ngl I told my gf to buy the dip so many times in the past few months but she never listened and now she’s flexing on me
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5 Waymo’s simultaneously appeared at my front door last night as it came time for my housewarming attendees to depart. Only in SF.
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Growing up doing math competitions and watching people like Scott do this right in front of me has been a godsend for my calibration for what “really smart” truly looks like. Having a high bar for talent is a winning strategy. But it has to truly be high.
In case you were wondering just how cracked the team
@cognition_labs
is...
This was the CEO (
@ScottWu46
) 14 years ago.
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Born too late to enjoy VC-subsidized ridesharing
Born too early to enjoy VC-subsidized trips to Mars
Born just in time to enjoy VC-subsidized grocery delivery and wine subscriptions
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As a Duke econ grad, I'm curious if they include Daniel Jones's 4 yr $160M contract when they advertise the average earnings of Duke econ grads
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I asked my 5 year old son what he wanted to be when he grew up and he told me “Dad i want to be a Member of Technical Staff”
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.
@AbhayVenkatesh1
and I hosted an intimate gathering of AI founders, investors, and thinkers in SF tonight. Over a feast of Cantonese cuisine, we reasoned through Nick Bostrom’s Vulnerable World Hypothesis, AI’s Straussian Moment, and much more. Some takeaways below:
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In awe of the
@BeanstalkFarms
team’s indefatigability. $77M gets stolen in a devastating hack and their immediate response is to just go work 100 hours a day for 100 days straight to get the protocol back up and running. Built different.
S/o
@isthispublius
@SiloChad
@astncapital
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Just returned to my hometown in the Bay Area. The drought-ridden landscape of my youth is more verdant than ever before. The creek that was dry my entire childhood is now full of water. For the first time I’ve experienced the wonder that led our ancestors to worship rain gods.
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Introducing
@weekendfund
's latest market map: What does it take for enterprises to fully adopt AI? (Hint: It's a lot, and there's a lot of products that need to be built!)
Please keep the suggestions and feedback coming. The map is a work-in-progress — what did we miss?
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Incredible to see how far
@contrary
has come — something that isn't mentioned in this thread is how
@etarczynski
gave 100s of young, hungry folks like 19-year-old me the opportunity to learn about and contribute to the wonderful world of venture + make lifelong friends. Will…
In 2017, I knew zero people in VC.
I took out $50,000 of loans and slept on couches/in cars.
By 2022, I managed hundreds of millions, and had backed startups like Ramp and Anduril.
The five most important lessons learned building a venture firm *truly* from scratch:
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Men used to go to war so they could say "I was part of the conquering army of Italy."
Now men join early-stage startups so they can say "I was part of scaling ARR from $10mm to $100mm."
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One of the densest podcast episodes I’ve ever listened to in terms of the amount of information distilled per unit time.
@davelyuan
is one of the most knowledgeable investors in the world when it comes to vertical market SaaS
My conversation with
@davelyuan
Everyone says he’s one of the few people to talk with on the topic of building and investing in vertical market software businesses
I especially loved the case studies that I’d never before encountered
Enjoy!
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One of the most important career decisions in your life is your choice of spouse/partner. Great advice from
@paulg
in his "How to do Great Work" essay.
Have seen choosing the wrong partner as a failure mode for otherwise exceptional people multiple times.
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Today I accidentally said “Try this API” when I meant to say “Try this IPA”. Confirmed I’m one month into working at an API company
@check_hq
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The cult of the engineer in Silicon Valley likes to say things like “Jobs didn’t even code. It was Woz that was responsible for the Macintosh.”
Yet it was Jobs that was irreplaceable. After a certain scale, Woz became replaceable.
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Announcement: New Event Series w/
@AbhayVenkatesh1
AI <> Verticals is a private seminar series on AI applications in certain verticals.
For our first dinner, join us as we explore how AI can revolutionize the trillion-dollar healthcare industry. Details in 🧵
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Ok guys we've officially hit the bottom — one of my most bullish crypto friends who was staking tokens to harvest 10,000%+ yield back in 2021 just discovered US treasury bills and is raving about the ~4% yield on them.
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@whrobbins
Howard Hughes:
SF (more like the West Coast) --> tons of flight innovations
LA --> Produced major films, turned around RKO, a major film studio
NYC --> Got massive amounts of financing from Wall St
DC --> wielded major political influence and had tons of connections
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AGI will render the vast majority of humans worthless in the labor market, creating a new world order of 1% AGI overlords, and the 99% serfs who are fed by UBI.
Will you accept the UBI? Or will you do whatever it takes to get on the other side of the inevitable wealth divide?
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Guy who makes a note of the POS system in every restaurant he goes to
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It’s all about investing in generational founders in large markets.
Every other data point (traction, hiring, GTM, product velocity, etc) is just a reflection on 1) the founders’ ability to execute and 2) the market’s ability to support the product.
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We’re hosting a dinner with
@CityofPraxis
tonight with leading founders and investors in San Francisco, dm me or
@AbhayVenkatesh1
for an invite to the city of the future
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Kudos to the govt. This is what we avoided:
1) Huge dampening of the innovation system that has been the main driver of economic growth
2) 1000s of companies not being able to make payroll
3) A run on regional banks, leading to consolidation of all banking activity into 4 banks
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"Abhay"
There are some people you meet who rapidly change your life's trajectory. For me, that's
@AbhayVenkatesh1
.
People talk about soulmates, but soulmates aren't just limited to romantic relationships. You can truly ascend to new heights when you're with the right people.
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Crazy! My book just hit #𝟏 𝐁𝐞𝐬𝐭 𝐒𝐞𝐥𝐥𝐞𝐫 on Amazon, just 5 days after release. We're
#1
in the entire Political Philosophy category, above works by some of my personal favorites such as Machiavelli and Plato.
Check it out (E-book is $0.99):
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Is it just me or is it more enjoyable to work at 12am than at 12pm?
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1/n Announcing Revelation — an organization for the world’s best operators, founders, and investors to learn and apply political philosophy to startups.
Full details --> link in thread
If interested, reply to this tweet or DM
@AbhayVenkatesh1
,
@PaulCasinelli
, or myself.
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Over the next ten years, the value creation that begins in Twitter DMs will be far greater than the value creation that begins in the email inboxes of investment bankers and consultants
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The feeling of meeting a new person you vibe with is simply exhilarating. Nothing compares… save for catching up with a longtime friend.
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What a divine weekend in SF. Can’t believe I still have folks in my DM’s trying to convince me that Miami is better.
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.
@maxkluo
and I regularly host a little VC and Founders poker night at our place with
@SinikDemren
and
@SpencerFarrar
. DM if you want to join the next time we do it! Only a few seats around the table as we like to keep it intimate
♠️ ♥️ ♣️ ♦️
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There are some pretty asinine takes going around blaming VCs and Peter Thiel for the SVB collapse. Advising your friends and founders to get out of a shaky bank does not make you blameworthy for the bank collapsing, it just makes you a good friend and prudent advisor.
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Asked a founder friend how the romantic life is going now that he's moved to NY (from SF), and he replied, "I don't have a girlfriend. I have a cap table."
Bullish
@aniiyengar
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It's such an advantage to have trusted friends and advisors who push you candidly and relentlessly. If you close yourself off to negative feedback because it hurts your feelings or you feel like it "harms the friendship", you're doing yourself a disservice.
h/t
@AbhayVenkatesh1
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Had a group brunch and by the end of it 2 tradfi friends venmoed me large amounts to sow $BEAN for them. Bullish.
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