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SCARED MONEY VENTURES, LLC.

How brand strategy can cure overvaluation and implosion.

illustration of boy in treasure chest throwing coins
Ilustration by Julian Ayes

Let’s pretend that – in the aftermath of SVB’s implosion – you and I decide to create a Venture Capital company together. I don’t know about you, but I have a hard time starting anything without a working title, so let’s call this company “Scared Money”, because it’s memorable and implies that we are conservative investors. We are both stakeholders, but in this experiment I am the principal. You have background in finance, I have a background in Brand and Marketing, and this company is brand first – which I’ll explain.

After naming, like any other sound company, I would define the purpose and vision of our company, and scaffold a strategy around that, then begin to hire and cultivate a culture. Our core mission would be slightly different than what we see in most Venture Capital firms: To build and support companies with proven utility, and far-reaching applications.

Our strategy would be different as well: we are not investors, but partners. Our successes are twined. We aren’t bankers. We’re like you: we’re a startup, only in the finance space, spring-boarding off of a strength in brand strategy.


To support this approach, I would treat my VC firm more like a creative agency than a bank. I would want top-minds in finance and speculative investment like you to bolster my blind-sides, but I would spend most of my runway on creating a stable of the best executive creative directors, VPCs, and Chief Brand Officers I could find.



We would asses each potential investment as a cross-functional team: your left-brain, number-crunching side, and my right-brained, “creative” side. As the principal, I would work daily to shorten the gap between these two hemispheres, or what Marty Neumeier refers to as the Brand Gap: the space between your realist bean counters, and the supposed black-magic of my creative engine.


Together, we would asses not just the earning potential of a given venture, but its current and future value…as two very different things.

I've been working in brand, marketing, and design in the tech sector for nearly 20 years. I don’t understand the nuances of investing, and the way mainstream, regional banking is arrayed around the wildly speculative culture of Silicone Valley, but I can tell you what it’s like inside these startups, and what I think is the root causation of a lot of failure:



The truth is, VC's don't operate on the cold-blooded, sound logic that we would think they should.



These are emotional organizations, run by emotional creatures, and the predominant emotion among them is rapaciousness. They get hyped, they get greedy, and they are often wrong. That’s not a dis: capitalism encourages them to be all of those things.



As an observable rule, VC tends not to looks too closely at their investments beyond the numbers, and numbers are all too easy to manipulate. Add a zero here, turn a red line into a black one, staple on some recognizable names, and presto! You’ve got a billion dollar valuation. But there are some things you can’t fake.



If we really want to know if our investment is going to be sound, we needn't look further than the Purpose of the Business, and that’s what Scared Money looks at first: What is the product? What’s its utility to other businesses, culture, and society? What’s its duty to consumers? What is the long term vision of this company – where does it want to be? Is that space wide open, or shark-infested? And most importantly: with all these questions aced, how is all this getting executed? What does the culture look like on the ground?

If all these things are looking good, then great. Company X is getting some of our money. But that money comes with serious strings: we’re getting married. Now that we’re married, let’s build a strategy around the purpose, our shared vision, and lets ensure that the culture – our new family – is marching towards these aims, every single day.



But, how do we get a read on any of these things beyond the most trivial prospectus, or frenzied conversation, when other firms are just outside the room, with the chief aim of simply putting money in first, and much more of it? The answer is pretty simple: Overlap.



Here at Scared Money, we forgo board seats and voting shares, positions which are either ceremonial and disruptive. Instead of these, we write one of our Vice Presidents of Creative or Chief Creative Officer into every startup deal (whichever one who cares the most).



Why? Because its creative leadership and its support team can give us a real-time read on whether Company X is fulfilling the above values we have already agreed upon, and give me a genuine, unvarnished health-check on our venture at any time, on any day of the week – not just quarterly.



You can keep your ROIs, your KPIs, and your shiny Annual Report. We don’t need them. Probably our VPC wrote them for you.

Things are looking good. Co. X is staying on the mission. We’re not seeing massive profit yet –or any– but we’re not worried about that, because we underwrote the mission, we understand the near-term and short term goals, and we can see how achievable they are, or aren’t. Falling short? No need to start chopping heads and looking for savings. Let’s get back to our strategy. Is it still the right one? Is it time to pivot? Let’s talk.



So why don't VCs operate this way? Speaking broadly and from the creative side, I believe it’s because they’re not invested in cultivating stable, valuable companies over time. Profit has very little to do with value.



As you probably know, Amazon operated in the red for over 6 years before making a dollar. For a sense of scale, it took them more than 14 years—58 quarters after its 1997 IPO – to make as much profit as it produced in the last quarter of 2017. Kleiner Perkins Caufield & Byers saw something there (Namely Returns of over 55,000%).



So again, it can take time for value to equate to profit, and value is very difficult to perceive without deep immersion in the marketplace, people, and brand. It takes a genuine alliance to make the changes needed to consistently pursue that value, and accomplish the original mission in the face of both financial success and failure. It takes a close eye — what the military calls: embedding.



My VC firm, Scared Money, hunts for value. We're looking for strategic partners, and building families. We want to build companies that last — that drop jaws. We don’t just hand out money to anyone, and when we do, the amount is determined by our forensic approach to the company's brand strategy, and that money comes with deep-tissue consultation.



We embed. This methodology keeps us from over-leveraging, and it keeps our clients from getting drunk on uncontrolled growth. We like controlled growth. We bet small, and win medium. No one investment can wipe us out, any more than our firm can wipe out adjacent businesses, because we understand: Startups are especially vulnerable to any systemic drop in confidence, given their reliance on investors’ faith in their long-term potential, especially when profitability might be years away.


Illustration of man in safe smoking a cigar

All this makes sense, right? But we are very alone in this thinking. Most of our competitors and contemporaries are fast movers. They’re “hungry”, and proud of it. They want to be the first money in, and first money out. They are rapacious, and they will remain rapacious, even after the dust settles from SVB.

Every day, from 8am to 10pm, Son Masayoshi, the billionaire boss of SoftBank, sits in his Tokyo mansion looking at Tech entrepreneurs and handing out money. At the group’s earnings call in summer 2021, Masayoshi bragged about backing 60 companies in three months. Between January and March of 2021, he doled out $210m a week, and had poured over $84 Billion into startups.



What value can one truly glean from 60 companies in 90 days?

Like SVB and Softbank, most of Scared Money's VC competitors are looking for short-term, massive profit bumps, and often don't fully understand what they've invested in, or why, except that they did it first – sometimes in fear of, or just to spite challenger firms like ours, small though we may be.



They are playing a kind of tech-startup roulette, and winning to them always looks the same: IPO and cash out. And because they aren’t really looking, when they do stumble upon a valuable, profitable company that can maintain a stable, (private) cruising altitude into the foreseeable future, they have a propensity to dethrone the CEO, gut the company of its vital personnel, and sell it off in its entirety…the other winning strategy.



Our competitors do this over, and over again, year after year, decade after decade. There seems to be no limit on the valuations assigned to even the murkiest businesses (See Adam Neumann’s return). More and more money comes into the picture. Larger, regional financial institutions begin to lust after the trendsetting VCs, looking for a way to wedge in.



SPACs get blank checks, merge and acquire VC held companies, and take the new organism public faster than any IPO. VC loses its mind, gets away from its primary function of lending to promising technology, and starts building held-to-maturity (HTM) securities portfolios, full of long-term mortgage holdings. Now VC is vulnerable to the throes of an unstable housing market, and suddenly everyone is vulnerable to VC, and California is yelling “Domino!”

What just happened? Lenders lost sight of their purpose: to partner with, and finance innovation.

Meanwhile, here at Scared Money, we stayed on mission. We just (hypothetically) invested 2.5 million measly dollars in a tiny boutique agency in Los Angels, to help them partner with what was originally a client called Cookie X: a (nonexistent) a cookie company offering high-end handmade pastries in Los Angeles, packaged in luxurious boxes. Since launching, sales have been well into the 8 figures.

The remainder of our capped annual investment pool includes the following mid-market and emerging brand partners: Buffy Houseplant Liquid Death

MIT Labs ON We have top-tier VPCs and Social Media managers stationed inside each of these venture partners. Half VC, half brand consultants, Scared Money helped bring a new American Selvedge denim line to market, and as a result have become co-owners in an unprecedented risk for our firms brief history: we dipped into our own capital reserves to purchase the near-extinct White Oak Denim plant in North Carolina, and with it the last remaining shuttle looms in the United States.



From this position hope to help a number of US-based textile and fashion startups source their materials, which in turn has led to increased investment opportunities, and what we hope will encourage a revitalization of the fashion industry, and American manufacturing.


It’s been a great year or your and my non-existent Brand-First VC firm.

Bigger is not better, or impervious to failure.


Remember good old 2019, and Ford vs. Ferrari? Not the greatest racing movie ever made, but a great parable about the way big business works: at once demanding of, and utterly resistant to change.

In one of the greatest movie pitches I’ve ever heard, this is how Jon Bernthal’s character Lee Iacocca, the great American industrialist, makes his argument for the Ford Motor Company to hard-pivot into high-performance:

Executive Suit: “In the last 3 years, you and your marketing team have presided over the worst sales slump in US history. Why exactly should Mr. Ford listen to you?”

Iaccoca:

“Because we’ve been thinking wrong. Ferrari. They’ve won 4 out the last 5 Le Mans. We need to think like Ferrari.


Executive suit:


"Ferrari makes fewer cars in a year than we make in a day. We spend more on toilet paper than they do on their entire output."


Iaccoca:


“Enzo Ferrari will go down in history as the greatest car manufacturer of all time. Why? Is it because he built the most cars? No. It’s because of what his cars mean. Victory. Ferrari wins at Le Mans…people…they want some of that victory.”


This is what we call “positioning the customer for success”, rather than positing the product. And this is how investors, CEOs, and anyone with a stake in a given company will need to think to survive…or at least trust their creative leadership to think about.

The idea of quarter-over-quarter gains, year over year, in perpetuity is unsustainable. This thinking has led to the VC and Speculative Market tailspin we find ourselves in right now. It’s not complicated to reverse engineer: VC is run by people. And again, people are emotional creatures. We have appetites. We like to win. We love money.

I believe in Capitalism, but I also believe in its variants and restraints; bridled capitalism, “moral” capitalism. I agree with what Nick Hanauer said: that “the economy IS people.”



But above all else, I believe that by following the guide-rails of Design Thinking – defining the Purpose of business, its Vision, and in taking care with its strategy and its culture FIRST, we can slow our tempo, while still marching towards the best possible financial outcomes.



We can mitigate our risk across sectors. We can be less often be caught unaware, unable to disentangle one financial instrument from another, one economy from another, as the vast majority of the population is forced to backstop the failures of speculative investing again and again and again.



Seeing that Chrysler would go out of business if it did not receive a large infusion of cash, Lee Iaccoca approached the United States Congress in 1979 and successfully requested a loan guarantee. In an April 2009, the company began to fail yet again. In a Newsweek interview, Iaccoca reflected on his time spent at Chrysler and the company's current situation. He said:

“This is a sad day for me. It pains me to see my old company, which has meant so much to America, on the ropes. But Chrysler has been in trouble before, and we got through it, and I believe they can do it again. If they're smart, they'll bring together a consortium of workers, plant managers and dealers to come up with real solutions. These are the folks on the front lines, and they're the key to survival. Let's face it, if your car breaks down, you're not going to take it to the White House to get fixed. But, if your company breaks down, you've got to go to the experts on the ground, not the bureaucrats.



I would go further. I would consult the experts before a company is even conceived of – certainly before it starts taking on investment, or receives an ungodly valuation, and is leveraged to invite even more misplaced money. If we don’t learn to start rooting things in reality – in the merit of a company and how it services the values and needs of the American consumer – we will live with financial insecurity for as long as it takes for something irreplaceable to break.


And it’s so easy to avoid. All we need to do is slow down, and ask the right questions: what is this money for? What are we trying to build? If the answer is nothing – and I assure you that it is, far more often than anyone in Tech or VC wants to admit – then the investment should be commensurate.


If you are looking to build your brand, increase equity through activation, build teams, deliver emotive value propositions, and create loyalty—or even if you don't understand why these are the building blocks of any new or existing venture – let's talk.

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