Since its founding in 2014, Garnett Station Partners (GSP) has compounded at 33%^[1]. The firm invests in the trillion-dollar franchise and consumer services industries and currently manages $2.3 billion. Matt Perelman and Alex Sloane started GSP as 26-year-olds, when they bought 23 Burger King restaurants. Over the past decade, they have made 26 other multi-unit investments, buying gyms, funeral homes, car washes, pet care services, and restaurant chains. 

Their firm is first quartile or better for net MOIC, IRR, and DPI against its peers^[2], but the stat GSP’s founders are most proud of, Matt especially, is its loss ratio: sub 0.5%^[3]. GSP has lost money only once, in its second platform company, MAACO, in 2015. 

“I think they’re the next generation,” legendary credit investor Marc Lasry said in a recent interview. 

Matt and Alex were fresh out of private equity, in the middle of an MBA at Harvard Business School, when they inadvertently started GSP by buying a Burger King franchise managed out of Garnett Street train station in Henderson, North Carolina. They wanted to buy a Quick Service Restaurant (QSR) for three reasons: 

1. Trillion dollar TAM. Franchising is a huge part of the US economy. The wealthiest person in most towns is often the McDonald’s franchisee, the funeral director, the hotel owner, the local beer distributor, or the Ford dealer^[4]. 
   
2. Attractive supply/demand mismatch. There were 150,000 tier-one fast food franchises in the US^[5], many owned by ‘mom and pops’ who were creeping up on retirement age. But the deal sizes were too small for institutional capital and franchisors have strict rules on who can become a franchisee, leaving a small pool of qualified buyers. 
   
3. Margin expansion opportunity. The industry was mature, growing around 2% a year, but small operators had lower margins than larger, multi-unit franchise owners, suggesting there were opportunities in the middle of the P&L to make a difference. 

The MBA students planned to buy a small franchise for 3–6x EBITDA, improve it, use cash flow to bolt on additional units and sell the larger, consolidated franchise to an institutional private equity firm at 6–7x EBITDA. Matt and Alex had no designs to build a firm. They wanted to triple their money and return to their jobs at L Catterton and Apollo. 

Three months into their MBA, they bid for five KFC restaurants in Vermont, but the day before the deal closed, KFC rejected them. They didn’t meet any of the franchisee requirements. “They said we had no money, no experience, and were too young,” Matt remembers. “Other than that, they loved us.” 

Rejections from other tier-one franchisors followed until they reached out to Burger King’s owner, Restaurant Brands International, which was working through a turnaround. Alex Macedo, Head of Burger King North America, saw potential in the young investors and needed new franchisees in his system. 

When I first met Matt and Alex, I had this feeling that they had already won the game before it had started. They were so well prepared and had such a solid plan, I knew they would do well. Still, it turned out better than I thought.

–Alex Macedo, Head of Burger King North America 

Burger King gave Matt and Alex an opportunity to acquire a distressed Burger King franchise in North Carolina. They spent the summer of business school living with Ray Meeks, the franchisee, doing diligence. When class began again in September 2014, they owned his company. 

The business had no equity value from Ray’s perspective. It needed $8 million to remodel stores and would incur losses as soon as it began closing restaurants for renovations. Matt and Alex agreed to acquire it for no cash consideration, taking on its lease and remodeling obligations. 

They unlocked cash via the acquired real estate, renovated restaurants, and incentivized employees to follow Burger King’s best practices. Within a year, Matt and Alex completed two follow-on acquisitions and Burger King began to direct more deals their way. 

“We quickly realized that there was a much bigger opportunity where we could take the playbook we were developing and apply it to a much broader set of businesses. We built an investment firm to capture that opportunity,” Alex said. 

In 2015, they created a Special Purpose Vehicle (SPV) and bought a car collision repair franchise. The following year, they raised two more SPVs to acquire a funeral home business and baby product distributor. By the end of 2019, they had raised their first fund and deployed their Burger King playbook into a further seven multi-unit business concepts. 

The same year, they sold the Burger King franchise to a listed business, Carrols Restaurant Group. 

In five years, they had grown the Garnett Street franchise from 23 locations to 165 Burger Kings and 55 Popeyes restaurants across 23 states.

Matt and Alex took board seats plus an ownership stake in Carrols. GSP exited the business for good in January 2024 when Burger King bought Carrols for $1.0 billion. 

Matt and Alex’s experience buying, operating, and growing Burger King restaurants established the playbook for everything to come. To date, GSP has raised $1.9 billion across four funds and bought 27 companies. The firm has sold nine businesses at a weighted average Net IRR of nearly 40% and is now recognized as a premier investor in the franchise and consumer services world. 

An investing marriage

For the past 11 years, Matt and Alex have eaten three meals a day together, four days a week. On Fridays, it’s just breakfast and lunch. Dinner is for family. Virtually all of their money, every dollar they’ve made, much to the chagrin of their wives, is invested in GSP’s funds. 

They are a formidable partnership that was cemented in friendship when they were children. You cannot speak to one of them. Try and you will quickly be on an email chain or group message with both of them. They sit next to each other in the office, take every meeting together, and always travel together. 

Alex concedes, “It’s not the most efficient working style in the world but it’s a big part of our success.” 

Matt and Alex side by side in their shared office

They have built GSP into a sizable firm, in not only assets and businesses, but also people. They have 25 investment professionals alongside a bench of 12 operating partners, but the investment committee is small. It’s Matt and Alex. Any decision must be unanimous, whether they’re doing a deal, hiring, or traveling. They don’t do anything unless they’re both in agreement. 

“Our partnership is really special. We value it as much as anything in the world, and it’s become part of our firm’s culture. We fight all the time but we always end up on the same page, and we always have fun. Even in the hard days, at least we’re going through it together,” Alex said. Jordan Garay, their first hire, explained the impact of their relationship on the firm’s culture. 

“It’s very GSP for everyone to have an opposite view. We discuss, debate, then commit. Everyone commits. That comes from Matt and Alex. You’re never going to one person and asking their opinion. The fact there’s two of them creates a natural discussion, which leads to better outcomes.” 

The ultimate test to their professional marriage came during the pandemic. “On Sunday March 13, 2020, when Covid hit, we may have had the scariest portfolio in the history of private equity,” Matt recalled. 

GSP’s entire portfolio was 100% foot-traffic-dependent. They use leverage conservatively but when your top line starts with a zero, any dollar borrowed is one too many. Every day, Matt and Alex walked to the office, spoke with their CEOs and LPs, read government updates, and watched movies to pass the time while waiting for another call to come in. 

They didn’t lose a single business, nor did they have to put in a dollar of rescue capital. No covenants were breached. And together, they kept each other sane. “There is zero percent chance either of us could do this by ourselves. Some people can. I find that incredible. To be able to withstand the lows by yourself and fight back to the highs. I couldn’t do it,” Matt remarked. 

They are great fun to be around…And they have superb finance IQ—I mean, top quality. Usually, you find one or the other. Rarely do you find them together.

–Royce Yudkoff, Professor at Harvard and Co-founder of ABRY Partners

All hands on deck: an investment team meeting

Rigor and likeability

When asked for the secret to Matt and Alex’s success, their Harvard Professor Royce Yudkoff, who co-founded private equity firm ABRY Partners and wrote the book on entrepreneurship through acquisition, explained: 

“They combine two skills rarely found together in private equity. They are great fun to be around. They draw people in by being affable, engaging, and curious; we can call that great salesmanship in the field. And they have superb finance IQ—I mean, top quality. Usually, you find one or the other. Rarely do you find them together.” 

Tony Lamb, a Kentucky-based founder of the largest food truck business in the US, spoke with hundreds of PE firms as he considered selling a stake in his business, Kona Ice. 

He likened all the investors he met to vacuum cleaner salesmen—his former vocation. The difference was that the PE folks wore suits. They all asked the same questions about EBITDA and reducing expenses, and said they could bring capital to the business. 

Matt and Alex were different. “Our first phone call was phenomenal,” Tony recalls. They asked if they could fly to Kentucky. They were there the next day. They spent the meeting talking about Tony’s family and his dreams for Kona Ice. They encouraged him to spend more, not less. Tony’s 82-year-old father was there. “He’s a great judge of character and he liked them. I put a lot of stock in that, and I felt the same way. I liked the guys immediately, even though they ate fried chicken with a knife and fork,” Tony said. 

After months of discussion and plenty of air miles, Kona Ice had a new partner in GSP. Since the deal in 2019, the team has implemented GSP’s playbook and quadrupled the company’s value. 

As Tony’s experience shows, being fun to be around counts for a lot. The other half of the equation, as Alex explained, is rigor. 

“We’re very clear on what it means to partner with us. It’s intense. As part of our diligence, the founders need to understand that. It’s not all going for dinners and having a good time. That’s important. But we’re really intense. We’re very rigorous. Life is going to change.” 

Matt has been known to scare his own team when his smile turns into a scowl over a mistake deep on page 77 of a memo. He has a photographic memory. Even Alex admits it’s a sight to behold. 

Attention to detail matters because every point on the P&L counts when you invest in 15–20% EBITDA businesses. Take labor as an example. Every new employee in GSP’s multi-unit businesses costs between $3,000 and $5,000 to train. When you own thousands of multi-unit locations, where the average industry turnover can be as high as 130%, bringing that number closer to 100% through technology, data, and incentives can make you big money. 

Network effects

In the sectors they invest in, Matt and Alex have met virtually every franchisee and franchisor in the US. They have operated 3,000 locations across the country and have recruited a world-class team. 

Alex Macedo, who was President of Burger King North America, is their Lead Operating Partner. The former Head of Technology at Domino’s Pizza—sometimes called the Google of franchising—is another operating partner. So is Fernando Machado, who was CMO at both Activision Blizzard and Restaurant Brands International. Royce Yudkoff, their Harvard Professor, is a Senior Advisor. Even their bosses at Apollo and L Catterton remain mentors. 

Their network creates a distinct advantage. WOW Carwash, a 12-unit business in Las Vegas owned by GSP, wanted to sponsor the local NHL hockey team. Fernando Machado helped them work through strategy and pricing to secure sponsorship. 

Inside one of VIVE Collision’s workshops, an auto repair business GSP founded

When the firm bought Woof Gang Bakery & Grooming, a 137-location pet services franchisor, it installed a management team that was used to running multibillion-dollar public businesses. Alex Macedo became Woof Gang’s Chairman. 

In 2021, the firm saw an opportunity to build a multi-unit business in the auto collision repair industry. GSP used its contacts to hire a CEO who had already built a 20-unit system in the same market and location. He was in place before GSP bought its first shop. 

Matt and Alex have a term for this: overmatch. They borrowed it from the military, and it roughly translates to being stronger or better equipped than the opposition going into a battle. Colloquially, they talk about bringing bazookas to knife fights by arming their portfolio companies with leaders their competitors can’t attract. 

You can trace the initiative back to their second investment in a business called MAACO, a collision repair and car painting company. After their early success with Burger King, Matt and Alex were offered a deal to buy MAACO’s LA franchisee, which had 16 shops in 2015. 

“We couldn’t have made more poor decisions if we tried. It was very humbling to get beaten up, and quickly. But in some ways, it was the best thing that ever happened to us,” Alex said. 

In retrospect, they used too much leverage up front and put young people with little experience in positions of power. At the time, GSP consisted of Matt, Alex, and Jordan Garay. They were all in their twenties. To salvage the investment, they brought in Howard Norowitz, a consultant with 25 years of distressed investing experience. He helped them identify what went wrong and restructured the business. 

They recovered 40 cents on their initial dollar, but more importantly, they convinced Howard to join them full-time as employee number four. He has become known as GSP’s left tackle—around to make sure nothing like MAACO happens again. And it hasn’t. It’s the first and last time they’ve lost money on a deal. It’s also the last time they’ve gone into a deal understrength. 

“We invest in simple businesses, but they are difficult to run. Experience really matters. Today, we only hire people with decades of experience building value in exactly what we’re trying to do,” Alex noted. 

“We are not power law people”

The best 4% of listed companies explain the entire net gain for the US stock market since 1926^[6]. Similarly, Venture Capital is fueled by outliers, not averages. Power laws explain a lot of investment success. To GSP, however, investing is a game of reps. 

“We are not power law people. We’re driven by consistency. If you look at our returns, it’s the opposite of a power law. It’s like the Ted Williams strike zone in terms of compactness. A lot of 2s, 3s, 4s, and 5s. No zeros and no 12s,” Matt said. 

We’re driven by consistency.

–Matt Perelman, Garnett Station Partners

In November 2023, GSP sold VIVE Collision to a leading middle-market sponsor for $275 million. The firm founded the auto collision repair business in 2021, achieving its target investment return in two and a half years. It is an archetypal GSP investment. No flashy power law returns. Just steady, healthy growth. 

The industry ticks all the team’s boxes. Cars are among the most expensive assets people own. They use them often, and they are aging. The average US car is 12.5 years old^[7]. They need fixing on a regular basis, and in the event of a collision, the cost is borne by an insurance company. But the insurer is not the decision maker, meaning repair shops compete on service rather than price. 

It is a fragmented market. 40,000 collision shops operate in the US^[8] and the ninth largest multi-unit player only has 13 units^[9]. Consolidated businesses trade at higher multiples because of the favorable macro tailwinds, as well as the cost and revenue synergies you can create. However, GSP could not find a multi-unit collision repair business to buy and grow. 

So, the team built one from scratch. They committed $50 million of capital and hired Vartan Jerian Jr. to build a platform in the Northeast. He spent 25 years as COO of repair business H&V Collision, which was the first large, multi-unit acquisition in the Northeast when it was sold to a national player in 2018. GSP also brought in two younger financiers with eight years of M&A experience as co-founders. Then, it set the new team a simple task. Do what you’ve already done. 

“We’re not trying to find a needle in a haystack,” Alex said of their investment process. They look for recession-resilient industries where consolidations have been done before. They hire operators who have done the consolidation before. And they sell when others might continue to build. 

Over two-and-a-half years, GSP’s team built VIVE Collision from nothing to 37 locations across seven states. They paid less than 5x EBITDA for the units they bought and the consolidated business was doing $20 million in EBITDA when they sold it for a double-digit multiple in 2023. The business was performing well, but GSP had executed its playbook, and it was time to repeat the process somewhere else. 

The GSP Playbook

As much as any investor can, Matt and Alex have tried to refine their craft into a science. It is codified in the GSP Playbook. This is how the firm creates value and they are not shy about sharing their secrets. Alpha is not in the idea. 

“Of course, everyone is going to make a gazillion dollars in some Excel model, but it’s really hard to go do this stuff in the real world. These are operating businesses. They are hard to run.” 

Matt and Alex lead the firm’s sourcing efforts. They have built a network and reputation that enables them to see almost every deal in their sector. 

They look for markets that are highly fragmented, supported by tailwinds that will last the duration of their holding period (as well as that of the next buyer), and with industrial logic for the consolidation. More isn’t more here; more needs to be better. 

MAACO tripped them up in part because no one had consolidated those businesses before, so there was no technology available to help manage the units more efficiently. These days, they won’t invest in a business with no history of consolidation. 

The businesses themselves must be high quality. The strongest predictors of quality are long-tenured general managers, same-store sales growth (driven by traffic not price), and consistency of past performance. They like to partner with an active founder or owner, and the firm must have a best-in-class Net Promoter Score^[10]. 

“Everything we’ve invested in over the last few years has had the highest average unit volume in its category. Every concept has had at least 20% store-level margins, which is top decile for multi-unit businesses. They all had sub-three-year paybacks on new builds, and they were number one in their category for consumers’ intent to return,” Matt said. 

If the setup is right, they will price the deal to target a 3x MOIC in five years. Since inception, that’s meant paying single-digit EBITDA multiples vs. a peer group that often buys for 10–12x. Purchase price matters because it immediately impacts your cash flow yield. If you buy for 5.5x, your day-one yield is 18% (1 divided by 5.5), so you’re positioned to achieve a healthy return right away. 

“On top of that,” Matt explained, “every deal should have at least four ways to win. When we’re underwriting a deal, we always ask: what do we need to believe to make 3x our money? How many ‘ways to win’ do we need to hit? We’re not that smart so we need them to be attainable.” 

One way to win could be a tech implementation that boosts same-store sales growth from 2% to 4%. Another is the acquisition roadmap; can they keep buying units for 3–5x EBITDA and integrate them? 

Each way to win represents a ~500 basis point return. As an illustration, if one hits, their expected return increases from 18% to 23%. If two hit, it goes from 23% to 28%. When you compound 28% over five years, you multiply your investment by 3.4 times. 

…if one [win] hits, their expected return increases from 18% to 23%. If two hit, it goes from 23% to 28%. When you compound 28% over five years, you multiply your investment by 3.4 times. 

They don’t rely on multiple expansion but, so far, they have beaten their benchmark of 3x in five years because they have consistently sold at a higher multiple than they’ve bought, which fits with their consolidation thesis. They make the businesses they’re buying more valuable by diversifying cash flow streams, adding talented management teams, and installing effective technology solutions, among other initiatives. 

Leverage and integration are the two biggest sources of failure in this style of investing. The median private equity firm buys with 4x leverage. GSP starts with 100% equity on average, and targets a 3x debt service coverage ratio when it adds debt later in the build-up. Virtually all of its debt is fixed via interest rate caps and swaps. 

When a deal closes, the team strengthens the balance sheet. They want their firms to have enough liquidity to be aggressive in a downturn but they’re also intent on changing their owners’ mindsets. Most small business owners are concerned with how much cash they have at the bank. GSP frees them up to worry about how many +25% IRR projects they can find. 

GSP surrounds its businesses with operating partners. Its partners helped Kona Ice build a software tool and fleet of coffee trucks during the pandemic, both of which are now valuable assets. Without those partners, Tony admits he would have been looking through the Yellow Pages for coffee companies and simply wouldn’t have spent money on software—“I thought it was a black hole”. 

In every deal, GSP upgrades the finance function. Building out a back-office team with experience and a track record of navigating cycles is crucial, especially to ensure smooth integration. The goal is to increase annual same-store sales by 4–5% and store-level margins by 2%. The team starts by fixing the middle of the P&L where three important costs sit: people, COGS, and rent. Technology helps, as Matt explained. 

“Staffing levels are influenced by weather, traffic, and factors as localized as whether the local high school football team is playing. That matrix is impossible to solve by hand, but it’s easy with technology to pinpoint moments in a day to ramp up or reduce labor.” 

Technology is often recommended by the franchisor, but franchisees are put off by the multimillion-dollar sticker price. Investment in technology is frequently the best-performing dollars that GSP spends. 

In 2022, GSP acquired Woof Gang Bakery & Grooming, the largest pet services franchisor in the US, from its founder. At the time, the business was operating 137 locations without a point-of-sale system, making it virtually impossible to manage the business effectively. The franchisor had no visibility into how much each franchisee increased prices by or which products sold best, for example. The only way to know if they were receiving the right amount of royalty was by asking franchisees to take pictures of receipts on their phones. That works when your business is small, or the founder knows everyone in the system, but it’s not sustainable when growth is the goal. 

Placing an order at Woof Gang Bakery. GSP acquired the franchisor in 2022.

GSP put together a management team most public businesses would be proud of. Matt and Alex brought in Ricardo Azevedo, former Regional President of Tim Hortons US, as CEO and Alex Macedo as Chairman. They installed a new CFO, CMO, and COO. Then they supplemented those directors with a board that included Dennis Maloney, Domino’s former tech leader, Tony Lamb, CEO of Kona Ice, and Eric Hirschhorn, Founder of Frida Baby. 

The team immediately added a point-of-sale system and increased G&A costs from $2 million to $8 million so that they could grow the business from 137 locations to 1,000. In many instances, like this one, they initially add costs, rather than reduce them, to grow the top line and take advantage of operating leverage. 

GSP relies on data to manage its portfolio. Every morning, the team receives daily sales reports on thousands of locations across the country. “It quite literally determines our mood for the entire day,” Matt said. On a weekly basis, they get flash P&Ls, which boil down to revenue, COGS, and labor. With those metrics, they know if the system is performing well. 

They rarely buy businesses with real estate assets upfront because it tends to be an efficient market with sophisticated sellers, but they often renegotiate lease terms. Rent is not a fixed expense, as many operators believe. If franchises come with real estate, they tend to separate the physical asset from the operating company in a sale-leaseback and monetize part of their value. 

Once the stores are operating in the GSP way, they look to redeploy cash flows at 20–40% return on capital through bolt-on M&A and unit development. 

They’ll also look to recapitalize the business with leverage. This helps to de-risk their investment while adding capital efficiency moving forward. Now the business has been professionalized and scaled to ~$10 million of cash flow, it’s better able to cope with leverage. 

The final step in the playbook is to sell. They call it ‘ringing the bell.’ DPI, Distributions to Paid in Capital, or returning capital to investors, is a critical part of GSP’s model. They are not power law people. The goal is to improve, grow, and sell to institutional buyers. 

Buy in order to sell

Baby boomers and small business owners are expected to sell or bequeath $10 trillion of business value over the next two decades. On the other side, private equity is looking to spend $6 trillion in this market. GSP is building a bridge between baby boomers and Wall Street. The firm has been the first institutional capital into 25 of the 27 businesses it’s bought so far. 

At the first board meeting, GSP writes a CIM (Confidential Information Memorandum). Effectively, the team writes the sale memo they want investment banks to show PE firms and strategic buyers three to five years later. 

It’s not for show, as Alex said. “Every single decision made during our holding period refers back to that document. We constantly think about the sale. We’re very clear with our prospective partners during the sourcing process that this is the goal. Investors give us a dollar. Our aim is to give them three back.” 

In one of our conversations, they said some variant of ‘sell’ 33 times. That is not normal. Matt and Alex embrace the idea that they are a build-to-suit firm. They understand what private equity wants and, with thousands of reps operating multi-unit businesses, they know how to create what PE wants. 

“Typically, we try to scale these consolidations up to $15–40 million of free cash flow. That’s where we find a sweet spot because there is a large market of potential buyers. You have the whole middle market and some of the larger PE players who are looking to start a consolidation and grow it dramatically. They want consistency, professionalization, and scale across multiple markets and that’s what we give them,” Matt said. 

The sale is not always the end, though. GSP often rolls over equity so it has a small stake in the future of the business it helped create. 

Make your firm an expression of yourself

On the wall of GSP’s ‘Kibitz Room’, which is filled with books and memorabilia dedicated to American capitalism and finance history, is a photo of Matt with his arm around Steve Kislow, CEO of Firebirds Wood Fired Grill. Steve is wearing a shirt that says, ‘Best Decision EVER.’ Matt has a brown paper bag packed with Firebirds’ steak in his left hand. Alex is behind the camera. 

Offsite: the whole team in custom GSP uniforms

The image is from the day GSP invested $110 million to acquire 66% of Firebirds and partner with Steve. Matt and Alex had wall-to-wall meetings that day but wanted to celebrate the deal with Steve in person. They canceled their plans and flew to Charlotte for a quick hug, picture, pick-up delivery, and a celebratory shot at the Firebirds HQ—before getting back to the airport to catch the next flight home. 

“It’s a big part of our culture,” Matt said of the picture. Whenever a deal is struck or a new unit opens at any of their companies (a weekly occurrence), someone from GSP is there. “We don’t just email a DocuSign contract and say, ‘well done’. We get on the plane, give them a hug, and toast the achievement.” 

Outside the Kibitz Room, hanging on another wall, is a board that lists GSP’s values. One of them reads: ‘Get on the plane—in person is everything’. 

Matt and Alex’s greatest fear is that GSP will lose the culture that has made it successful. As a result, they make every effort to instill what matters most to them throughout the organization. Rich Reuter and Max Hoberman moved to Mandeville, Louisiana, to work on Fat Tuesday in the same way Matt and Alex relocated to North Carolina to buy that first Burger King franchise. Brett Bakies made a similar move to Orlando for Woof Gang Bakery. 

Howard Norowitz explained how they got that level of buy-in. “Matt and Alex go out of their way to engage everybody. They’re great at building morale. They instill a tangible sense that this isn’t just a job. Everyone is heard. There truly is an entrepreneurial spirit here. We don’t know how to do everything. We haven’t been around for 30 years. We try stuff, figure out what works, and do more of that.” 

It is no coincidence their first value states: ‘At GSP, you are an owner. Act like one at all times. If this is your job, you won’t last long.’ That responsibility is double-edged. It means ‘Sunday is a work day’ (another of their values) but also that achievements are shared. 

“We do a really good job of celebrating wins. That’s everyone, not just Matt and Alex. We also get together a lot. Last Friday, the whole firm played basketball and dodgeball together. Everyone had custom uniforms with nicknames Matt thought were hilarious but left most of us confused,” Jordan Garay said. 

In GSP’s office that overlooks Union Square Park in New York, employees are surrounded by memorabilia that matters to the firm’s co-founders. There’s a Garnett Street Station sign, a Fat Tuesday’s sign, and a Popeyes Kitchen sign on various walls. Pictures of Matt and Alex with all their mentors clutter shelves across the office. American flags adorn everything, including their swag and website. There’s even a poster that Michael Milken made in 1985 and sent them. 

Everyone in the firm must read The Predator’s Ball, which chronicles the early days of what is today known as the private equity industry. Matt and Alex re-read it every January because “It’s inspiring. There are people in that book who built some of the most successful companies on Earth and they were even less experienced than we were with less of a road-map. We stand on the shoulders of those giants.” 

The rest of the Kibitz Room, which is Yiddish for an informal place to chat, is stacked with first editions of every finance book written from 1979 to 2024. Most young people don’t know their financial cycles well enough, Matt and Alex say. To work at GSP, you need to know about 2001, the early ‘90s, ‘87, and the 15 years leading up to 1981. It gives you a better understanding of capital structure, valuation, and liquidity, all of which help guard against the number one rule at GSP, “Don’t lose money.” 

GSP 2.0

Howard Norowitz encapsulates the spirit of GSP better than most. After helping Matt and Alex with their investment in MAACO, he had offers from big firms but chose to join GSP full-time. 

“It was going to be an adventure. They were young and ambitious, and they were trying to build something new. We’ve stubbed our toe at times but we learn from our mistakes and it’s been the adventure I was hoping for, and then some. I love working with them. I love what we do. We were $300 million when I joined. Four of us in a couple of rooms. We’re over 40 people now with $2.3 billion under management and just about to move into a bigger office in midtown. The adventure is not over.” 

11 years in, Matt and Alex have built a leading firm in a trillion-dollar market. To become a great firm and fulfill Marc Lasry’s premonition, they will need to turn a wonderful start into a scaled business. Their advisor and mentor, Royce Yudkoff, put the challenge this way. 

“GSP is like a consumer electronics company. The team can’t just focus on what works today. Those areas will reach their sell-by date. They must constantly work on R&D. When you’re small, that can be done on nights and weekends, but as the portfolio gets larger, your best people need to spend a meaningful chunk of their time looking for new areas to invest in. That’s painful and seems unproductive because the energy is always around new deals. Scaling that effort with the growth of their portfolio is critical.” 

The repeat game never ends. 

The fabric of the firm

Performance figures included in this presentation were obtained by Colossus from available data concerning GSP and were not prepared by GSP and/or Colossus for purposes of this publication. Actual gross and net returns for investment vehicles managed by GSP will vary from the figures referenced in this publication, and past performance is not a guarantee of future performance. Any such performance figures are qualified in their entirety by performance data maintained by GSP, which is available upon request. 

HEICO’s compounding formula

• Less is more: HEICO targets a maximum share of 30% in its categories to limit price competition. Its portfolio now includes 19,500 parts which typically sell at a 30% discount to competition. 
• Impeccable execution: HEICO has sold over 80 million parts. Every one has been faultless: zero service bulletins, zero airworthiness directives, and zero in-flight shutdowns. 
• Incentives: Employees own over 2% of HEICO, driven by a 401(k) plan that gifts equity at 5% a year. Over 400 employees have over $1 million of HEICO stock, and on average, employees own more in stock than they make in annual compensation. 
• Stakeholder alignment: “I get paid $1 million a year in salary, but if the stock goes up $1, my family makes $7 million. If it goes up $10, we make $70 million. Which do you think I care about more, my salary or the stock?” –Laurans Mendelson, HEICO’s CEO 

Different approaches in a duopoly market

Based on episode #150 of Business Breakdowns Podcast 

SpaceX is a $200bn company^[1], making it the second most valuable private company in the world. Launch costs have dropped by nearly 45x since the days of the space shuttle. Over the past decade, thousands of satellites have been launched into low Earth orbit. Some $78.5bn of investment has been poured into companies building space infrastructure—satellites, rockets, payloads—since 2015^[2]. Private investment is on track to exceed government space-related R&D for the first time in history^[3]. Space, it seems, is open for business. 

However, investors with long memories will ask: haven’t we been here before? After years of breathless investor enthusiasm, Iridium’s 1999 entry onto the list of 20 largest bankruptcies in US history. The eerily Starlink-esque Teledesic’s quiet exit in 2002. Globalstar’s 2002 Chapter 11 after over $4bn in debt and equity investment. A precipitous decline in space venture funding following the dot-com bubble, and a decade-long recovery. 

How should today’s capital allocators evaluate the current market, and gauge whether or not history will repeat itself? Is space investable? 

Our answer to the latter question is mostly no. On the one hand, the trends that have led to the current wave of development are longstanding and set to continue, and markets representing trillions of dollars are seeing startup activity as space becomes more accessible. On the other hand, there’s ample evidence that investors and founders alike tend to underestimate the challenges in building a space business. While there are specific opportunities we’re interested in, and a broader set we’re keeping tabs on, we think the markets that have received the most attention won’t make great investments right now. 

Our conclusions are based on our own analysis, as well as interviews with founders, other investors, and industry experts. Here’s how we organized our findings: 

• Section 1. Identifies the trends that have, over the past 60 years, led to today’s dramatic increase in commercial space development. 

• Section 2. Enumerates the markets that bring a $4.3tn TAM expansion story into view. 

• Section 3. Evaluates the investability of today’s space economy.

Section 1. The four most important trends in commercial space.

While the history of early space activities mostly focuses on publicly funded human spaceflight and the moon race, commercial use of space has always centered on the development, launch, and operation of satellites. Throughout the 1960s and ‘70s, public and private interests alike built and operated dozens of satellites for commercial purposes, primarily in three verticals: communication, navigation, and imaging. These use cases still form the core of the commercial space market today. 

Public funding played a leading role during the early days. The first television broadcast satellites were built by a public-private partnership led by Bell, AT&T, and NASA, and placed into orbit via a modified USAF ballistic missile in 1962, less than five years after Sputnik launched. Syncom 3, a NASA satellite, demonstrated the commercial opportunities in space to the entire United States in 1964, when it was used to live broadcast the Tokyo Olympics across the nation^[4]. 

During these early years, one of the primary barriers to more widespread utilization of space for private purposes was access to orbit. Governments (US, Soviet) and space agencies (NASA) controlled launch facilities. Available launch vehicles were adapted from nuclear-tipped ballistic missile systems optimized for conflict, not cost. The first communication satellites, Telstar-1 and Telstar-2, each weighing ~77kg, cost nearly $400,000/kg in 2024 dollars to place into low Earth orbit (LEO), almost 200x more than what SpaceX charges for space on a Falcon 9. 

As demand for launch nevertheless continued to increase through the 1980s, dedicated commercial launch vehicles were developed that both increased access to orbit and lowered the cost to reach it. Arianespace, founded in 1980 by a consortium of European nations, explicitly developed its Ariane rocket family to serve commercial needs, and lowered launch cost per kg by 10x, in part by allowing multiple satellites to be launched on the same rocket. By 1984, Arianespace controlled nearly 50% of the commercial satellite market^[5]. 

By 1990, there were over 50 commercial satellites in operation, nearly all in the distant geosynchronous Earth orbit (GEO), operated by businesses that still exist today: Viasat, EchoStar (DISH), Hughes (DirecTV), Sirius. Each satellite was a major capital investment. The all-in cost for a typical GEO satellite into the early 2000s could be up to $600mn, in large part driven by the cost to launch equipment totaling thousands of kilograms. 

Near the turn of the millennium, as technology miniaturized and the internet created exploding demand for low-latency communication, investors and technology companies turned their sights to LEO. Billions of dollars were invested by companies like Motorola into creating constellations—systems of many orbiting satellites— each built and launched at a fraction of the cost compared to a GEO satellite. These constellations promised global connectivity, and commercial space startups grabbed headline news slots. 

These projects almost universally failed, some in spectacular fashion, as cost overruns, lengthy development cycles, and increasingly capable cellular networks cratered once-attractive unit economics. Investors soured on space. Combined with the dot-com crash, investment in space infrastructure fell dramatically in the early 2000s. Government space budgets were cut as the Cold War wound down. By 2001, global launch revenues had declined by 41%.^[14]

However, as the industry retrenched, the seeds of today’s resurgence were sown. The US government, in particular, flattened regulatory barriers and enacted policies intended to shift spending to private enterprises^[6]. Cold War restrictions on imaging were lifted, and NASA dangled tens of billions of dollars’ worth of International Space Station resupply contracts in front of both traditional players like Boeing, as well as upstarts like SpaceX.^[7] 

Today, annual venture investment in space is nearly 20x higher than even a decade ago. Launch costs have fallen by an order of magnitude since the early 2000s, largely driven by SpaceX. Mega-constellations of tens of thousands of satellites in LEO provide high-speed internet at prices competitive with broadband. Startups are trying to move firmly terrestrial industries— mining, manufacturing, datacenters—to orbit. 

What led to this point? From even this abridged history, it’s possible to identify four important trends that have persisted through the past 60+ years of commercial space development and multiple industry cycles. Some have received significant public attention over the past few decades; others have not. Given their longstanding nature, understanding these trends and projecting them into the future informs our investment outlook. In this section, we cover: 

• Dramatically falling launch costs and increasing commercial access to space. 
• A change in focus to LEO and subsequent deployment of increasingly large constellations of satellites. 
• A market shift towards commercial revenues and private investment. 
• A consistent gap between early investor expectations and company performance. 

1. Falling launch costs

Figure 1 Cost to reach LEO (in $/kg, Western launch vehicles) has dropped from ~$400,000/kg during the first era of commercial space to ~$1,500/kg, with further reductions to <$1,000/kg likely in the near future. Source: ^[8], Positive Sum analysis. Images: ^[9], ^[10], ^[11], ^[12], ^[38], ^[14], ^[15].

Perhaps the most well-known trend is the commoditization and commercialization of launch. The entire history of commercial spaceflight is one of declining launch costs and increasing access to orbit, capped by SpaceX’s push from $5,000–10,000/kg to LEO down to sub-1,000/kg in just two decades. The story of how they did this is remarkable in its own right, but also helps explain the broader 200x decline in cost since the 1960s. 

‘Fly, fail, fix’ 

Space Exploration Technologies—more commonly known as SpaceX—was founded in 2002, during the nadir of the post-1990s collapse in private space funding. With the quirky mission to reach Mars and a $100mn initial investment from Elon Musk, SpaceX aimed to dramatically lower the cost to reach orbit through a combination of ecosystem control, rocket reuse, and a risk-embracing ‘ship fast’ development philosophy, similar to that of consumer software startups. 

A private rocket company founded by a young entrepreneur known primarily for his successes in the SaaS world certainly garnered its share of skeptics, but the approach worked. In the early 2000s, the roster of contemporary launch vehicles included the Ariane 5 and Delta IV—both running around $10,000/kg (or slightly less) to LEO. As early as 2003, SpaceX predicted that its Falcon 5 (later to become the Falcon 9) could deliver satellites to orbit at an unheard-of sub-$3,000/kg price point.^[16] 

By the early 2010s, SpaceX, now numbering over 1,500 employees, had almost hit its projections, with early iterations of its Falcon 9 capable of carrying over 13,000kg to LEO for less than $60mn. At under $5,000/kg, SpaceX had cut the cost of reaching orbit by over 50% while still leaving itself room to experiment with its rocket return technology, which would lower costs further. Its innovation was rewarded with market share. By 2014, SpaceX controlled nearly 20% of the commercial satellite launch market. By 2017, this had grown to nearly 50%;^[17] in 2023, two thirds of all commercial satellite launches were on SpaceX rockets.^[18]

In the 2010s, SpaceX also started reliably returning its first-stage boosters to Earth in controlled fashion for reuse. While the first few attempts ended in fireworks, by 2022 SpaceX had reused one of its Falcon 9 boosters 12 times. Each successful return of just the first stage means up to 60% reduction in launch cost, compared to building a new rocket. 

SpaceX’s execution speed was impressive, particularly when set against the slow pace of the commercial launch industry in the decades prior. However, an oft-overlooked facet of SpaceX’s journey to market dominance is just how capital efficient the company was while getting there. A 2011 NASA study determined that SpaceX had spent approximately $440mn getting to its first Falcon 9 launch.^[19] The same study indicated that had NASA developed Falcon 9 itself using its established cost-plus-fee structure, it would have cost at least $1.3bn. Meanwhile, SpaceX was earning nearly $133mn on average for each resupply mission to the International Space Station, on a rocket it typically charged ~$60mn for. This money was then poured into additional development, resulting in a sequence of ever-more-capable rockets and industry firsts: 

• Falcon Full Thrust (2015) dropped LEO launch costs below $3,000/kg; at this point SpaceX had already started capturing the commercial launch market and was valued at $10bn in an equity round. 

• Starlink, SpaceX’s modern version of the old ‘90s era Teledesic LEO satellite internet constellation, started placing satellites into orbit in 2019. 

• Starship, the name for SpaceX’s super heavy-lift upper stage, and Super Heavy Booster, with payload capacity of 100,000kg to LEO, had its first successful test flight in 2024. Starship could lower LEO launch costs well below $1,000/kg, and is sufficiently powerful enough to launch significant payloads to Mars. 

One of the primary drivers of SpaceX’s success was a radically different approach to designing and flying rockets. Contemporary launch vehicles in the early 2000s were the products of large, prime-managed contracts and legions of subcontractors. A major differentiator for SpaceX was its willingness to vertically integrate its rocket supply chain. This allowed the company to reduce its component costs by up to 3–5x, by reclaiming subcontractor margins and vendor management overhead.^[19] While in-housing design and production of high performance aerospace equipment might seem a daunting task for a startup, SpaceX did this while operating with significantly smaller headcount than a comparable NASA-managed program. 

This ability was unprecedented—the aerospace (and, by extension, space) supply chain is relatively brittle, with the knowledge and equipment to build many of the parts required for rocket assembly concentrated in just a handful of machine shops. In 2015, SpaceX lost a rocket due to externally sourced bolts that became brittle when exposed to cryogenic temperatures.^[20] These bolts were supplied by a single shop and manufactured on specialized equipment; only a handful of individuals in the entire world had direct experience machining these parts. SpaceX’s solution to the problem was to move production of the offending part in-house, rather than searching for an alternate source.

Ecosystem control didn’t just help SpaceX cut costs, it also helped SpaceX move faster than any other rocket company. In 2012, SpaceX’s Chief of Propulsion Tom Mueller noted that vendors often submitted proposals with lengthy development schedules—on the order of one to two years. SpaceX could develop identical parts itself within just a few months.^[21] As a result, SpaceX would aggressively move parts in-house, particularly if they were expensive or the company was not satisfied with the vendor. In-house rocket component production also reduced delays due to exogenous reasons—ULA’s Atlas V program was thrown into jeopardy in 2014 when Russia annexed Crimea, due to reliance on Russian rocket engines.  

Figure 2 The estimated cost to SpaceX for a Falcon 9 is nearly a factor of five lower than if the same rocket had been developed and operated under a traditional public/private arrangement, principally due to rocket reuse, more efficient R&D, greater ecosystem control, and lower dependence on external vendors. Source: Positive Sum analysis. Images: ^[22], ^[23], ^[24].

SpaceX’s success has spawned a number of commercial competitors seeking to capture their own slices of the growing launch market. Many of these competitors have attempted to innovate further in order to lower launch costs. Starting in the 2010s, Relativity Space (3D-printed rockets), Blue Origin (reusable rockets), Astra (daily launches), Firefly (24-hour payload integration), and more have collectively raised billions of dollars in private and public financing. Meanwhile, legacy players like Arianespace and governments like China and Russia are pouring public dollars into the space, as older, more expensive, or unavailable rockets are being retired. 

Figure 3 As launch costs have fallen, the volume of launches has risen faster than launch revenues. SpaceX controls nearly two thirds of the global commercial launch market as of 2023. Source: ^[25], ^[26], ^[27], Positive Sum analysis.

Today, launch costs appear set to continue to fall, thanks to a new generation of vehicles and increasing competition. SpaceX’s super heavy-lift vehicle, Starship, will likely drop costs to LEO below $1,000/kg for the first time in history, and potentially even below $500/kg. Elon Musk has even floated the idea that $100/kg prices may be coming, though it’s difficult to imagine SpaceX lowering costs so drastically while they remain in firm control of the launch market.^[28]

This control—and the pricing power that comes with it—is likely to face competition in the near future. Arianespace successfully launched its next-generation Ariane 6 rocket in July 2024.^[29] Blue Origin, SpaceX’s closest competitor, will likely begin significant commercial launches of its New Glenn rocket in 2025.^[30] Rocket Lab’s Neutron (expected 2025) and Relativity Space’s Terran (expected 2026) also promise to increase global LEO lift capacity at SpaceX-like costs.^[31] Stoke Space raised $100mn in late 2023 to fund its reusable launch vehicle ambitions.^[32] China and Russia are developing new vehicles—Chinese startups in particular, like Space Pioneer and Deep Blue Aerospace, have raised hundreds of millions of dollars in venture funding.^[33]

Falling launch costs will continue to create demand growth. As early as 2005, economic studies found evidence for price elasticity in LEO launch.^[34] As launch costs have fallen, the volume of launches has significantly increased, with 212 launches in 2023 alone, more than 2.5x in 10 years. This rapidly growing market creates innovation pressure across launch providers—next-gen launch vehicles from Arianespace, Blue Origin, and others adopt many of the same technologies that SpaceX has pioneered. Higher launch volumes also unlock economies of scale, particularly around rocket manufacturing, reuse, and launch facilities. 

The best evidence for future launch demand growth is found in the large number of satellites required by upcoming LEO mega-constellations. In fact, a 2023 McKinsey study estimated a base case of 27,000 satellites in orbit by the end of 2030—4x growth from today^[35]. Crucially, the vast majority of these satellites will be shorter-lived LEO satellites requiring replacement every five to seven years. This means simply maintaining the number of satellites in orbit in 2030 will create stable demand for launch services above today’s levels. Our estimate is that the commercial space launch market will, in the base case outlined above, likely see low to mid double-digit CAGR over the next decade, growing from $7.2bn (2023) to $24bn annually by 2033. 

2. The development of low Earth orbit

Figure 4 More satellites are now being launched into LEO than any other orbit, with a sharp increase in total number of satellites in LEO since 2019, due to Starlink. Source: ^[26], images: ^[36], ^[37], ^[38].

Thanks to falling launch costs and maturing satellite technology, LEO has become the primary orbit for commercial space. Historically, GEO filled this role, due to the requirements for telecommunications and broadcasting. High launch costs, technology favoring larger satellites, and simplification of ground tracking also contributed to GEO’s development. 

LEO offers a distinct set of benefits that today’s space companies are widely leveraging. Smaller, lower powered equipment required for ground communication means satellites can be made smaller and more cheaply. More payload can be lifted to LEO with the same rocket (i.e. same cost), vs. transfer orbit to GEO, and especially direct GEO lift, due to reduced propellant requirements. The proximity to Earth means communication latency is inherently around 8-12x lower than in GEO due to the much lower travel distance involved. This latter point is particularly important for satellite internet, and allows it to be latency-competitive with terrestrial networks. 

Simply counting the number of satellites in each orbit is all the evidence one needs to understand how important LEO has become. While the number of active satellites in higher orbits (MEO, GEO) has steadily increased from ~500 in 2000 to around 700 in 2023, the number of active satellites in LEO has increased from around 500 in 2000 to around 9,000 in 2023. The overwhelming majority of these satellites are small, with masses around a few hundred kilograms, with over 1,500 less than 100kg. The majority of this growth is due to the ~5,000 active Starlink satellites, but other constellations— Planet Labs, OneWeb, Globalstar, and more—have still resulted in 17x more satellites placed in LEO, compared with other orbits. 

An important facet of LEO development is that to achieve global coverage, many more satellites are needed than GEO. This ‘constellation requirement’ has catalyzed development of small, low-cost satellites that can be manufactured at scale. As the number of satellites placed into orbit has grown, satellites themselves have moved towards commoditization. 

Today, a new space startup can rely heavily on COTS hardware and software to put satellites into orbit faster, and at lower cost, than ever before. While Starlink and SpaceX demonstrate the strategic advantages of ecosystem control, for a startup racing to get Object Number One in orbit, there is an unbundled space stack to take advantage of: 

• Satellite buses, instruments, and components. In addition to legacy players, there are dozens of newer entrants to the market of building satellites and components. Startups like Apex Space, CaesiumAstro, and ExoTerra offer satellite subsystems—propulsion, communication, control—or entire satellite buses for other companies to design around. 
• Payload hosting. Rather than develop and launch full satellites (bus + payload), companies with smaller payloads can take advantage of payload hosting—hitching a ride on satellite buses from newer companies like D-orbit or legacy operators like Intelsat. 
• Launch. Modern rockets are capable of launching many small satellites into orbit in a single trip. By filling extra space around a primary payload, or simply packing as many small satellites into a launch vehicle as possible, SpaceX’s Rideshare program and Rocket Lab allow satellite companies to share the cost to reach orbit. 
• Ground services. An oft-overlooked aspect of satellite management is the importance of ground communication. Third-party services like AWS Ground Station can significantly lower capex requirements, and lengthy development and build timelines, for space startups. 

Despite this motion towards COTS hardware and generic services, today’s satellites are capable of performance far exceeding previous generations. By taking advantage of modern hardware and different frequency bands, Starlink offers download speeds 10,000x greater than the first LEO-based consumer telecom satellites of the 1990s—from satellites less than half as massive. Including R&D and launch, the unit cost of a 1990s era Iridium satellite was approximately $75mn; a Starlink satellite costs less than $1mn. 

Figure 5 0.5m resolution satellite imagery of a town vs. simulated 5m resolution imagery of the same town. In the higher resolution image, individual buildings, roads, and even cars are able to be detected. Source: ^[39]

These performance jumps aren’t limited to telecommunications, either. Planet Labs’ Earth imaging covers nearly the entire Earth with 710x more pixels per square kilometer than the early NASA Landsat imagery—with images coming off satellites 160x less massive than Landsat. The original Landsat satellite cost hundreds of millions of dollars; a Planet Labs Dove is around $300,000. 

LEO comes with its own challenges, of course, primarily stemming from the added complexity of tracking and managing dozens to thousands of satellites, each orbiting the earth in just over an hour. Ground communication is a challenge, given that a satellite can only ‘see’ a small portion of the Earth’s surface at any given time. Nevertheless, the accelerating development of LEO is only set to continue, with over 500,000 satellites (representing tens of billions of dollars of investment) across dozens of proposed and in-development communications, data, and Earth imaging constellations.^[40]

3. Space has become a commercial enterprise

Figure 6 Total global space revenues have increased by 24% since 2016. Government space funding is almost 30% of the total market with 40% growth over the same period. Source: ^[25], ^[41], Positive Sum analysis.

The plethora of new space companies, and growth in non-defense opportunities in LEO, mean that today’s space market is driven by commercial dollars. The early days of commercial space were defined by government programs (e.g. NASA) involving the defense contractor chain: primes like Boeing and an assortment of supplier tiers. Particularly in verticals like Earth imaging, virtually the entire end-market was government. Through the ‘80s and ‘90s, as the space-based telecom market developed, market forces started to play a role in development and innovation. This shift accelerated in the years after the Cold War, as governments (particularly the US government) reoriented national space policy towards commercial suppliers, injecting tens of billions of dollars into the industry and deregulating verticals like Earth imaging. 

Today, government funding sources (space agencies, defense agencies like the National Reconnaissance Office) represent just over a quarter of global spending on space. The bulk of the $400bn space market in 2023 was in the form of commercial revenue. Most of this revenue went to the GEO-based satellite TV and GPS chips (for mobile devices) segments, but the broadband and Earth imaging segments, while much smaller, are the fastest growing.

Figure 7 Satellite broadband and earth imaging have benefited from technological advancements that have yielded higher-quality products as well as an influx of private investment, and are the fastest growing sectors (by annual revenue) of the space economy. Source: ^[25], Positive Sum analysis.

As a result of the shift towards commercial revenues, R&D expenditures—historically the provenance of the government-defense contractor-supplier space chain—have increasingly come from new companies. Per a recent analysis of the US market (by far the largest space market) by McKinsey, even as late as 2010 the US government and legacy space players accounted for nearly 95% of R&D spending. By 2020, this had decreased to less than 70%, as space startups directed private financing towards development of new technologies.^[3]

To be clear, government spending on space has continued to increase as well—by 15% in 2023 alone to $117bn globally.^[42] Governments remain some of the most important space customers, as evidenced by contracts worth more than $100mn recently won by Planet Labs.^[43] Geopolitical concerns have meant that as a share of total, government dollars have crept up in recent years from a low in the late 2010s. However, when looking at R&D specifically, private spending is increasing fast. Total venture investment in space infrastructure companies has increased by a factor of nearly 20 since 2016.

Figure 8 Venture investment in space infrastructure like satellites, launch, and components, has increased by nearly 20x and the number of funding rounds each year has increased by a factor of three since 2016. Source: ^[44]

While total private investment dollars are up, they have been fairly concentrated in terms of both company and stage. Most space enterprises are extremely capital intensive, and require large infusions of capital before even getting to orbit. For example, Rocket Lab raised >$115mn through a Series E before launching its first rocket—and still needs hundreds of millions of dollars before its Falcon 9 competitor can begin commercial operations.^[31] Megarounds (that is, greater than $100mn) are somewhat common, weighted towards later funding stages, and growth rounds can approach or exceed $1bn. 

In fact, as easily seen in Figure 8 above, only 30% of capital over the past decade has gone towards seed and growth (Series A/B/C) rounds. Over 65% of private space infrastructure (satellites, components, launch) funding in 4Q23 went to just 10 companies, and Blue Origin and SpaceX have received 68% of total space infrastructure funding over the past decade. This capital intensiveness creates challenges for early stage investors— maintaining ownership often demands significant follow-on dollars. Importantly, as discussed below, raising this capital does not guarantee a successful outcome, as much of it must be raised before a company starts earning meaningful revenue.

4. Space is really hard

The trends discussed in the previous section paint a favorable picture of the future of commercial space. But a holdover from previous eras in space remains: creating value in space is almost always a much harder challenge than anticipated. Across the major verticals—launch, Earth imaging, and communications—startups working on major space infrastructure projects often run three to five years late in reaching their operational goals, relative to initial public projections. Indeed, across the 14 companies analyzed in Figure 9, the median time required to get to first commercial launch (rocket or satellite) was five and a half years. 

Of course, optimistic timelines are hardly new to early stage investors. However, the time required to get to orbit is marked by little (if any) revenue, even as a space company must invest considerable capital—typically high tens to hundreds of millions of dollars—into R&D and vehicle construction. During this lengthy and expensive development timeframe, the rest of the world hardly sits still, creating risk of product obsolescence by the time operations start. Motorola’s Iridium disaster perfectly showcases these factors. 

Motorola’s Iridium bet

In the early 1990s, Motorola publicly unveiled plans detailing a radical departure from the GEO focus of the previous decades. The Iridium constellation (named because the planned number of satellites matched iridium’s atomic number) would involve 77 satellites in LEO, supported by 20 ground stations, providing truly global satellite phone coverage with cell-phone sized handsets. The high quality of service, particularly at high latitudes (polar regions) where GEO satellites orbiting equatorial regions can have difficulty maintaining signal strength, would be a competitive advantage. 

By leveraging small LEO satellites, Iridium would control the overall cost of the initiative. Each Iridium satellite would have a mass of just 318kg, a fraction of the mass of a typical GEO communications satellite. The low mass and size of the satellites meant that multiple could be deployed from a single launch, further controlling costs. For around $2.3bn (nominal)^[45], or ~$30mn per satellite, Motorola estimated it could capture up to five million subscribers—mostly global business travelers—by the year 2000. Each of these subscribers would be paying $100/month for the service, meaning Iridium would be raking in around $6bn annually. Motorola invested $400mn for a 25% stake in the effort, and a who’s who of international telecom companies and investors poured in additional money. 

In 1999, roughly a decade and change after Motorola first conceived of the idea, yet barely a year after commencing service, Iridium filed for Chapter 11 bankruptcy in one of the 20 largest corporate bankruptcy filings in modern history. By this point, an Iridium satellite weighed hundreds of kilograms more than originally projected, and the cost of the entire constellation had ballooned to over $5bn. While service had commenced around the time originally forecasted—a rare feat in the industry—this was likely small consolation to the executives at the company. 

That Iridium even made it to market is a lengthy case study on failures in corporate governance, but the underlying issue that led to Iridium’s demise is quite straightforward to understand: the cell phone. Here, its largest backer was in many ways a victim of its own success: Motorola was a leader in the cell phone technology market. In the 12 years since Motorola staff had brainstormed a globe-spanning LEO constellation to empower business travelers to take a call anytime, anywhere, terrestrial cell phone installations had captured the market at far lower cost. 

The competition between Iridium and cell phones wasn’t particularly close. Iridium handsets were a large and unwieldy 1lb device, with an equally large and unwieldy price tag of nearly $3,000, not including significant monthly and per-call charges. In contrast, ordinary cell phones had fallen below $1,000 with lower monthly service charges, and offered reliable service in the urban markets that Iridium’s target demographic tended to inhabit. In 1999, Iridium reported a paltry 20,000 subscribers^[46]—far short of original projections. 

Ultimately, none of the major LEO-based telecom constellations proposed in the ‘90s took off in the way that their backers envisioned. Globalstar lost a full payload of satellites in a failed launch in 1998, and later filed for bankruptcy in 2002. Teledesic halted its ambitious plans after launching a single demonstrator satellite. Orbcomm filed for Chapter 11 in 2000 after Orbital Sciences pulled funding from the project.

Figure 9 Over a sample of 14 startups that successfully launched a commercial vehicle (rocket or satellite) into orbit, the median valuation (relative to the Series A post) increased by a factor of five in the three years leading up to launch, and a factor of 17 in the three years following first commercial launch. This inflection point typically occurs over five years after company founding date. Source: Pitchbook data.

As the example of Iridium shows, space is a risky commercial endeavor. Reflecting this, space companies tend to accrue value much faster after first commercial launch—with a 5x increase in valuation in the three years leading up to commercial launch, and a 17x increase in the three years after. 

There is some selection bias here—most companies with orbital ambitions don’t even reach launch. Around 80% of space companies founded in the past two decades have yet to reach the commercial launch milestone. This creates a conundrum for the typical VC operating within the constraints of a seven-year holding period. For the average space investment, the first five to six years of the investment is spent in a high-burn, low (or no) revenue state, during which the valuation of the company grows modestly. Valuation breakouts tend to occur after this point, coincident with improvement in the typical startup business metrics like customer and revenue growth. This means investors are likely to find themselves in the unenviable position of deciding whether or not to continue an investment before they get a strong signal on whether the business is viable. 

The calculus is worsened by just how capital intensive these businesses are. In particular, later funding rounds (Series B and later) for space-based businesses can be significantly larger (>50%) than the typical SaaS round size at a similar point in time. This means that the earliest investors should expect significant dilution or high follow-on requirements when exercising pro rata. 

Figure 10 Funding histories for Relativity (3D-printed launch) and Capella (radar-based Earth observation). High capital requirements create significant dilution for early investors (and founders). Source: Pitchbook data.

While valuations tend to increase fastest after first commercial launch, even after reaching orbit (or, in the case of some SPACs, well before), companies have struggled to create viable space-based businesses. While private, pre-exit capital has certainly been demonstrably optimistic about space, the actual on-the-ground exit performance of most space companies, assuming they survive to this point, has been lackluster, to say the least. 

The Procure Space ETF (UFO), a basket of around 30 companies with heavy exposure to space, is down 32% since inception as of the time of writing. For comparison, the much broader S&P Aerospace & Defense ETF (XAR) is up 44% over the same period. Recent years have seen a spate of SPAC exits; perhaps this already tells the reader all they need to know. Nevertheless, here’s a look at post-SPAC performance for a number of new space companies:

Figure 11 Market performance, relative to the S&P 500, for space SPACs (the overwhelming majority of public exits by space businesses since 2020) since public listing date. Space companies that have gone this route have subsequently performed much worse than even the typical SPAC. Source: ^[44], Positive Sum analysis

While Earth imaging companies are the largest group represented in the chart, it’s apparent that SPAC performance is lackluster across the industry. Even normalizing for generally dismal post-SPAC stock performance, space companies have underperformed by an extra ~20%. The combined market capitalization as of early 2024 for the companies highlighted stands at just over $4.5bn, less than 3.5x the $1.38bn in total equity investment into these companies. 

It’s not just the markets. The reality is that the fundamentals of these companies are poor, and their public market performance more or less matches their business trajectories. A CNBC report in late 2023 found that a basket of 12 space companies that went public via SPAC between 2019 and 2022 missed their pre-SPAC revenue forecast for 2023 by a combined $2.4bn—a whopping 70% miss barely two years later, on average.^[47]

Earth imaging, in particular, hasn’t grown at the pace investors anticipated. US government spending on commercial Earth imaging has grown modestly since 2010; the NRO now spends around $500mn per year procuring images from private companies. While purchases by companies have driven up revenues by 45% in the five years ending in 2022, and these purchases now make up the bulk of a $2.9bn market, investors have clearly been disappointed. Planet Labs, which has a 50/50 government to non-government revenue mix, declined 76% after a SPAC in 2021. As of writing, the former unicorn’s market capitalization was just over $650mn, set against the $450mn in venture funding it raised before going public. 

Figure 12 Financial metrics for several established Earth imaging and communications players reflect mature businesses that look more like telecom companies than pure software or hardware companies. Values from the most recent FY reporting; market cap is current as of Feb 28, 2024. Maxar was taken private at the end of 2022; values are from the most recent public reporting. Revenue growth is on a YoY basis, ratios are on a diluted basis. Source: public filings, ^[44].

Moving further away from public market newcomers, mature space businesses are quite different from the software businesses that have defined the last generation of VC-backed winners. Mature space-based businesses land somewhere in between a high margin software business (e.g. Snowflake) and an aerospace company (e.g. Lockheed Martin). From Figure 12, it’s perhaps best to look to traditional telecommunications companies for base rates. These are also high fixed-cost technology infrastructure businesses that enjoy good economies of scale, and similarly benefit from controlling a scarce resource (in both cases, licensed spectrum). In other words, viable businesses. However, evaluating space businesses through this lens helps contextualize the observed gap between pre-exit growth expectations and subsequent company performance. 

The reality is, there’s arguably only been one home-run company coming out of the second wave of space investment. This, of course, is SpaceX, with a recent tender offer rumored to value the company at $210bn.^[1] This valuation is driven by excitement around its launch business and Starlink, yet rooted in real success—an estimated $9bn revenue across launch and Starlink in 2023,^[48] with an impressive step up to $15bn estimated in 2024. 

Section 2. New markets on the horizon: a $4.3tn TAM expansion story.

Today, investors looking at space should see a mixed bag. On one hand, it’s clear that many space companies have struggled to match their paper valuations in practice. SPACs, true to form, have underperformed, but space-related SPACs have done even worse. The end of ZIRP has created a pullback in fresh capital going into space ventures, particularly in late stage and growth rounds—in 2023 (generally smaller) growth stage investments in space infrastructure claimed 64% more capital than later stage investments.^[2]

However, the space industry shows no indication of suffering the same precipitous decline that it did in the wake of Iridium’s failure. Most institutional estimates forecast double-digit CAGR in most verticals: launch, communication, and Earth imaging. New startup funding will be tempered by investor wariness due to the pullback from the 2020–2022 peak as well as the significant underperformance of the sector since that time. 

In this scenario, the space economy, by expenditures a $400bn market in 2023,^[49] will grow to approximately $1tn by the early 2030s.^[25] Much of this value will continue to be concentrated in a small number of entities, particularly in the launch market: 

• Traditional space companies like ULA, L3Harris, Arianespace, Maxar. 

• Established space-focused startups like Blue Origin, Relativity Space. 

• Horizontal moves from large players in other verticals or industries: Amazon, SpaceX. 

From our analysis, we believe this linear ‘the same but more’ extrapolation from current trends is likely correct for the next three to five years, but will not hold in the long term. In nearly every single area the pace of change has been accelerating in the past 10 years. To recap the major developments: 

• There has been a 15x improvement in launch cost since 2010 after several decades of relatively mild decreases, with another order of magnitude decrease possible in the next few years. 

• Satellites cost 10–100x less to manufacture, yet have performance that far outstrips what was possible in the early 2000s. 

• More venture capital flowed into space startups by 2015 than the previous 15 years combined. By 2023, private capital going into space had increased by a factor of nearly 20 from 2016 and the number of startups had doubled. 

• Government investments in space have seen a sustained period of double-digit growth. 

• Proposed LEO constellations contain more satellites than have ever been launched. 

If these accelerants hold, use cases for space that seem impossibly far off—or even farfetched—start to come into view. Falling launch and satellite manufacturing costs lower the threshold to achieve positive unit economics to the point where relatively commoditized industries start to pencil out in space. 

Sustained investor interest and government dollars mean that startups have a viable funding path to exploit this. Technical challenges still abound, of course, and some ideas—moon-based commercial activities, for example—are primarily held back by those. Nevertheless, startups in areas as diverse as telecommunications, edge computing, manufacturing, and mining are seeing startup activity. 

Taken together, these new markets represent more than a 4.3tn dollar TAM expansion—4x above the base case, without touching on human-centric activities like tourism or interplanetary travel. This TAM expansion will not be fully realized over the next decade; each of the previous commercial space eras unfolded over a period of ~25 years. Currently, the total funding put into these emerging areas is small, representing less than $1bn total, or only around 1% of total space funding over the past decade. 

Telecommunications | $1.0tn

Satellite broadband is the fastest growing segment of the space economy with 70% revenue growth in the five years ended 2022. Starlink alone has added 1.3mn US subscribers since launch (60% of its total subscribers) and is on track to bring in a rumored $6.6bn in revenue in 2024^[50]. Amazon’s competing Project Kuiper LEO-based high speed internet constellation is expected to begin commercial service in 2025^[51]. 

Datacenter & computing | $200.0bn

The global datacenter market is approximately $200bn with low double-digit CAGR through the next decade. There is already significant interest in moving satellite data processing and transfer to the edge without relying on ground-based infrastructure, particularly for imaging satellites due to the size of raw imaging data. 

Servicing & reusing existing space infrastructure | $250.0bn

There are over half a million satellites across proposed LEO constellations, and many thousands of existing satellites in orbit, operated by a variety of organizations. Reusing this ‘orbital infrastructure’ for direct-to-cell service (Skylo) and standing up ground-based tracking and control as a service has the potential to create additional value from existing and planned space investments. 

Low-gravity manufacturing | $1.0tn

A subset of the global manufacturing market benefits from the unique aspects of space: low gravity and the presence of vacuum. While commodity manufacturing in space seems very unlikely to happen anytime soon, certain high-value products that can take advantage of these things may be quite viable to manufacture in space, for example: specialized fiber optic cables, semiconductors, and organoids for pharmaceutical research.^[52]

Energy | $1.6tn

Space-based solar power (SBSP) offers unique advantages over purely terrestrial solar. The principles behind SBSP are straightforward: either put solar panels into space and transfer the power they generate back to Earth using lasers or microwaves, or put mirrors in space and simply reflect sunlight onto Earth-based solar panels^[53]. 

Resource collection | $250.0bn

Platinum-rich metallic asteroids, while primarily iron and nickel, can contain platinum at much higher concentrations: up to 150–200ppm—13x the best ores on Earth. In other words, a single, modestly sized metallic asteroid could contain more platinum than the entire Earth produces annually. 

Section 3. Is space investable?

There’s a bull thesis to be made regarding the prospects of the commercial space sector. Launch is 200x cheaper today than it was when the first commercial satellites were launched. More satellites are proposed to be put into orbit over the next ~decade than have ever been launched. LEO-based smallsats can cost well under $1mn and constellations of them are delivering internet service competitive with terrestrial broadband. Venture dollars going into space have increased by nearly 20x since 2016, while government investment in space continues to grow. Over $4tn in TAM is being attacked by today’s space startups. 

However, while the long-term macro picture of space is exciting, it doesn’t answer the most important question for investors evaluating the industry today: is space investable? 

Our answer is yes, but rarely. The truth is, over the past decade, SpaceX stands alone as the breakout success story, and it is poised for continued dominance and appreciation. An Earth imaging revolution has largely failed to garner the explosive commercial traction early proponents predicted. OneWeb had to be bailed out. Publicly listed companies have performed abysmally, posting an aggregate 70% revenue miss just two to three years after initial listing. This showing has been rewarded with stock performance that has underperformed the S&P 500 by over 100% on average, and a combined market capitalization just 3.5x greater than the total venture equity put in. 

Fewer than one in four venture-backed companies even make it to orbit. To get to this point, tens to hundreds of millions—in some cases billions—of dollars of capital are required. The vast majority of this capital must come from external sources, creating the prospect of enormous dilution for the earliest investors. During this period, the company will likely be making no significant revenue, and it is difficult to assess—outside of conviction—whether the business will be successful. There are exceptions; SpaceX’s participation in the NASA COTS program both helped it tap into non-dilutive funding, and served as an early signal of success. 

Even when (if) everything goes smoothly, commercial ramp takes time; both the Falcon 9 and Falcon Heavy took around five to six years to reach peak launch volume. A satellite company we talked to recently indicated that its launch provider required the payload (the satellite) to be delivered nine months in advance, to allow time for integration and launch. We’ve heard quotes on the order of 12–18 months for customized satellite hardware. Regulatory (FCC) approval can take 6–12 months. 

For the investor, this means that valuation breakouts reflective of an exploding business come late—after commercial launch. Our analysis of 14 space-based businesses from the past two decades indicated that median valuation only increased by a factor of five in the years leading up to first commercial launch, with a 17x increase in the years after. In late 2010, eight years after being founded, SpaceX was valued at $1bn. It was only in 2012, as SpaceX defied historical precedent by delivering cargo to the ISS, that its valuation started to break out ($4bn). 

Returning to the question of investability, the crux of our argument essentially boils down to noting that the typical 3+7 software VC timeline and structure, and the decision points it creates for investors, is not particularly in sync with the time and capital space companies need to get off the ground. This may be unsurprising to investors who have spent their careers building funds in sectors like aerospace or defense, but should give pause to transplants. 

Investors who can commit to the long haul can sidestep this issue. Specialized deep-tech funds with long horizons come to mind,^[54] and perhaps a new breed of venture funds tuned for the longer timescales required for space investments to mature is the way through. And, sitting out until later rounds can move the exit timeline into spec. Ultimately, though, looking at today’s landscape, it’s perhaps unsurprising that some of the biggest space companies of the past decades—SpaceX, Blue Origin, even Iridium—have foundational backers operating outside of the typical VC model. 

For the investors who do not have the luxury of time, most of the use cases we’ve identified— namely mining, manufacturing, and energy—each require solutions to several upstream, very significant, technical challenges before becoming viable. It’s difficult to see how a company seeking investment today could overcome these, reach orbit, and ramp a business within a fund horizon, given the baseline expectation of five-plus years to orbit for already proven technologies. In other words, it’s simply too early to invest in these markets. 

Where are the opportunities, then? We’re interested in businesses that capitalize on the current and near-future developments in space, yet have ambitions that are realizable within our investment horizon. We’re not interested in launch companies, on-orbit manufacturing, lunar mining, or energy generation; not because we think they won’t make good businesses, but because we think they won’t make good investments. 

Companies that can capitalize in the near future on the massive growth in orbital assets and expected future demand growth for such assets is where we’re focused. Here’s where we’re looking: 

• Software and hardware able to leverage existing space infrastructure. Armada is building Starlink-powered edge datacenters, Skynopy is selling underutilized ground station capacity. 

• Software and hardware able to service space infrastructure. Momentus appears to have missed the mark, but technologies that extend the life of space assets or increase their capability—via refueling, orbital maintenance/ transfer, safe de-orbit—will become increasingly important as more capital is invested in space infrastructure. 

• Edge (on-orbit) computing. Companies like OrbitsEdge promising full datacenter capabilities in space are intriguing, but there’s a lot of interesting blocking and tackling in this area: software platforms designed for the challenges around power management in space, lowercost space-rated processing hardware, better data downlink. 

• Services that improve the operations of space. The unprecedented number of satellites in LEO creates challenges around constellation management and collision avoidance. LeoLabs addresses this via ground-based radar to detect space debris, coupled with software services to constellation operators. 

We feel these opportunities are closer to realization today than some of the longer-burn opportunities identified earlier. They are still oriented around emerging areas, but stand to benefit from the exploding growth in the commercial space economy. Thus, they offer the ideal blend of near-term feasibility and return profile that we seek out, and are the areas we are keeping an eye on. 

CIO Tear Sheet

First Combine Harvester | 1936

Source: Davide Costanzo

First Helicopter | 1939

Source: Connecticut History

First Transistor | 1947

Source: Unitronic

First Nike Shoe | 1951

Source: Robert N. Dennis/New York Public Library

First Satellite in Space | 1957

Source: Andrew Butko

First Integrated Circuit | 1958 

Source: Texas Instruments

First Internet DM | 1969

Source: Andrew “FastLizard4” Adams

First Video Game Console | 1972

Source: EXSHOW

First Social Robot | 1998

Source: Rama

1. It doesn’t have to be new. It just has to be fresh.

The toy brick was invented (and patented) by British toymaker, Hilary Fisher Page in the 1950s. But when LEGO released its own riff on the brick, they made some very important changes to ‘freshen up’ the idea for the Danish market. One of those important changes was the little tubes underneath the brick for extra ‘clutch power.’ This twist allowed children to build tall towers, roads, and even little cars—something that wasn’t possible with previous versions of the toy. 

2. World-building through partnerships

Two key imagination-sparking innovations followed the original brick—kits and minifigures. Kids could now create entire transportative worlds and characters’ stories in their living rooms. These products also enabled LEGO to stay at the center of the cultural zeitgeist via excellent partnerships. LEGO toys are always at the ‘front of every toy store’ due to their perpetual cultural relevance, whether the latest craze is Star Wars or Harry Potter. 

3. Lean into the advantages of your medium.

When LEGO moved from making wooden toys to plastic toys, they were able to bring over many of their development practices and cultural norms—attention to detail, precision, and craftsmanship. This worked really well for the company. A huge part of LEGO’s moat is their unique precision manufacturing skill. But this attitude did not serve LEGO well when they attempted to build a video game. While LEGO engineers were spending months and even years trying to render the brick exactly correctly in a digital environment, indie game developer, Markus ‘Notch’ Persson, launched Minecraft as a team of one. He perfected the game by releasing new versions very quickly, racking up over 36 million users and $100+ million in sales in its first three years. 

4. Take innovation one bite at a time. 

When a business takes off, it can be tempting to go on an innovation binge. LEGO was no exception—it almost lost everything. In 2003, when the new CFO, Jesper Ovesen (former CFO of Danske Bank) joined, he conducted a sweeping financial analysis. The results were stark, and in a presentation titled What is the price of good management? he revealed that LEGO had lost $1.8 billion in economic value. The LEGO family had depleted its own fortune at a rate of half a million dollars per day! Cue an immediate, company-saving shift ‘back to the brick’ and away from other shiny objects that weren’t pulling their weight. 

5. How do you maximize innovation without going off the rails? Try a points system. 

In 2004, LEGO learned that of the 14,200 pieces it produced, 90% were only used once. Producing these pieces lost the company money, while common pieces that could be used across multiple kits yielded much higher margins. LEGO found itself walking a tightrope—how could it preserve the unique feel of each kit without bleeding money? Its solution was a smart points system, where design teams could choose how to allocate their points. Highly customized pieces cost the most. Constraints breed creativity—like the Eiffel Tower balustrades (hot dogs) and the orchid flowers (frogs). 

Based on episode #1 of Red Queen Podcast 

The interviewer

Not long after Graham Duncan relocated to Montecito, California, in 2020, he went about opening a restaurant in trademark Graham Duncan fashion: with a lot of intentionality, a lot of interviewing, and no rushing. 

He decided early on that the location had to be exceptional. He looked at a few good options, backed away when he realized he was forcing them to feel right, and waited, he says, until “a spot came up that has such good feng shui that your car kind of wants to go there”. 

He got that spot, which will be called Little Mountain, after working for nearly a year to secure the long lease he wanted. 

Rather than cut a licensing deal with a famous name who’d rarely visit, Duncan sought to bring in a chef who would become a fixture in the community. The problem: housing is extremely expensive in Montecito. The solution: buying and renovating a fixer-upper a few doors down from the restaurant. “I knew the biggest carrot I could provide was a great housing setup,” he explains. 

Once he secured the chef’s residence, Duncan started doing what he does best—talent sniping. He interviewed 27 chefs before settling on the right hire: Joel Viehland, who had previously run the kitchen (and earned a James Beard Award nomination) at a Connecticut restaurant owned by BlackRock Co-founder, Keith Anderson. A talent search this thorough would have been exhausting for others but is standard practice for Duncan. “I figured it was a casting exercise, like most other things,” he says. 

High-stakes casting exercises are Duncan’s specialty. He has mastered a distinctively talent-focused investing style since launching East Rock with Co-founder Adam Shapiro 18 years ago. Duncan officially stepped away in 2021, a year after moving to California, leaving Shapiro in charge of the firm. He now serves as Chairman Emeritus. He’s always been more curious about the founder than the idea, more interested in the fund manager than the fund itself. Duncan’s proven ability to assess people and their mutual compatibility has made him a trusted builder of teams, and years of accurate assessments and smart bets have brought him to the top of the leverage ladder: he’s the guy who picks the guy who picks the guy. 

Chilling out: Duncan doing a Wim Hof Method cold plunge in 2018

He is known for his rigorous approach to interviewing, especially when doing references for candidates and potential investment partners. He will conduct as many as 25 of these references for a single individual, mostly or all in person, and he brings an unusual combination of personal warmth and ice-cold analysis to the process. “Graham sits and listens and evaluates,” says Charlie Songhurst, an angel investor and former Chief Strategy Officer at Microsoft. “In most meetings, two people vie for control and find the slim overlap in their frequencies. Graham fully tunes into the other person. He puts his own ego away. He receives emotion, rather than pushing his emotions onto you. His empathy is off the charts.” 

Screen violence upsets Duncan so much that he can’t watch it before bed. (“It drives my wife crazy,” he says.) When he lived in New York, he rode the subway with one of those wearable sound systems used by deaf people and gamers strapped to his back. He wanted to make listening to music and podcasts a full-body experience. 

He’s the guy who picks the guy who picks the guy.

Sensitivity is one of Duncan’s defining traits. Another is his appetite for assessing individuals, which is voracious. He loves surfing LinkedIn, where he analyzes everything from alma maters to profile pictures. “I feel like someone’s self-selected LinkedIn photo is so crazily high-signal,” he says. “Matching it up with my impression of what they’ve done in life and what life has done to them, finding patterns—I can literally do that for hours.” Most people, he admits, would find this “very boring”. But reading into people is at the center of Duncan’s personal investing style and the name of the game at East Rock. Spending long hours on LinkedIn is just one of the ways that he has done it. 

Seeing the talent matrix

East Rock launched in 2006 in New York City with a single-family seed investment of $50 million and now manages $3.7 billion for eight high-net-worth families. The firm has annualized at 11.1% since launch, compared with 2.3% for the HFRI Fund of Funds Index, 6.2% for MSCI World, and 8.6% for the S&P 500. Its compound annual growth rate (CAGR) over the past decade is 12.5%, and it has outperformed the top 5% of its peer group over five-, ten-, and 15-year periods. 

Behind these eye-popping numbers lies Duncan’s distinctive outlook. “Most investors are looking for companies or investments and evaluating them. Graham is walking around long/shorting people,” says Matt Huang, co-founder of Paradigm, a Bay Area VC firm focused on cryptocurrencies with more than $10 billion under management. This approach has turned Duncan into an object of fascination among peers who believe that even the impressive numbers don’t do him justice. “The economic value of calibrating and evaluating super-impressive elites as well as he does is insane,” Songhurst says. “If I wanted to poke fun at Graham, I’d tell him he should be worth $10 billion. If he’d been on the West Coast and in tech, he could have been the best seed investor of all time.” 

Instead, he’s considered a best-in-class seeder of investment firms—eight in total—whose abilities as a talent whisperer border on the supernatural. Duncan and his team at East Rock were substantial day-one investors in funds such as D1 Capital and Paradigm, and they seeded Japanese hedge funds 3D Investment Partners and Mangrove Capital, among others; the funds they seeded have gone on to manage more than $5 billion. 

When Huang left his role as a partner at Sequoia Capital in 2018 to launch Paradigm with Coinbase Co-founder Fred Ehrsam, one of the things Duncan did for him was interview COO candidates. The recommendation he came back with was surprising: a 28-year-old who didn’t work in tech or crypto. “Looking back on it now, years later, you can see the potential. But it was not obvious then,” Huang says. “She was one of the single best hires we ever made. Without Graham’s reference, we may not have hired her. It’s like he’s seeing ultraviolet waves or tuning into another frequency.” 

Duncan’s mental world is busy with talent matrices. Many of the graphs and charts that he calls forth on his iPad are all about people, and map small galaxies of the top names in various investing sub-sectors. Friends compare him to Neo from The Matrix and the mutant telepath Professor X. Patrick O’Shaughnessy, Founder & CEO of the VC firm Positive Sum, has known Duncan for six years. “Of course what Graham does is analytical to some extent, but he is not into spreadsheets,” he says. “He sees the combination of unique ability and authenticity in a person better than anyone I know, and if it’s one degree off, he’ll wait to see perfect alignment. He doesn’t back 9/10s.” 

If it’s one degree off, he’ll wait to see perfect alignment. He doesn’t back 9/10s.

–Patrick O’Shaughnessy, Founder of Positive Sum & Colossus

One piece of his method that can raise eyebrows is the Enneagram, a nine-faceted model of the human psyche that originates in ancient wisdom traditions. Duncan (who usually tests as an Enneagram 3, ‘The Achiever’) finds it more useful than most of his investing peers do, an occasional point of friendly contention. He cautions that it took him three years to warm up to the Enneagram, and that he sees it “more a tool for personal and spiritual growth than a personality framework per se”. Still, it obviously factors into his thinking. He’s written about the fact that he tends to back Fives, Sevens, and Eights, as well as his fellow Threes. The chef he recently hired for his restaurant is a Six and the GM is an Eight, two types that he believes work well together. “The Eights provide stability, the Sixes are loyal but also skeptical, in a great way, and alive in their decision-making,” Duncan says. He admits that some peers “think the Enneagram is astrological bullshit,” and rather than try to persuade them otherwise, he’s happy to lean more on other methods. “They’re all just partial lenses on reality,” he says. 

If I wanted to poke fun at Graham, I’d tell him he should be worth $10 billion. If he’d been on the West Coast and in tech, he could have been the best seed investor of all time. 

–Charlie Songhurst, Former Chief Strategy Officer at Microsoft

Duncan at East Rock, the firm he co-founded in 2006, in 2020

The outsider

Seated at the breakfast table of his two-bedroom apartment in downtown Manhattan, in the same renovated brick building that he used to live in with his family full-time, Duncan offers a simple explanation for how he became the type of investor that he is: “I’m kind of shy, but also very interested in people.” 

Duncan, age seven. Born in California, he mostly grew up in Kentucky, where he was home-schooled until age 10.

He attributes this to the fact that he grew up feeling like an outsider. Born in East Palo Alto in 1974, Duncan spent most of his childhood in eastern Kentucky, where his parents ran a non-profit devoted to community economic development. It was, he says, like “growing up in a foreign country”. He was home-schooled until he was 10. Rather than bond with the locals, he studied them with the detached curiosity of an anthropologist. “I felt like I was outside the tribe trying to figure out what the hell was going on.” 

Rowing came to the rescue. Duncan recalls two moments in his life when his future path suddenly emerged so clearly that it felt impossible not to turn onto it—what the author Daniel Coyle calls ‘moments of ignition’. Notably, both of these events starred people that Duncan didn’t know personally. The first occurred when he was 14 years old, just after his family had moved to New Hampshire. He remembers being gobsmacked by the sight of two high-school seniors, a man and a woman, who’d won national championships. “They were tall. He was handsome, she was beautiful, and they just had such presence,” he recalls. 

He devoted himself to rowing. His specialty was an odd one: the 2,000-meter single scull. Neither a sprint or a marathon, it’s physically excruciating, even by rowing standards. It’s also the rare solo event in a sport in which the misery usually at least has company. Duncan, rowing alone, developed a tolerance for the pain and a ‘training mentality’. He won nine national championships. 

He gave up rowing after his freshman year at Yale in order to focus on his studies. Duncan initially felt like a fish out of water there, too—a public-school kid intimidated by classmates who could read Plato in the original ancient Greek. But he found his groove doing research for a political scientist named Ian Shapiro (no relation to Adam), who helped him assess the credibility of various scholarly sources. “It was something about the clarity of the thinking, the pedigree—I started to understand his taste in other academics. He was a real mentor,” Duncan says. 

I realized I was good at finding people who had access to a relevant information stream, and I developed a feel for how information leaks through a system. 

–Graham Duncan

During his senior year—he graduated in 1996 with a degree in Ethics, Politics, and Economics—Duncan took a class about politics and financial markets with Richard Medley, who’d served as Chief Political Strategist for George Soros. Medley asked Duncan to help him start a research firm that was essentially an intelligence operation responsible for producing a $20,000 subscription newsletter. “Larry Summers called it a private-sector CIA,” he says. (Medley Global Advisors was sold to the parent company of the Financial Times in 2010; Medley died in 2011.) 

Duncan created an international army of stringers and learned how to use them—which included assessing their credibility. Did they really know what they claimed to know? Did they have reasons to mislead or exaggerate? An ambiguous world of private information opened up, sometimes in ways that surprised him. During the Russian emerging-market crisis of the late nineties, he found a documentary filmmaker who had such high signal reads that he came to suspect she was sleeping with the finance minister. “I realized I was good at finding people who had access to a relevant information stream,” he says. “And I developed a feel for how information leaks through a system.” 

Duncan at Philadelphia’s Head of the Schuylkill Regatta in 1995. He won nine national rowing championships in the single scull.

Building East Rock

It was during a brief stint as an analyst at Protégé Partners in the early aughts that Duncan got his master class in referencing. His boss there, Ted Seides, had adopted the rigorous approach of David Swensen’s Yale Investment Office. “They were maniacal about it. They’d track down college roommates,” Duncan recalls. “Their professionalism around referencing was my window into the practice.” Referencing, in turn, provided a window into his future. 

What Duncan considers his second ‘moment of ignition’ came from this same period, when he began hearing about Dan Stern, a prolific seeder and the Founder and Co-CEO of Reservoir Capital Group. “You could just tell from the people he had seeded that there was a consistency to his taste,” Duncan recalls. Stern had apprenticed under Richard Rainwater, whom Duncan considered the ‘gold standard’ of a certain type of highly effective investment manager that he describes like this: “They don’t have a specific identity—they just see themselves as money makers and are okay expressing a bet through other people.” 

That Duncan didn’t know Stern personally didn’t matter. “Everyone talked about his style as so people-focused,” he recalls. “That was my orientation. I realized, ‘Oh, there’s a path to being an effective investor by selecting people and having high situational awareness on how to set up the right platform for them. I want to be that.’” 

Introducing a speaker at the Sohn Investment Conference, which Duncan has chaired since 2018

He launched East Rock Capital in 2006 with $50 million in seed funding from Stuart Miller of Lennar Corporation, the Florida-based home-building giant. (Miller’s family office is still an anchor client.) Duncan, who had begun to prove himself as a seeder of hedge funds by this point, sold Miller on a disarmingly simple pitch to identify the best investors in the world and make great investments with them. “I didn’t feel like I had a comparative advantage in picking stocks or doing any number of other styles of investment. Instead, we built around what I happen to be good at—picking people,” Duncan recalls. His first pick was Adam Shapiro, who’d been a year ahead of him at Yale and worked in the proprietary investment group at Goldman Sachs. Duncan got him to leave and become East Rock’s Co-founder and Co-CIO. 

They began by investing in new hedge funds, using a strategy based on several theses. One was that managers are more significant than firms. Another was that smaller funds perform better than large ones. Duncan and Shapiro also believed that managers generate the best returns in their first five years, when they are motivated by the higher stakes of those first defining deals and able to devote more attention to the details of a fund that is still in its infancy. 

Investing in these managers while they were in their ‘sweet spot’ became East Rock’s specialty. (And the numbers would later show that early involvement yielded better results. Many of East Rock’s poorer investments came when it had invested after, rather than along with, a fund’s financial sponsor.) The best of them came from top firms, and Duncan and Shapiro made it their business to know who they were. 

East Rock became known for its carefully curated gatherings, where Duncan’s organizing presence remained low-key. He regularly put a couple of dozen up-and-coming hedge-fund managers around a table and had them pitch ideas. It wasn’t just about the ideas in these situations, but observing which way the table leaned. “If you have a group of 20 people together, the room kind of knows where the pockets of quality are most of the time. And you can see this if you read the room correctly,” Duncan says. 

New York magazine mainly cited this role when it named Duncan on its 2023 list of the 49 ‘Most Powerful New Yorkers You’ve Never Heard Of’

He became a popular sounding board and got used to having anywhere between five and 20 ongoing conversations with managers who were thinking of leaving their firm to start a platform. In 2018, he assumed the chairmanship of the Sohn Conference Foundation, which holds a prestigious investing conference every year that benefits pediatric cancer research and reliably gets ideas and connections flowing. New York magazine mainly cited this role when it named Duncan on its 2023 list of the 49 ‘Most Powerful New Yorkers You’ve Never Heard Of’—despite the fact that he’d moved to California. 

Information networks

East Rock invested in 15 to 20 hedge funds at any given time, most of which had assets under management (AUM) well below $1 billion. As its network and roster of clients grew, it developed strategies for investing in private deals like buyouts, real estate, and more esoteric special situations. (Nowadays about half of the firm’s invested assets are in hedge funds and the other half are in private investments.) 

On the private equity side, East Rock sought to partner with two new fund managers annually. It set a goal of meeting with every partner who left a top private equity firm, and adopted certain methods for learning when they had: cultivating information-trading relationships with headhunters, for example, and scraping the web to discover when partner bios had been removed from websites. East Rock also made one-off co-investments with various PE firms; Duncan and Shapiro evaluated around 500 of these potential deals a year. 

East Rock aimed to add one new family-office client every other year, with a minimum investment of $100 million, and positioned itself as a highly focused boutique alternative to single-family and multi-family offices. Passive investments and non-investment services were not its thing, and to this day it has never hired a dedicated client-services person. 

Duncan’s experiments with transparency were another part of his distinct approach. East Rock held ‘pipeline meetings’ where it invited outside people in to discuss opportunities that the firm was considering. “I was consistently surprised by how often somebody knew something extremely relevant to one of the 30 deals that were up on the screen, something that I never would have been able to simulate in my head,” Duncan explains. He valued these revelations more than the potential cost of pulling the curtain back. 

Duncan has described his work as a “game of strategy applied to people”. 

In these and other ways, Duncan institutionalized his preoccupation with information networks and elite talent. His approach to referencing was codified in an internal document that contained a mock script for use in interviews and argued that there was much more to be gained from the process than met the eye—that every interview, for example, should be seen as an opportunity to gather new information, rather than just check facts, and treated as a way to ‘get a head start on how to manage and mentor’ someone down the road. 

East Rock’s meeting room and library, where the shelves are lined with books that have been chosen by the firm’s partners

The assessment toolbox

Duncan mixes and matches a dizzying array of existing frameworks when assessing talent through interviews, references, and other inputs. His friend the author Josh Waitzkin, for one, is amused by the sheer volume of these frameworks. 

“Graham has a hilariously wide library of mental models,” he says. Duncan also likes getting to know the people whose thinking has shaped his own, thereby creating an ongoing exchange of ideas. He became friends with Waitzkin after reading his book, The Art of Learning, and inviting the ex-junior chess champion (whose story was the basis for the 1993 film Searching for Bobby Fischer) to speak at a retreat of analysts that he had organized in Rhode Island. Three of the books that Duncan says have been most formative for him are by Robert Kegan, Ross Hudson, and Jim Dethmer and Diana Chapman; he’s built personal relationships with all four of these authors. 

Duncan explained his preferred tools in one of his most revealing essays, ‘What’s going on here, with this human?’ They include the classic Myer-Briggs Type Indicator and the ‘Big Five’ or OCEAN (Open-minded, Conscientious, Extroverted, Agreeable, Neurotic) personality model, among others, including the Enneagram. His personal experience has much to do with the weight he gives to each. He writes, for example, that he conducted some 4,000 interviews before coming to view the Big Five, which had been recommended to him years earlier by a psychology professor, as “a revelation to help explain the patterns I had soaked up along the way.” 

One of the main things he considers when evaluating founders and managers is whether their skills will translate outside of the organization in which they’ve already proven themselves. 

“When he was in his really heavy days at East Rock, Graham would know every talented person at every investment firm that might leave to start their own thing, but he could also think deeply and incisively about whether they were ready for that,” O’Shaughnessy recalls. “He’d talk about how a person was amazing at Goldman, but did they have an independent identity? Were they self-aware enough? Were they unique enough? And if they were, had they fully embraced it yet?” 

Another thing that Duncan is always trying to figure out is whether someone has truly stepped into their own, or if they’re still working within ‘somebody else’s frame’. In Silicon Valley, for example, there is constant peer pressure to become a founder. Is that why the person in front of him is doing it? “There’s a version of this where someone is frustrated with their current construct and their core motivation isn’t really to start a new thing—it’s just to have a new job,” he says. “A mid-career investor will start a firm because they’ve been offered money, or in reaction to socialized pressure, which is the equivalent of getting married just because everyone else your age is getting married.” Harvard psychologist Robert Kegan’s explanation of the stages of adult development has come in handy for him here. Duncan first immersed himself in this framework in 2011, at a workshop at the Harvard School of Education, and recommends it for assessing whether someone is ready to ‘transition from a role player to an owner’. 

If they are, Duncan will go to unusual lengths to reshape an environment to help them flourish. In his view, the rewards more than repay the effort. 

No place like home: on Santa Cruz Island, near Montecito, in 2024

“At any one time, there are only 100 people in the world whose map of reality on a complex subject—AI, global politics, interest-rate policy—is extremely accurate,” Duncan says. These individuals see the field clearly because of where they sit, but also because the field itself fascinates and absorbs them. This passion, Duncan explains, causes them to compete with the “joy of the tennis player who wins because he likes hitting the ball more than the other guy.” 

Putting exceptional people into positive feedback loops is, for him, as satisfying as finding them in the first place. “Because he’s got this willingness to accommodate unique talent, he’ll create a custom container to hold a person who wouldn’t get hired at a normal investment firm,” Huang explains. Duncan, who has succeeded outside the usual boundaries, is especially attuned to the limitations of such constraints. “You need to understand why it makes sense for the candidate. People miss this all the time. They hire a person to do a specific job, treating them like a machine, but it’s much more complicated than that,” he says. 

Just as Duncan rebuilt a house in Montecito in order to attract and keep the best chef possible, he made sure that the East Rock offices on East 55th Street included plenty of extra space for new partners to use while they found their footing. A real-estate investment firm that East Rock seeded in 2017 set up shop there for a full five years before outgrowing it. East Rock’s eagerness to put a roof over the heads of friends and partners had obvious benefits. One was that, by providing space and covering other back-office expenses, it reduced overhead and by extension the pressure on anchor managers to rush into a non-strategic deal. Duncan also knew that putting his hand-picked talent in one space would generate conversations that led to co-investing opportunities. “Over time, you find things to do with one another,” he says. 

At any one time, there are only 100 people in the world whose map of reality on a complex subject—AI, global politics, interest-rate policy—is extremely accurate. 

–Graham Duncan

The reception area at East Rock. Duncan goes out of his way to put hand-picked talent together, including in the same workspace. “Over time, you find things to do with one another,” he says

O’Shaughnessy remembers that when he first visited the East Rock offices in 2018, they seemed designed for luxuriating in. “You get out of the elevator and there’s this long, beautiful hallway. Form feels more important than function,” he says. Duncan has taken the same expansive, visitor-friendly approach to his hillside home in Montecito, which he refers to as a “rolling commune.” He likes to say, “You want to build the garden that the butterflies will fly into.” 

The waiting game

When it comes to seeding, though, winged creatures cannot be rushed in. Graham’s unusual ability to wait out the moment is one of his defining characteristics as an investor. 

“I’ve watched him be on the edge of seeding someone, where the normal impulse is to push them over the edge and give them a start,” Waitzkin says. “But Graham never pushes. He’s not susceptible to impatience the way most people are.” Duncan likes the author Diana Chapman’s analogy of a chick about to hatch. When you hear an emerging talent pecking from inside the egg, the temptation can be to help it break through. This is a mistake: the chick is still developing the strength required to survive outside the egg, and the surest sign that it is ready is when it destroys the shell on its own. 

“If you break the shell for them, they will die,” Duncan says. “It’s very profound, this idea that if you mess with the origin in any subtle way it can affect the entire trajectory of the thing in ways you can’t foresee.” It informs the way things are done at East Rock, which has implemented elaborate systems to track who might leave the firm and when, but views inducing managers to leave as contrary to its whole talent-driven philosophy.

Graham never pushes. He’s not susceptible to impatience the way most people are. 

–Josh Waitzkin, Chess master, martial arts world champion, and author 

To intervene that aggressively would be to meddle with the formative energy that the Swiss-based theorist Peter Koenig calls source. Duncan considers this delicate concept highly useful. Even in entities with co-founders, there is usually only one true source, or possessor of the founding idea. “When it’s clean, it’s generative. That’s part of what makes something hum,” Duncan says. Too often, it’s messy. Duncan believes that disagreements over source explain many of the problems faced by new ventures. Source problems plague the management of multi-generational family fortunes, even if the person who made all the original money is six feet under. These misalignments don’t go away on their own, and their downstream effects can be catastrophic. 

Duncan, who now views some of the professional frustrations of his twenties through the source lens, feels for those who are going through what he did. Only up to a point, though. Whatever empathy he extends is unlikely to cloud his investing judgment. “Graham wants good things for people, but he also cares about whether they’re going to make money. He holds both these things in his head better than anyone I’ve ever met,” Songhurst says. 

When you get down to it, not everyone is as laser-focused on making money as they say they are. “There are people whose primary goal is to be right. That works a high percentage of the time, but it can be disastrous because your ego and portfolio get caught up in that goal instead of just making money,” Duncan says. 

There’s a detachment to the ‘commercial’ mentality that he seeks in partners. It fits with Goldman Sachs legend Gus Levy’s concept of ‘long-term greedy’ and involves pacing yourself for success down the road. Duncan explains it this way: “There are people who are signaling that they’re in a repeat-iteration game. They’re not going to grab every penny on this transaction, because they know that there’s a sense of proportion about it somehow.” 

One of the best embodiments of this perspective that he can think of is Dan Sundheim, who left Viking Global in 2017 to start his own hedge fund. Through mutual friends and interviews, Duncan felt that he knew enough about Sundheim that he ‘could calibrate to his taste,’ and as with Paradigm, his team-building abilities got him an important seat at the table. When Sundheim launched D1 Capital Partners in 2018, East Rock became a day-one investor and helped with some of the first hires. Meeting Sundheim in person only confirmed Duncan’s opinion of him as a master investor. “There was no defensiveness,” he recalls. “If you told him a new piece of information about a process or a person, he would drop his previous notion without hesitation. He had such a quiet ego.” 

He considers Sundheim a prime example of another important concept, optimal grip, that Duncan’s rowing background has no doubt helped to drive home for him. In rowing, you’ve got to hold the oar with some firmness in order to get a solid pull; hold it too tightly, though, and you can blow the race (or even get thrown overboard) if the blade catches in the water on the recovery stroke. Elite rowers are less likely to ‘catch a crab’, as they say, but they’re also trained to release the oar quickly when it happens, enabling them to reset and get back in the game quickly. 

“The ideal grip is tight enough to stay in control but loose enough to let go,” Duncan explains. He tells the story of Stuart Miller’s reaction to the 2008 global financial crisis, which hit within a year of seeding East Rock. “Suddenly, his Lennar stock is down to nine bucks from fifty-six, close to going bankrupt, and the rest of his money is with these two kids. We had anticipated some elements of the GFC and thought we’d be flat, or up, but we were down 12%.” Instead of panicking, Miller told him and Shapiro to stop feeling sorry for themselves and “play offense”. He cracked a joke about hauling sacks of gold down the street, helping them to see last-ditch maneuvers like that as ridiculous. “He was lightening the mood, bringing us back to reality,” Duncan recalls—in other words, grasping the situation flawlessly.

Graham wants good things for people, but he also cares about whether they’re going to make money. He holds both these things in his head better than anyone I’ve ever met. 

–Charlie Songhurst, Former Chief Strategy Officer at Microsoft 

The next chapter

Duncan’s ability to identify the right people at the right moment, and to foster the conditions in which they can thrive, produced results. 

East Rock’s endowment fund has outperformed those of MIT, Brown, Yale, Duke, Stanford, and Harvard by at least one percent per annum (net of fees) over the last 10 and 15 years. Duncan’s signature investing style also allowed his firm to operate outside the usual constraints. Guided by the slogan ‘Talent Is the Best Asset Class’, it pursued different structures with different types of managers. Seeding, co-investing in a hotel, buying Bitcoin—if the talent was there, all were on the table. East Rock’s flexible approach to fees was designed to keep things flowing. “A lot of fund of funds people and endowment allocators have a scarcity mindset that is very focused on fees. They always feel like they’re being taken advantage of,” Duncan says. 

Surf break: with buddies Tim Ferriss (left) and Josh Waitzkin (center) in Costa Rica

“I knew there was an opportunity to approach things collaboratively, from the same side of the table.” 

Unlike a lot of agents, Duncan has never really wanted to become a principal. “What’s great about being an agent is that there’s a way of framing it as servant leadership, which comes with built-in humility,” he writes. Giving up the day-to-day responsibility of running a commercial investment firm has left him more time to advise, mentor, parent, read, and join Friday Zoom sanghas. He’s also recently gone down the rabbit hole of helping others sort out full-time childcare. “I’m obsessed with helping friends hire nannies. It’s one of the most fraught, high-potential, high-leverage, variances out there,” he marvels. In other areas, though, he’s embracing the ordinary and reining in occasional overthinking. “I’ve been keeping a list of things that I’m not trying to optimize,” he says. 

Duncan projects more equanimity than most people capable of such intensity. He eats and drinks in moderation, and has a generous and easy laugh. Friends attest to the fact that his move to California has made him even more relaxed. (He appears to agree: “On a hundred-point scale, my life satisfaction is 98 or 99,” he says.) Then again, there has always been something limber and creative about his investing style. O’Shaughnessy compares him to the late Richard Rainwater, another revered packager who was always figuring out new ways of putting the best talent together. Like Rainwater, he notes, Duncan has a distinctively personal approach that is unencumbered and in-the-flow: “Graham knows who’s got the juice, and has used this to give himself total freedom on the playing field.” Waitzkin calls him “The Wild Gardener.” 

Duncan doesn’t appear to be chasing a monolithic project right now. “Rather than trying to assert reality, I’m trying to surrender a little bit and see what comes in,” he says. The grip has really loosened. With no firm to look after and more California sunshine in the mix, this period has become deliberative. Will it remain so? Is there a West Rock in Duncan’s future? “I have no desire to work for work’s sake. Less than zero—negative,” he says. Leaving East Rock was not about taking a break just to pick up again where he left off. It was, he says, an opportunity to reset and ask, “Is there another level to go up in playing this game, where you get a higher-balcony view and have impact with even less action?” 

If anyone can successfully answer that question, it’s Duncan. The beauty of being a wild gardener is that growth happens without constant intervention. An elaborate talent ecosystem has grown up around him over the years, pushing in various directions from spots in the ground that he has chosen. With his combination of discernment and generosity, Duncan has put himself at the center of this flourishing system. The material rewards of this project have been obvious, but for him, the real reward is what he calls “this larger, ongoing human thing, all the positive feedback loops now in motion.” What they will create is a mystery—restaurants, companies, works of art, who knows—but that they will result in creation is a certainty. 

Duncan likes when he can nudge potential into reality with a small gesture: a few words of advice, a well-timed introduction. He still remembers a moment from 20 years ago, when he met with a former Drexel partner of Michael Milken’s. “We were sitting at a restaurant in Santa Monica, and at one point he turned to me and put his hand on my arm and said, ‘Money’s like water, see? All you have to do is learn to turn on the faucet,’” Duncan recalls. “I thought I was in a David Mamet movie, but he’s right. Where does the water want to flow? You’re not forcing it. You’re working with what already wants to happen.” 

With his two youngest children in 2016, in Martha’s Vineyard

1. He started Red Bull when he was 41 years old.

2. In 2022, he was making $500 to $800 million a year and his 49% stake was worth $20 to $30 billion.

3. The company was started with just $500,000 from Mateschitz and $500,000 from his partner. Outside of a small loan from a local bank all other expansion was funded by profits.

4. The company reached profitability in its third year and has been profitable every year since (36 years and counting). 

5. He took no dividends for the first 13 years and reinvested all profits into growth instead.

6. He viewed Red Bull as a ‘marketing conglomerate’ with all projects designed to support its core business of selling energy drinks. Everything else was outsourced.

7. He saw indifference as Red Bull’s enemy. He embraced controversy to keep Red Bull in public conversations, even if it meant dealing with wild myths.

8. He chose to own sports teams, turning them into direct extensions of Red Bull’s brand, rather than just sponsoring them.

9. He ensured Red Bull owned the media rights to its events but gave the content to broadcasters for free to maximize exposure.

10. He wanted everything the company did to be differentiated. He designed a slim can that was instantly recognizable on shelves, setting a new trend in beverage packaging.

11. He was intensely private. When an author tried to interview his elderly mother for an unauthorized biography, Mateschitz threatened to have his kneecaps broken. He said it would only cost $500 to hire a Russian to do the job.

12. He bought a popular Austrian magazine just so he wouldn’t appear in it.

13. There are no biographies written in English about Mateschitz.

14. He believed a handshake agreement among gentlemen was sufficient and regularly did business with no written contract.

15. He was universally described by former employees as a gentleman, charismatic, and fiercely loyal.

16. He still prioritized fitness deep into his 70s and liked driving fast, piloting his planes, and competing in off-road motorcycle races.

17. He didn’t like to socialize. He said: 

I don’t believe in 50 friends. I believe in a smaller number. Nor do I care about society events. It’s the most senseless use of time. When I do go out, from time to time, it’s just to convince myself again that I’m not missing a lot.

18. He owned a private island in Fiji and said he was attracted to having his own independent state. His state would have the shortest set of laws in the world:

The rules are simple: nobody tells you what you have to do—only what you don’t have to do.

19. When asked if he was going to retire, he said: 

I’m having more fun than ever.

20. He refused to sell Red Bull or take it public, and worked on it until he died at age 78.

Based on episode #333 of Founders Podcast

We maintain a directory of leaders building singular companies across industries. We are drawn to people doing the thing they seem destined to do. Colossus Review spotlights leaders who we feel are setting an example for the rest of us.

Bom Kim

Founder, CEO and Chairman, Coupang

Never settle. Challenge yourself to give the customer everything. If they have it all, they can’t live without you.

Kyle Grillot/Bloomberg via Getty Images

$24 billion

revenue in 2023

21 million

customers

THE BIG PICTURE

• Coupang is the number one e-commerce business in South Korea. Last year, it made $24 billion in revenue, delivering to 21 million customers. Revenue has grown at 45% CAGR since 2018.
• Six out of ten Korean households (14 million) subscribe to Coupang’s membership program, WOW, which offers free, seven-hour delivery on two million items. This includes groceries—plus access to its streaming service, Coupang Play.
• Coupang is vertically integrated, and its 100 fulfillment centers are within seven miles of 70% of the population.

THE KEY DETAILS

• Three-year-old Coupang (Korea’s Groupon) was the leading player in the market—cash-flow positive and $300+ million in revenue. 
• Concerned with the durability of the business model, Bom pulled the company’s IPO with just weeks to go, passing up the chance to make millions of dollars in the process. 
• The decision marked a seismic shift in the direction of the company—addressing fears that going public would make it harder to deliver bold change. And ushering in the start of a whole new business model, moving from an asset-light deals platform to an asset-heavy, vertically integrated e-commerce company. 

“It’s a waste of our passion, time and talent to create a 5% or 10% better customer experience. Our vision is to create a customer experience that’s 100x better.” 

• 2014 kicked off an intense period of capital investment. Raised $400 million from Mike Moritz at Sequoia and BlackRock and began building out a first-party logistics platform. 
• Without existing rails to build on (e.g. how Amazon used UPS or FedEx), everything was created from scratch; reimagining the customer experience from the ground up. 
• Today, Coupang offers dawn delivery on over two million items. Order any time before midnight and an eco-friendly bag will be on your doorstep before 7am. 
• Great customer experiences come down to the details. There’s no lock box delivery—only doorstep. Drivers learn how to knock on doors (or not, if they’re delivering baby products). The result? An NPS of 97 in just two years. 
• Stellar execution is a constant theme. The company launched against ~30 competitors—including Groupon itself. Within three years, Coupang led the market. 

Daniela Amodei

Co-founder and President, Anthropic 

I’m an expert in identifying the right people to solve a specific problem and creating a structure for them to succeed.

David Paul Morris/Bloomberg via Getty Images

$8 billion

raised in funding to date

22 seconds

Claude reads The Great Gatsby 

THE BIG PICTURE

• Anthropic is an AI research company and creator of frontier large language model, Claude.
• Tripled in size and raised $7 billion in 2023. By May 2024, its value was $18.4 billion. 
• Founded by seven OpenAI employees (including Daniela’s brother), several of whom were key to developing GPT-3. 
• Generates revenue through subscriptions to Claude and calls on its developer APIs. Estimated revenue in 2023 of $100 million. 
• As a public benefit corporation, like Patagonia and TOMS shoes, it’s legally obliged to consider social impact, not just profits. Safety research is core to its operating model. 

THE KEY DETAILS

• Employee #40 at Stripe and #50 at OpenAI before co-founding Anthropic. 
• Music scholar and liberal arts graduate, worked in public policy before tech. Has managed every business function, from sales and recruiting to engineering. VP of Safety and Policy at OpenAI. What would she title her book? “Scaling Memoirs of a Generalist.” 
• Managing people is her superpower. Her brother, Dario, sets Anthropic’s vision. Daniela makes it happen—determining the organizational structure, product strategy, go-to-market motion, etc. Senior leadership team reports to her. 
• Founding team left OpenAI after its billion-dollar deal with Microsoft in 2020. Their goal: to build safer AI systems, more aligned with human values. Pioneered Constitutional AI, where ‘constitutions’—sets of rules and values—guide AI learning and embed ethical principles during training. Shaping decision-making at the start leads to helpful, honest, harmless systems from the get-go, vs. traditional methods that impose safeguards after training is complete. 
• Hired many OpenAI employees that aligned with this philosophy. Notably, OpenAI Co-founders John Schulman and Durk Kingma, plus Jan Leike, former Safety Lead. Instagram Co-founder Mike Krieger joined to lead product development. 
• Finished training its chatbot, Claude, in the summer of 2022. Despite obvious potential, the team prioritized further safety training, delaying release. Months later, OpenAI’s ChatGPT launched, catalyzing an AI boom Claude could have initiated. 
• Claude Opus 3, Anthropic’s most intelligent model, outperformed its peers (GPT-4 and Gemini 1.0 Ultra) at launch on most of the common evaluation benchmarks. 

David Vélez

Founder and CEO, Nubank 

I asked myself, ‘What’s the hardest and most impactful thing I could imagine doing?’. There was nothing bigger than this. 

Jonne Roriz/Bloomberg via Getty Images

56%

adults in Brazil using Nu

$45 billion

valuation at IPO

THE BIG PICTURE

• Nubank is the largest digital bank in the world. It serves 105 million customers across Brazil, Mexico and Colombia. 
• It has tripled its revenue and quadrupled gross profit over the past two years. In 2023, it made $8 billion in revenue with a gross profit margin of 47%. At 33%, its return on equity is over double that of larger US banks. 
• It’s 20x more efficient than a traditional bank, serving 12,500 clients per employee vs. 900 for the top incumbents. 
• Since inception, Nubank has acquired 85% of customers organically. Its NPS is 90, over double its competitors. 

THE KEY DETAILS

• “David has both vision and execution. He is the best CEO I’ve been in business with, alongside Frank Slootman.” Doug Leone, former Managing Partner at Sequoia. 
• Everyone in Brazil said you can’t compete against the incumbents. Five banks controlled ~90% of the market. They were run by the wealthiest families in Latin America, and protected by regulation and government connections. 
• But it had taken four months (and an encounter at gunpoint) to open his own bank account. Motivated by a desire to make an impact, and the knowledge he could harness the country’s high smartphone adoption rates to transform customer experience, he set out to build something better. Resolute in the face of genuine safety concerns for his family, thanks to his position as a relative ‘outsider’, born in Columbia. 
• Worked at Sequoia, starting the day at 4am to juggle his MBA classes. Flying in and out of Brazil every Wednesday with Doug Leone, he learned that successful startups often hinge on the culture built in the first six months. 
• Added two co-founders: an American private equity associate as CTO and a Brazilian banking insider who had led Itaú’s largest credit card division. Wrote a culture deck alongside his first fundraising deck. And rented a small and unappealing office to attract the right type of person. 
• Nubank’s customer service line was originally David’s mobile. No annual fees, a fully app-based experience, onboarding in days (not months) and a purple credit card were contrarian decisions—that all proved highly effective. Even the name, meaning ‘naked’ in Portuguese, contributed to extraordinary organic growth. 85% of its ~100 million customers were referred by word of mouth. 
• Established a reputation as an exceptional fundraiser. Prior to IPO, secured $1.5 billion from the likes of Sequoia (its first investment in Brazil), Tiger, Goldman, Berkshire Hathaway, TCV, Tencent and GIC. 

Gabriel Whaley

Founder and CEO, MSCHF 

MSCHF is this Trojan horse that quickly infiltrates a space, turns it upside down and then leaves. 

$1.35 million

winning bid for MSCHF’s virus-infected laptop 

$63,750

for a microscopic Louis Vuitton bag

THE BIG PICTURE

• Every two weeks, MSCHF drops a new creation. These range from Satan Shoes containing human blood to Eat the Rich popsicles molded after billionaires’ heads. Even a $76,000 pair of Birkenstock sandals made from Hermès Birkin bags. 
• The New York Times called it ‘Banksy for the Internet’. Others dubbed it an art collective, luxury brand, or sneaker company. Gabe says it’s all of these things, and none: “I think we are monopolizing a feeling.” Subversion is the rare constant. 

THE KEY DETAILS

• Raised more than $11.5 million in funding. Revenues have doubled yearly since 2019, according to the Financial Times. Occasionally does marketing collaborations—like putting Fenty’s lip gloss in ketchup packets—but makes most of its money from selling limited-edition products and art through fortnightly drops. 
• Products are sometimes sold at auction, like the 2020 sale of a cut-up $30,000 Damien Hirst ‘Spot’ print. Each of the 88 spots sold for $480 in a regular drop, while the signed, now hole-ridden print fetched $261,000 at auction. 
• Sneakers are a significant category. The 2019 Jesus Shoes— 12 modified Nike Air Max 97s, filled with holy Jordan River water— sold for $1,425. In 2021, 666 pairs of Satan Shoes sold out in less than a minute—despite a $1,018 price tag and legal challenge from Nike. And the cartoon-inspired Big Red Boots ($350) bagged 100,000 orders in <60 minutes in 2023. 
• Team of ~30 outsiders, coming from music, murals, fine art, furniture design, law and metalsmithing, work from a Brooklyn warehouse. Products are never repeated. Ideas must prove their worth in brainstorming sessions before entering the pool. Every new idea means an old one must die. The ideas that last six months are slated for production and release in 12 months’ time. 
• Grew up in a rural, North Carolina trailer, disconnected from main-stream culture. Dropped out of West Point and sold bad advice online for $1. The site went viral, and a stint at Buzzfeed followed. A classically trained pianist, he played on the street in NYC and sublet his apartment on weekends, before founding MSCHF. 

Ilkka Paananen

Co-founder and CEO, Supercell 

My goal is to become the least powerful CEO in the world. 

SEPPO SAMULI/AFP via Getty Images

$10 billion

Clash of Clans lifetime revenue

200 million

monthly active users 

THE BIG PICTURE

• Supercell is the first mobile studio to create five, billion-dollar games (Hay Day, Clash of Clans, Boom Beach, Clash Royale, and Brawl Stars). It released its sixth game (Squad Busters) this year. 
• The games have racked up more than five billion downloads in total. 
• The Clash IP (Clash of Clans + Clash Royale) has generated more than $14 billion in lifetime revenue since 2012. 
• In 2023, the company made €1.7 billion in revenue and €580 million in EBITDA. 
• Supercell was the first European tech startup to reach a $10 billion valuation. 

THE KEY DETAILS

• “I’ve organized Supercell like a professional hockey team. I’m the coach. The coach can’t score goals.” 
• The business is structured around a collection of small, independent teams (cells), with total control over game development. The company doesn’t interfere—cells are free from any processes or bureaucracy that may hinder creativity, and they define their own operational rhythms. Cells are created when individuals come up with a game concept and prove its worth, earning more resources over time. 
• Clash of Clans, first launched in 2012, was built by a team of ~10. A decade later, the team still numbered less than 40, despite earning over $10 billion in revenue. 
• Candidates are put through 10+ rounds of interviews. Ilkka interviews everyone who joins the firm—which is now 625-people strong. 
• Leadership and incentivization skills come from army experience. “I did my one-year military training in the coastal infantry in Finland. Training to become an officer is a good lesson in leadership. If you’re leading people who aren’t getting paid and you want them to follow you into battle, you learn a lot about motivation.” 
• Games are rigorously tested before launching globally. They first launch in small markets (e.g. Australia), without IP or high-quality artwork, to chart performance. If successful, the process is repeated in other regions. By the time games launch in Canada or the UK, they are highly refined. The US is always last on the list— at least 10 games never made it beyond their Canada/UK launch, because the metrics didn’t endure. 
• Overall, more than 30 games have been killed. Ilkka is the final gatekeeper for global release, which has only happened six times in 14 years. The first five games they released have all been billion-dollar hits. The sixth went live this year. When a game is dropped, they celebrate with champagne. Why? “The biggest risk for a creative company is not taking enough risks.” 

Lisa Su

Chair and CEO, AMD 

Find the toughest problems in the world and volunteer to help solve them. That’s how you make your own luck. 

David Paul Morris/Bloomberg via Getty Images

45x

share price gain since becoming CEO

$236 billion

market capitalization created

THE BIG PICTURE

• World-class researcher, with a PhD in Electrical Engineering from MIT. First female CEO of a major semiconductor company. 
• AMD reported $5.5 billion in revenue in 2014, the year she became CEO. In 2023, it reported $22.7 billion in revenue. Its stock price increased from under $3 to more than $140 over the same period. 
• Compounded at 50% a year from when she took over to the end of 2023, multiplying market capitalization from $2 billion to $238 billion. 

THE KEY DETAILS

• Revived AMD from its position as a manufacturer of low-performance, budget chips with <1% market share in datacenter sales. Bet the company—during an industry down cycle—on a five year, clean-sheet design that would challenge Intel in the high-performance datacenter market. 
• In 2023, AMD had over 30% market share in server CPUs with its new architecture and surpassed Intel in market capitalization for the first time in its history. In Q1 2024, the datacenter division grew 80% (y/y), driven by sales of its AI GPUs. 
• Expanded its addressable markets. Acquired Xilinx (in largest semiconductor deal ever) to enter the FPGA business, and bought Pensado to enter the networking business. Currently in the process of acquiring ZT Systems to strengthen its systems capabilities for AI servers. Championed the formation of AMD’s semi-custom business unit in 2012 to leverage its unique position as a designer of both high-performance GPUs and CPUs. 
• Secured design wins for Sony’s PS4 and 5, Microsoft’s Xbox One, and Nintendo’s Wii U. 
• Before AMD, played a major role in the IBM team that worked out how to use copper instead of aluminum interconnects in chips. Delivering lower production costs and increased performance, industry-wide adoption soon followed. 
• Technical Assistant to IBM’s CEO, Lou Gerstner (credited with IBM’s turnaround) who commented: “She proved to be one of the most outstanding employees who worked in my office. Lisa doesn’t follow normal patterns—she’s been blowing them up her entire career.” It was her real-world MBA, specifically learning the art of building and maintaining customer relationships. 
• Father was a mathematician, Mother a bookkeeper who built a multimillion-dollar import/export business when they moved to America. Lisa played piano competitively at seven years old and had a daily, four-hour round trip on public transport to The Bronx High School of Science—one of the most competitive in the country. 

Lulu Cheng Meservey

Founder and CEO, Rostra 

Communication is a vector, not a scalar. It only matters if there is a direction attached to it. 

10

active clients

∞

clients on the waitlist

THE BIG PICTURE

• Communications specialist. Repeat founder. Popularized the Go Direct movement. Past and current clients include NFDG, SSI, Anduril, Ramp, Founders Fund, Cognition, and Scale AI. 
• “Rostra is the Special Ops team of comms. They do things nobody else can.” Eric Glyman, Co-founder of Ramp. 
• “Lulu was instrumental in putting Anduril on the map and I couldn’t imagine our trajectory without her help.” Palmer Luckey, Founder of Anduril. 
• “Lulu is one of the few people who actually understands how communication works in the current world. This alone would be extremely valuable, but she also has a deeply strategic lens, courage, excellent instincts on when to do what, and a very clear style.” Sam Altman, Co-founder of OpenAI. 

THE KEY DETAILS

• Born in rural China, lived in Germany, Norway, and Canada during her school years. Worked on Wall Street after college at Yale, studied counterinsurgency at graduate school, moved to Washington D.C., and now helps founders tell their story through Rostra. 
• Popularized the Go Direct movement that leads founders to reject conventional, outsourced PR strategies—and instead, take control of their company’s narrative. 
• Heavily influenced by military strategy, with an approach inspired by the US Marine Corps’ warfighting doctrine. Her preferred book list is the Marine Commandant’s reading list. And the Go Direct playbook closely maps counterinsurgency tactics—finding centers of influence and creating novel distribution networks. 
• Brought in to lead corporate affairs and communication for Activision Blizzard while it worked to recover from a reputational crisis, and complete a $69 billion acquisition by Microsoft. Reorganized the global communications team, launched a company Substack, and encouraged leadership to be more vocal and unfiltered. With the support of a global fanbase, the company completed its deal. 
• Rostra currently has ~10 clients, with hundreds on the waitlist. Chooses clients based on three criteria: vibes, how much impact Rostra can have, and how hands-on the founder is. “Our model is more: teach a man to fish; less: sell a man a fish one month at a time.” 
• Seeks people who “can carry a knife between their teeth”. To own your reputation, you have to fight for it. 
• Writes down ideas and articles right before bed, filtering content the next morning. 

Ronnie Fieg

Founder, CEO and Creative Director, Kith 

The most unique part about Kith is our ability to work with cereal companies on an $8 ice cream, and then sell 150 BMW M4s for $130,000 in 11 minutes. 

Dimitrios Kambouris/Footwear News via Getty Images

3,000

shoes on his collection

4.97 million

Instagram followers

THE BIG PICTURE

• Kith is a fashion and lifestyle brand that sells a unique curation of products, from exclusive Nike sneakers and Timberland boots to Versace robes, $17,000 Greg Yuna necklaces, Calvin Klein socks, TAG Heuer watches, and even custom Cap’n Crunch cereal. 
• Known for its Monday product drops and storytelling prowess, Kith partners with icons like Jerry Seinfeld, Roger Federer, and Martin Scorsese to showcase new products. 
• Also famous for collaborations with brands like Giorgio Armani, BMW, Coca-Cola, Nike, Moncler and the New York Knicks. 
• The 13 standalone boutiques across the globe, designed by visual artist Daniel Arsham, are often compared to art installations. 

THE KEY DETAILS

• As a teenager, worked nights and weekends at footwear retailer, David Z.— located on 8th Street, between 5th and 6th Avenue, ‘the most culturally relevant block in the world at the time’. Served hip-hop artists like Nas, Wu-Tang Clan, Busta Rhymes, and Missy Elliott. Jay-Z bought two pairs of construction Timberland boots from him every Saturday. 
• By 18, was the assistant buyer, working directly with brands. Grew the Asics account to millions, prompting the company to offer him a shoe collaboration at 25. Chose Asics Gel-Lyte IIIs from his youth, designing three colorways. Produced 252 pairs of each which, helped along by a demand-spiking feature in The Wall Street Journal, sold out in a day. This success swiftly led to an Adidas collaboration. 
• Left David Z. in 2010 to create his own footwear store. Built the first store with his Dad, sleeping in it for five straight days during development. It had two spaces: a rustic room with brown shoes and boots, and a neon room for sneakers. It also had a courtyard where like-minded people began to mingle. The first Kith-branded products were exclusive collaborations but, within a year, customers were asking for Kith-only products. The first came in 2012—cargo pants. 
• Today, the business is split 50/50 between products and storytelling. When it launched its collection with Giorgio Armani (Armani’s first-ever collaboration) this Fall, Kith enlisted Martin Scorsese, Pierce Brosnan, and LaKeith Stanfield to debut the products through short films and classy portraits. 
• Takes its name from ‘Kith and Kin’, which means friends and family. Values Kith Treats (selling ice creams in stores) as highly as the Armani collaborations. “Nothing is done for business purposes. We create for the sake of what people will love…and we cater to both ends of the spectrum with the same intent, creativity, and purpose.” 

Sean Feeney

Co-founder, Grovehouse Hospitality 

The most important ingredient is the one that’s left out. 

5,000

people on Lilia’s waitlist

41

Misi’s The New York Times restaurant rank

THE BIG PICTURE

• Owns nine restaurants in New York. Lilia and Misi have three stars from The New York Times. Lilia won a James Beard Award. Waitlists are thousands long for both. 
• Won a StarChefs Rising Stars Restaurateur Award in 2019. 
• Launched Misipasta, a company that sells Lilia’s and Misi’s ingredients and hospitality to cook and entertain at home. 
• Fini, his pizzerias, invest 3% of their revenue in local neighborhoods. 
• Managing Partner of Hometown BBQ and Red Hook Tavern in Brooklyn. 

THE KEY DETAILS

• Bond trader in New York for 16 years. Struck up a friendship with acclaimed chef, Missy Robbins, when she moved into his apartment building, and convinced her to open a restaurant together. 
• Combined his role as a credit trader with building Grovehouse. For almost three years, he’d let the pastry chef in at 4:45am. Be at his Anchorage desk for 5:30am, before catching the 5pm L train home, to put his daughters to bed. Then, a night working the floor at his restaurants. 
• Attributes success to his position as an outsider—applying his finance background to rethink standard restaurant practices. 
• Inspired by Missy’s minimalist culinary approach—her dishes use no more than four ingredients—Sean drew up a simple business model. Targeting 20% EBITDA (the average NYC restaurant did 8% at the time), he negotiated a novel, more-aligned arrangement with his landlord to pay a percentage of sales on the restaurant’s lease. In its first year, Lilia doubled its sales target of $3.5 million. During Covid, it paid no rent. 
• Surveyed 500 guests and team members, and analyzed restaurant data, to create the Perfect Turn, which has become the hospitality formula for all of his restaurants. It precisely defines the ideal dining timeline and breaks the experience into three phases: hello (first 15 minutes), dining (unrushed middle), and goodbye (final 20 minutes). Using systems like Resi, management tracks cover times and server performance, identifying top staff for different table sizes to deliver the perfect balance between art (guest experience) and commerce (operational efficiency). 
• Opened three pizzerias under the name Fini in 2022. Two are in Brooklyn, the third is in Amagansett, New York. Each aims to improve its neighborhood, with 3% of revenue reinvested in local communities. Fini has put 75 trash cans on Brooklyn sidewalks. Customers play their part in keeping the streets clean too, by buying additional trash cans off the menu. 

Tobi Lütke

Co-founder and CEO, Shopify 

The great privilege of my life is that I get to make a product for the most inspiring group imaginable: people who put themselves out there and build things that otherwise wouldn’t exist. 

Dustin Chambers/Bloomberg via Getty Images

$1 trillion

lifetime GMV

675 million

Shopify end-users in 2023

THE BIG PICTURE

• Shopify is an all-in-one commerce platform to start, run, and grow a business. It powers over 10% of e-commerce in the US and 6% in Western Europe. 
• Over four million merchants in 175 countries use its software to run their online and offline businesses. 
• In 2023, it made $7.1 billion in revenue and ended the year with a market capitalization of $100 billion. 
• Brands like Mattel, Kith, Nestlé, Heinz, MrBeast, Spanx, Glossier, Allbirds, and Gymshark sell through Shopify. 

THE KEY DETAILS

• Built custom e-commerce software for his snowboard shop, Snowdevil. Realizing other entrepreneurs valued the software more than snowboards, he pivoted to develop Shopify, offering the user-friendly e-commerce platform to other online stores. 
• Shopify culturally co-evolved with Ruby (a programming community focused on developer happiness) and Rails (focused on individual developer productivity). This cultural terroir was a key input to Shopify’s mission: giving small business owners agency and mastery over their software tools, and therefore, true ownership over their online stores. 
• Wrote Liquid —Shopify’s online store templating engine—on a long flight from Ottawa to RubyConf in San Diego. Key to making Shopify really work, Liquid solved a critical puzzle in the history of web platforms: how to be in-the-code customizable like open source, yet hosted safely in the cloud, and instantly provisionable like SaaS. 
• First went to Silicon Valley in 2008, knowing nobody, but got A-list investor intros through his Ruby on Rails credentials. VCs weren’t convinced of Shopify’s TAM, but liked Tobi as a CEO and urged him to keep the job, rather than hire a professional. 
• Turned down his Silicon Valley term sheets, which stipulated he relocate. Instead, he leveraged his Ottawa headquarters, and became the desirable employer for talented software engineers in Canada. 
• Spends as much time as possible in the minutiae of the product. And deliberately hires other founders and founding teams at an aggressive cadence in order to continually inject founder energy into the company, particularly in its executive team. 
• Practices ‘Chaos Monkeys’ routinely with Shopify: randomly shutting down servers, deleting meetings, closing offices (pre-Covid), and even asking people to use their mouse with their non-dominant hand for a day. 

Issue 1 • November 2024

Thanks to Will Manidis, Charlie Songhurst, Jeremy Giffon, Ravi Gupta, and Palmer Luckey for the inspiration

Imagery from Unsplash