My guest today is Chris Paik, who is a General Partner at early-stage venture firm, Pace Capital. Before Pace, Chris spent eight years building and investing alongside last week’s guest, Josh Kushner, at his firm Thrive Capital. During that time, he sat on the board of Twitch. Our conversation explores Chris’ frameworks for investing, from atomic value swaps to business model product fit and the seven deadly sins. We also discuss different consumer trends like the rise of virtual YouTubers, Apple’s Vision Pro, and why everyone graduates off YouTube. Please enjoy my conversation with Chris Paik.

Founders Podcast
Founders Episode 136 - Estee Lauder
Founders Episode 288 - Ralph Lauren

For the full show notes, transcript, and links to mentioned content, check out the episode page here
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Show Notes
(00:03:00) - (First question) - The history of humanity as a data storage and transfer problem and how that relates to new kinds of computer interfaces
(00:14:47) - Investing strategies; knowing when to invest in new technology
(00:16:39) - Assessing the gray areas of a potential investment
(00:22:13) - CodeMiko and VTubing
(00:32:51) - An explanation of atomic value swap
(00:39:55) - The 7 deadly sins and the degrees to which each sin is monetizable 
(00:45:05) - Evaluating the people behind new technologies
(00:50:03) - The Reddit Revolt - the current changes happening at Reddit  
(00:53:09) - Business model alignment; the steps to take when determining a business’ value capture mechanism 
(01:03:52) - The investment decision that Chris is most proud of 
(01:08:14) - The consumer investing landscape today
(01:11:19) - Chris’ methods for finding new content, technology and potential investments on the internet
(01:14:06) - The fundamentals of value creation  
(01:15:06) - The dark side of tech, how can it be more than just friction reduction
(01:17:22) - Chris’ opinion on why so many innovations come from the US
(01:20:37) - Defining market places and how to start and grow a successful one
(01:23:23) - Chris’ thoughts on opportunities with bad business models
(01:26:19) - A breakdown of Chris’ analogy “Sculptors versus painters”
(01:29:34) - The kindest thing that anyone has ever done for Chris

This episode is brought to you by Tegas, the modern research platform for leading investors.

Stretch your research budget with flexible expert calls you can trust.

At a fraction of the cost of traditional expert networks, Tegas customers pay only what an expert charges with 0 markups and no confusing call credits, netting an average of 70% savings.

Tegas offers the ability to schedule 30 minute meetings, an offer you won't find anywhere else.

With White Glove custom sourcing for every project and Robust compliance measures, including a dedicated 50 plus person analyst team that vets every call transcript.

TGIS ensures your privacy and protection as the industry innovator for qualitative insights.

TGIS helps you find the right experts you need at a quality and speed that can't be matched for a limited time.

As a listener, you can trial TGIS for free by visiting tgis.co slash Patrick.

Before we transition to the episode, I want to highlight the Founders podcast, which is part of our Colossus network.

David Senra, who hosts Founders has devoted his life to learning from history's greatest entrepreneurs, and every week he distills the lessons of a different founder.

If you want an entry point, I highly recommend starting with episode 136 on Estee Lauder or episode 288 on Ralph Lauren.

I hosted David on Invest Like the Best last summer, and it's hard not to walk away insanely energized after listening to any episode with him.

You can find a link to founders and those episodes in the show notes of this conversation.

You can also search all past transcripts on our website, joincolossus.com.

I'm Patrick O'Shaughnessy and this is Invest Like the Best.

This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.

Invest Like The Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and the CEO of O'Shaughnessy Asset Management.

All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum or O'Shaughnessy Asset Management.

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

Clients of positive sum or O'Shaughnessy asset management may maintain positions in the securities discussed in this podcast.

My guest today is Chris Paik, who is a general partner at early stage venture firm Pace Capital.

Before Pace, Chris actually spent 8 years building and investing alongside last week's guest, Josh Kushner at his firm Thrive Capital.

During that time, he sat on the board of Twitch.

Our conversation explores Chris's frameworks for investing, from atomic value swaps to business model product fit and the 7 deadly sins.

We also discuss different consumer trends like the rise of virtual YouTubers, Apple's Vision Pro, and why everyone graduates off of YouTube.

Please enjoy my conversation with Chris Paik.

So Chris, I think an interesting place to start because it's something you said at lunch that I don't think I've seen you write about elsewhere, is the history of humanity as a data storage and transfer problem, and how that relates to new kinds of computer interfaces.

We're lucky that we've now gotten to see the latest Apple Vision Pro, which probably figures into this discussion somewhere.

What is this big idea of yours and why is it interesting for those interested in technology?

Let me caveat this with, it's probably in the bucket of half-baked and still in the realm of theory.

In the world of audiophiles, there's this term called lossless, where if you are an audiophile buff, you're trying to get as close to the quote unquote source or original thing as possible.

And so compression algorithms are your enemy, and it's what drives people to spend insanely ungodly sums of money on their audio setups.

And I think this concept of lossless is really interesting as it pertains to data and data transfer and what are high fidelity experiences, what are low fidelity experiences, what are lossless experiences.

If we think about data between humans in the same generation, data across generations, information, the ability for us to transfer information, store it, and access it is so important to societal efficiency.

It prevents us from reinventing the wheel time and time again.

We can learn from other people's mistakes.

And so 1 thing that's interesting to think about is songs.

Songs as a compression algorithm for data.

We are wired in a certain way to feel certain tunes being catchy and we can remember song lyrics.

But if you think about it, the oldest forms of songs, poems, epics were meant to transfer data between people and across generations.

It's this data compression algorithm and perhaps the original form of data storage.

And when we think about the advance of technology that have allowed us to create these step functions in data transfer and data storage, notably the written word, huge, huge advancement.

The biggest change though happened with the invention of the printing press because it took stored data and made it scalable to distribute.

So all of a sudden there wasn't 1 copy of 1 thing, there could be an infinite number of copies, or a multitude of copies of the same thing.

And so if you think about individual conversations as an amount of data that's being transferred, we're having this conversation right now, If it weren't recorded and it weren't distributed, the amount of surface area that data could impact ends you and me in this conversation.

Or each of us take a little bit of it away or something.

And if you think about the invention of the written word, that was it.

Somebody writes it down and then it is limited to that single copy being consumed.

The invention of the printing press created this incredible distribution mechanism for that same data to be consumed.

You look at the internet as another form of data transfer, data storage.

1 thing that I think is underexplored is the impact of data transfer speeds as actual why now reasons for companies existing.

Let's look at mobile social networks and the order that they were founded in.

So Twitter 2006, Instagram 2010, Snapchat 2011, maybe most recently TikTok, nay, Musical.ly in

It could not have happened in any other order because of the minimum packet size

So, Twitter was text-based, smallest packet size.

It was actually able to run over SMS rails.

And then when mobile bandwidth was in its infancy, it was still sufficient to transfer those kilobits of information.

But it basically wasn't until 3G, until Instagram was possible.

You had compressed images, and in order for the average person to have a high fidelity experience you needed wide distribution and attachment rate of that.

Snapchat coming shortly thereafter, also imagery and short form video.

And then TikTok 3 years later with longer form video with audio also part of the consumption experience.

The thing is, TikTok couldn't have started between Twitter and Instagram.

And interestingly enough, I would argue that Instagram could not have been started after TikTok.

With all due respect to a number of great founders building great innovative things, I would argue things like paparazzi, B-real, because they are not strictly more bandwidth consumptive than TikTok, The why now, the technical why now is not sufficient, and if they were to have Darwinistically existed and survived, you would have seen them emerge in the Instagram, Snapchat era of 3G.

I think a lot about data transfer between humans across generations, but then also the read-write speeds of humans to computers.

So our eyes read data at about, I think it's a hundred megabits per second, basically Ethernet speeds.

Our whole environment, not just reading text, we read what we can see.

The amount of data that our eyes ingest is about 100 megabits per second.

Compare that to linguists who have studied the bit rate transfer of spoken language is orders of magnitude slower.

Most current common spoken languages converge at a data transfer speed of 39 bits per second.

There are like a number of things that bound that data transfer speed.

It is both limited by the write speed of a human voice and the data processing speed of our audio of our ears.

Interestingly enough, you think about people who can listen to...

So actually, read speed is twice as fast as the spoken word write speed.

Spoken language, the limiting factor is actually human write speed.

And if you think about voice as a interactive modality to computers, that also suggests that a voice interface will also be limited in a data input write speed of 39 bits per second.

Some examples may highlight things like, imagine a fighter jet that's voice controlled.

We as humans, we've created tools to advance our haptic ability to input data into computers, whether it's the keyboard or the mouse or the touchscreen.

I think there's something interesting to think about.

Darwinistically, if voice had actually been meant as a input mechanism between humans and computers, wouldn't we have also come up with some tool to advance our data input via the sounds we can make?

We would have come up with some sing-song language or we would make specific sounds that map to certain data, but we haven't.

And I think that begs the question of maybe voice is just not meant to be input mechanism between humans and computers.

Maybe we have a structural advantage with our other senses, with touch and haptics, and that is actually the highest throughput data transfer between humans and computers, and it will be for the foreseeable future.

We're not going to see, because sight is our fastest read speed from computers, we're not going to see a more dominant interface where computers transfer information to humans that is not through sight.

Theoretically, this would argue that because voice hasn't actually been effective as a human computer interface.

And again, I'll sort of caveat it with like it being half-baked.

But I think the most interesting part of the Vision Pro is not the screens.

We will always advance along better, higher fidelity, more pixels, you know, screens, but the modality won't change.

What is changing though is the input mechanism from humans to computers.

So every time we have advanced in human to computer write speeds, We've seen a complete paradigm shift in what is possible.

So you start with the keyboard and that was fine.

It was limited basically by the number of words per minute that somebody can type.

Average person types at like 40 words per minute.

And all of a sudden, there is this watershed moment of advance on how much humans can write to computers as data transfer.

I think the thing that happened with the iPhone that people misattribute to like, well, it's like mobile smartphones, things like that, is actually just multi-touch.

Multi-touch was the innovation that made the iPhone and such a paradigm shift of human computer interface because We had plenty of smartphones.

You remember t9, you know your Nokia dumb phone Think about how ridiculously rate limiting that was as a data input mechanism for humans to computers So enter multitouch, you know Apple bought the company own multitouch and patents around MultiTouch 2 years before the iPhone was launched.

That was a thing that allowed humans to write more information more efficiently to the computers that they were using.

So I think The most interesting part about the Vision Pro is its eye tracking and hand gesture tracking.

Because to me, those represent advances in humans being able to write information to computers.

If you think about eye tracking, think about the process of clicking on something with a mouse.

You look at the thing, your brain subconsciously is thinking, okay, I need to now physically manipulate my hand to move this hardware mechanism to then move a digital representation of something to then meet where my eyes are looking and then I click.

With eye tracking, you basically get to short circuit that entire lossy physical loop.

I feel like that's why you hear from early users, it feels telepathic.

It's such a gain of efficiency of human write speed to the computer.

I think the hope is that continued advancement of human write speeds to computers lead to these watershed moments of advances in human computer interfaces.

I think it's a great excuse to talk a bit more about this notion of why now and how that critical question plays into your view of investing strategy.

You gave an example around the social networks.

In each case, they were newly possible because of some underlying platform change or technology change.

Do you think the answer to the question really needs to be ultra compelling every time you make a technology investment?

To say as much as you can about this idea of why now?

Conceptually and from a platonic ideal perspective, yes.

Every venture investment should have an essential, very strong, compelling reason of why now.

Whether or not that is actually perceptible, measurable, and articulable in the moment of having to make an investment decision or deciding to found a company, that's a totally different analysis.

But from a philosophical perspective, yes, venture is a pretty unique capital instrument.

And if you think about efficient market hypothesis, where if there's an opportunity, people create companies to take advantage of that opportunity.

If venture is supposed to be exposed to companies capable of explosive enterprise value creation over very compressed periods of time, those opportunities shouldn't exist unless crazy dislocation has happened in the market.

Because unless some crazy dislocation has happened in the market,

there shouldn't be the opportunity to capture such a large integral of value.

And so if there is no compelling why now, and maybe it's technological or regulatory, I would make the strong argument that that is not a venture.

That's not a suitable candidate of venture capital.

When you're looking at an opportunity and you're thinking about that question, how do you go about poking at it?

Because right now you might be able to say, okay, a company enabled by the Vision Pro, I get it.

Why now is that this thing's new and for all the reasons you just described, it's exciting.

People understand that dislocations create opportunity and they flood it with capital.

But how do you go about in the gray areas assessing this?

Because not every great company was created right on the back end of some major identifiable tech change or something.

What sorts of questions are you asking of the company of yourself?

This seems like an incredibly valuable exercise in the canonical question, is the founder more important?

I think what you're saying is the market is really, really important, and great markets that can create a lot of enterprise value come from dislocations.

So I'm just curious how you prosecute this when you're looking at a company.

So my best answer to that is it's hard to at a micro basis.

I think the way that I choose to spend my time, which is hanging out in the corners of the internet on the edges of things, that increases the likelihood that things that are happening there are happening because of some new advancement.

And so in some ways, if you choose to spend your time in those spaces, you get a higher natural hit rate of the things that you are exposed to being possible because of a YNOW.

VTubing is- You're going to have to explain what that is.

So VTubing, portmanteau of virtual YouTuber.

Those are the digital representations of the content creator.

So they use motion tracking hardware and software to capture their movements in their face and their body.

And those movements end up puppeteering this avatar, this digital representation of themselves as a digital content creator.

So you can watch a stream of a VTuber and you're watching the anthropomorphic fox or what have you, and there's somebody somewhere sitting with...

Maybe they're wearing motion capture hardware on their body, or they're using cameras to track their face, and they're creating content as that character.

And I think what's so interesting about that is it franchises a completely new set of potential content creators.

For better or for worse, to be a successful content creator in this day and age, Instagram or TikTok, you basically have to be good looking.

And what this allows is for people who Maybe aren't good looking, but are very entertaining.

This allows them to achieve the same level of success when they previously were completely disenfranchised.

I think a lot about jobs that might exist in 10 years that don't exist today

and jobs that exist today that didn't exist 10 years ago.

You told me as a 13-year-old kid that I could make a million dollars a year streaming video games on the internet.

Maybe I would have lived a very different life and pursued a very different career, but when I was growing up, that was unheard of.

And so I think a lot about at a micro level how people reallocate their own labor hours, where they are advantaged, where they're disadvantaged, where they are newly advantaged.

And as labor flows to higher states of entropy because of these new advances in technology, whoever is building that aqueduct, that water naturally flows down, will greatly benefit.

say it back to make sure I captured the idea right.

It's incredibly valuable to offer, enfranchisement I guess is the word, to a new class of creators that previously could not have been productive.

And if you do that, this is like the whole, I think it was Bill Gurley or somebody at Benchmark told me like you can't start a new social network with existing celebrities.

It has to be with new celebrities that you've made possible.

If you think about it, dance as a form of content disenfranchised on platforms prior.

To really appreciate dance, you need to hear the music.

But audio was never a native endemic form of content consumption on Instagram.

It was always visual or Snapchat, visual.

And TikTok was the first platform that made audio a native part of the content consumption along with video.

And so dance was elevated from this completely backwater, maybe if somebody happened to have their audio on while they're scrolling through Instagram,

And it totally makes sense that then the number 1 most popular TikToker is a person who was previously disenfranchised that is now currently enfranchised.

Can you explain for people, almost nobody listening will know this term, who CodeMiko is?

The woman behind it, Yuna, is wildly talented.

She, 3D animator, and was inspired to quit her job and start CodeMiko as a Twitch channel because of what was then possible in VTubing.

Yuna wears motion capture hardware, basically all of her body, that inputs motion tracking information into an environment that she has created in Unreal Engine that real-time animates a character called CodeMiko in a, essentially, game environment inside of Unreal.

Her stream is basically 1 camera angle of that game environment inside of Unreal, and CodeMiko is the content creator, basically a player, represented player inside of that environment.

What's crazy to think about, though, is what happens when CodeMiku is not the only player that's represented in that in-game environment?

What happens when someone else who's also wearing motion capture hardware or software that is also a VTuber, wants to represent themselves in the same three-dimensional space.

I think there's this weird corner of the internet in Grand Theft Auto where people create content on role play servers.

You actually have to rob a bank, and I am supposed to chase you down as the cop, pull you over, and apprehend you.

The beauty of this is the game basically turns into an improv stage.

And you have this network effect of content creators where if I, as a new content creator, get to drop into this existing role-playing server, it's so much easier for me to create compelling content because there are all these actors that are already creating amazing content.

And so it's interesting to think about VTubers who exist as these digital content creators the same way as characters in Grand Theft Auto exist on these role-play servers?

And what is possible when they are networked together and exist in the same three-dimensional space?

How do you think about that from the perspective of an investor trying to earn a return.

I totally get the idea that a great way to back into great why nows is to hang out at fringes.

That's the whole William Gibson idea of distribution of the future being here already.

So I love the strategy to find interesting things.

It's a great sourcing strategy where there might be a compelling why now that you'll be able to tell very coherently 10 years from now, but it would be hard to articulate now.

This one's weird for most people, probably very weird.

How do you then leap from that to like, oh, investment opportunity.

I could invest a million dollars and get a hundred million back or something like that.

feel like this is where an economic framework comes into, I think there's this concept of product market fit, which we all know very well, and then this other concept of business model product fit.

Maybe you could argue that along the spectrum of 0 to 100 of product market fit, companies, products, attain, arrive at their fullest potential of users using the product.

But on the scale of 0 to 100 of business model product fit, the company approaches its fullest potential of enterprise value.

So you can have a product that is amazing product market fit, open source for example.

Open source is a great example of product market fit with 0 business model product fit.

Linux itself, there's no enterprise value inside of Linux.

I think this is arguably what's happening with Twitter.

Twitter is a great example of a company that has product market fit and is struggling to find business model product fit in this very public stage.

your question of how do you evaluate something that has potential product market fit at the edge, maybe a good candidate for YNAB, maybe not a good candidate for YNAB.

I do through the lens of business model product fit.

There are only so many business models that exist, arguably.

You can buy widgets for X and sell the widgets for more than X.

1 of my favorite business models is you can help people make money and then you take a cut of the money that they make.

I think this applies to most marketplaces.

There are other business models of You pay me to save you time, productivity tools or the convenience economy, delivery, things like that.

I think basically every company distills down into 1 of these core business models.

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Chris Paik - Venture Investing Frameworks