Level Equity & Structured Capital Annual LP Meeting

March 28, 2023

👋 Hi, nice to meet you. My name is Francis. I started one of Level Structured Capital’s portfolio companies, Invisible. I’d like to briefly tell you our story, thank you for your support in helping us buy out passive investors and regain sovereignty, and tell you why I think The Sovereignty Game should become a viable alternative to The Venture Game, which has become the unquestioned, unchallenged, default playbook for the technology industry.

Invisible is a new way to run your business. We call it “ops-as-a-service.”

We’re a tech-enabled services company: counterpositioned against Accenture, and the rest of the business process outsourcing industry, which has failed to innovate. 20th century services companies generate trillions of dollars of annual revenue, and their work is all process driven, but they are not tech companies, so they are struggling to integrate software, automation & AI into their business models. They bill by the hour, so their incentive is to bill as many hours as possible, that is, to be as inefficient as possible, without getting fired. They are Blockbuster, we are Netflix.

We’ve built a Digital Assembly Line that breaks down our clients’ custom processes into standard steps, like legos, which we automate as much as possible using our Process Builder, which integrates 300+ 3rd-party automation & AI tools, and our own automation team, which builds proprietary tools. For the remaining steps, we use our Wizard Builder to build User Interfaces for our agents to run these manually. Our platform coordinates 1800 agents in 77 countries around the world, and pays them based on speed, quality and complexity. Our hiring, training & workforce management scale beautifully: we onboarded 600 agents in Q4 without breaking a sweat. Our capabilities are sci-fi: we have Masters and PhDs doing work on specialized processes.

It’s an end-to-end operations solution that aligns incentives with unit prices. That’s right, we only get paid for results.

Our team becomes your team very quickly, which makes it easy for you to delegate work to us, because we’re so embedded. Once you learn to trust us, the use cases are limitless: we process claims for insurance companies, help real estate companies buy homes, digitize restaurant menus and onboard merchants for DoorDash and GrubHub, and provide reinforcement learning for two AI giants - just to name a few examples. We’ll go person by person, team by team, and department by department to map all of the processes in your company, so that before you know it, we run ops for you and stay aligned with your strategy.

Before we met Level… Every VC we pitched passed on our Series A. They told me services businesses have low margins and don’t scale. They also told me that I should focus on just one vertical and abandon my horizontal platform vision, which they said was way too ambitious. The more advice I got from them on how I should run my business, the more I realized they wanted us to look exactly like every other SaaS company coming out of Y-Combinator. Not that I have anything against SaaS companies or Y-Combinator, I just kept thinking to myself…

The Venture Game should not be the only game in town…

The Venture Game goes like this, clockwise… You start a company. You raise money. You run losses on product & growth to generate enterprise value. You raise more money. You run bigger losses to generate more enterprise value. You raise your Series A, spend it; raise your Series B, spend it; raise your Series C… and so on, until you either IPO or M&A. Your time horizon is 5-8 years.

Thus there are three parties which define the industry. Startup parties: “Hey, we’re starting a company, come celebrate!” Round closing parties: “Hey, we raised a round, come celebrate!” And exit parties: “Hey, we IPO’d!” or “Hey, we sold the company, come celebrate!” (Guess which are the hardest to get invited to?!)

Logically, equity turns into money in one of five ways: Dividends, Buybacks, Secondaries, IPOs & Acquisitions. The Venture Game ignores the first two, Dividends & Buybacks, and focuses on the last three: Secondaries, IPOs & Acquisitions.

This means the Venture Game is essentially speculative & mimetic: the risk & reward calculus is based on what you think other people will think about the value of your company, as opposed to what it is intrinsically worth - which explains why VC is especially prone to groupthink and hype cycles. This leads to derivative analysis based on how a given course of action is likely to be perceived by an investor and valued at the next round, as opposed to fundamental strategic thinking based on first-principles analysis of inherent merits and long-term outcomes.

Venture capital buys ownership and control. Because of the game theory, VCs own up to 70% of a company at the time of exit, leaving founders & management with 20%, and the team with 10%. Also because of the game theory, once even a single round of financing is raised, a timer begins to raise the next round, and the measure of success becomes consistently raising larger amounts of capital at higher prices. Boards pressure management to deploy capital at increasingly fast rates, in decreasingly efficient ways.

The Sovereignty Game is the alternative to the venture game.

We play The Sovereignty Game.