For the past few years, many people have been talking about diversifying their cash flow. They usually land on the idea of buying a small business that can shoot off cash to them—specifically, buying a mom-and-pop business from someone looking to retire. Buying from a retiring entrepreneur is attractive because revenue can probably be increased by upgrading the business through technology and process improvements. The business’s value increases (assuming multiples stay flat or rise), and its rising revenue translates into higher cash flow (i.e., a higher yield on investment).

This all makes sense, and I generally like how this plan sounds. As time has passed, though, I’ve noticed two hurdles for friends turning this plan into reality.

The first challenge is sourcing. This is true of all investing. How do you find the best opportunities that will generate the highest return—especially when you’re going after tiny companies that don’t publish financial information about their business performance? To properly source good deals that others aren’t aware of, you likely need a great network that’s tapped into baby boomer entrepreneurial circles, and you need to work it aggressively. Or, you could just brute-force it and start cold-calling businesses. Either strategy requires a ton of time and energy.

The second challenge is operational. Entrepreneurs are usually the glue that holds small businesses together (especially those with annual revenue under $1 million). There isn’t enough money to support hiring a staff and becoming an absentee owner. So, once the owner sells and retires, the new owner will have to step in to hold things together and implement improvements to grow the business. Again, lots of time and energy is needed.

After seeing these two hurdles (and others) stop friends, I began wondering if there’s an alternative way to solve the problem, ideally more passively. Could you diversify your personal cash flow by buying a stream of income generated by a business and benefit from some upside potential? Can you do this in a more passive way that doesn’t require as much time and energy but gives you above-average returns (assuming a risk level similar to that of buying a business)?

I think I found an alternative solution. I’ll share my thoughts on it in another post.

Last week, I read a post on X that caught my eye. I shared it with a few folks, which sparked some great dialogue. The post was based on this article. The gist of the post and the article is that the venture capital industry has increasingly focused on coordinating capital across multiple funding rounds for the start-ups it invests in. Therefore, investors focus on fundability—the likelihood they can attract later investors—when making investment decisions. This is a form of consensus seeking. The more capital a company requires from VCs, the more consensus is needed.

For several reasons, it’s harder for smaller VC firms to play and win this game. They need to play a different game if they want to generate alpha (i.e., outsize returns for their investors). Instead of focusing on the fundability of a company, here’s what they should be looking for:

• Companies that are capital efficient and don’t require insane amounts of growth capital to build a great business with a moat. For example, Ho Nam and his firm Altos Ventures invested in Roblox early. He says (see here) that Roblox needed only $10 million total from investors to become cash-flow positive. Roblox has a market cap today, as of this writing, of roughly $50 billion and generated over $1.3 billion in operating cash flow in the last 12 months.
• Companies that don’t need hype or investor consensus to prove they work. With very little capital, they can show in their data that customers demonstrate strong demand for the product because of how well it solves a problem for them.

Interestingly, Ho Nam commented “Agree 100%” below this post.

I’m glad I found this post. It got me thinking about how, going forward, outsize returns can be generated by the smaller funds, especially those that aren’t feeder funds to the big boys.

I tend to still think that founders (and small VC funds that back them) create a lot more optionality for themselves when they focus on providing a good product that customers will pay for (which provides growth capital) instead of on giving the VCs the story they want to invest in. Ironically, if customers love and pay for your product, VCs will love you too. The inverse isn’t always true.  

A few weeks ago, I wrote about how one start-up lawyer is changing his business model because of AI’s impact (see here). A few people reached out to me after that post and shared their perspectives on the disruption of legal services and other industries by AI. This topic is clearly top-of-mind for more people than I realized.

Today I read a blog post (see here) from Fred Wilson, founder of the famed venture capital firm Union Square Ventures (USV). Wilson describes having always been uncomfortable with the legal costs that USV incurs to close financing rounds for new start-ups they invest in. His latest quote was $50k for a deal he was working on last month (and the start-up’s lawyers probably charge it something similar, so the total for both parties is about $100k).

Wilson decided to try something different. He loaded Google’s NotebookLM with all his firm’s historical closing docs and the start-up’s data room docs. He asked NotebookLM a bunch of questions, and it pinpointed one issue, which he resolved with the start-up and its lawyers.

The end result was that with two hours of Wilson’s time and no legal fees, he was able to get comfortable with the deal docs (and, I assume, close the deal or get it close ready). That’s a tremendous cost and time savings.

This is a very interesting use case of AI empowering law firm customers, specifically investment firms, to move faster and at lower cost. It confirms what the start-up lawyer I spoke with last month believes: AI is disrupting the legal industry by empowering lawyers’ clients, and law firms will be forced to adapt.  

A close friend was telling me about how the company he works for completed its IPO in December. I realized I haven’t done an IPO update since Q2 (see here). I know that IPO activity picked up in 2025, but I wanted to know by exactly how much. So today I dug through data. Here are the updated IPO stats for calendar year 2025:

• 2025: 347

Here’s the breakdown by month:

• January: 28
• February: 28
• March: 19
• April: 32
• May: 33
• June: 26
• July: 37
• August: 28
• September: 32
• October: 35
• November: 18
• December: 31

For comparison, here are previous years’ IPO stats:

• 2024: 225
• 2023: 154
• 2022: 181
• 2021: 1035
• 2020: 480
• 2019: 232
• 2018: 255
• 2017: 217
• 2016: 133
• 2015: 206

IPO activity picked up significantly last year. In 2025, IPOs increased by 54% year over year. And increased by 125% from the 2023 post-COVID, post-ZIRP low. Another interesting fact is that if you exclude the COVID years of 2020 and 2021, when interest rates dropped rapidly, and look at more normal years, 2025 was the most active year for IPOs in the last decade.

I imagine that technology CEOs and their PE or VC investors are watching these IPO stats and thinking about taking their companies public in 2026, given public market investors’ appetite for buying shares in tech companies.

I’m curious to see how Q1 IPO activity looks and if 2025’s trend continues.

If you want to see the IPO stats—recent or historical—try here (where I get my IPO data).

Today I was listening to investor David Dredge on a podcast. He's based in Singapore and deals in somewhat exotic investments but considers himself a value investor. He said something (see here) that grabbed me: “Low doesn’t mean cheap.”

Just because something has a low price, that doesn’t automatically mean it’s a cheap price. Price is the amount you pay for something. Value is what the thing is worth. The two concepts are often confused, but they’re different. And price alone can’t tell you the cheapness of something.

The key element that many miss is value. Once you calculate an item’s value, you can determine whether it’s cheap or not by comparing value to the price it’s being offered at. If the price is less than the value you’ve determined, it’s priced cheaply and is likely a deal. If the price has also been reduced, the item is low-priced and cheap.

Conversely, if an item has been reduced in price but is still selling for more than the value you’ve determined, it’s priced lower, but it’s also overpriced (i.e., not cheap).

For a long time, I looked for bargains. If something was on sale, I’d think it was a deal. That was a naive way of looking at things, and it led me to overpay for things (most notably my first residence). I now think much differently. I no longer start with price or how much the price has gone down. Instead, I try to first figure out the value of something (this isn’t always easy). Then, after I feel comfortable with the value I’ve determined, I look at the price. If the value exceeds the price, I feel confident about pulling the trigger because I’m getting more value than I’m paying for.

I’m reading a book this week about understanding the impact of luck and skill on successful (and unsuccessful) outcomes. It’s called The Success Equation, and it’s by Michael J. Mauboussin. It outlines a framework for assessing the influence of skill and luck on your decisions (many life outcomes are a combination of both) so you can increase the chances of getting a successful outcome. Very interesting book so far.

One section is called “Why Smart People Do Dumb Things.” I’ve been thinking about it a lot today. The key premise of this section is that intelligence tests measure some cognitive abilities but fail to measure others. One area these tests miss is decision-making ability. Smart people sometimes make stupid decisions.

The book goes on to distinguish between intelligence and rationality. Most would think they’re related, but this isn’t necessarily true, the book argues. There are two ways to evaluate someone’s cognitive ability:

• Intelligence quotient (IQ) – This is what traditional intelligence tests measure. It’s a rating of someone’s ability adjusted for their age and compared to the rest of the population. Think mental processing speed, memory, vocabulary, etc.
• Rationality quotient (RQ) – This is the ability to think and behave rationally. RQ attributes include “adaptive behavioral acts, judicious decision making, efficient behavioral regulation, sensible goal prioritization, reflectivity, and the proper calibration of evidence.” This is what interests me most.

The book highlights that many people with high IQs cannot act or think rationally and gives examples.

This section resonated with me for a few reasons. First, if decision-making is what matters most in life, then RQ is most important. IQ can’t be changed (as far as I know), but anyone can learn to act and think rationally through hard work and focus. So, if you didn’t win the ovarian lottery and don’t have a rocket-scientist IQ (I fall into this category), you can still have outsize success if you’re intentional about thinking and acting rationally. It’s not easy and takes work—e.g., I read this book—but I feel it’s definitely something that be learned and improved materially.

Second, this section mirrored something Warren Buffett said (I read it in The Warren Buffett Way last year). I wrote a post on the quote; see here. The gist is that rational behavior is what enabled Warren Buffett to achieve outsize success, not his IQ (which is very high, too). It’s not how smart you are, but how effectively you use the intelligence you have. Buffett says some smart people have a 400-horsepower brain but only get 100-horsepower output from it because of the decisions they make. He argues that by being rational, you can have a 200-horsepower brain and get 200-horsepower of output, which puts you ahead of the 400-horsepower “genius” who can’t act rationally.

When two wise people say the same thing, it catches my attention because they reached the same conclusion independently. The probability that both are wrong is low.

I’m excited to finish reading this book. Understanding IQ and RQ, and recognizing when luck heavily influences what I’m doing, has already changed some of my thinking and decision-making.

I’ve read two books by Michael J. Mauboussin, an investor and a professor at Columbia University. I’ve enjoyed learning and trying his frameworks, especially the expectations investing framework. Another concept he wrote about was the investment premortem, an analysis you do before you invest when you’re objective and your mind isn’t anchored (as it will be after you’ve already invested).

To create this document, you fast-forward a year or so and pretend your investment has failed. You then list all the possible ways the investment ended up in that worst-case scenario. Most people naturally focus on what could go right and their own belief that an investment will work. The goal of the premortem is to get you to consider negative alternative outcomes and ways to mitigate them.

This approach caught my eye, and I want to try it. Thinking in terms of scenarios and the probabilities of those scenarios occurring is something I’ve noticed successful entrepreneurs and investors doing. I’ve started doing more of it, but I want to improve. This premortem idea seems like a great way to force myself to crystallize my thoughts about scenarios that are the opposite of what I hope happens. And it’ll likely help me have more confidence in assigning probability weights to the bad outcomes that I don’t expect.

Venture capital firms have a dilemma: there’s no exit for their founders. I read about Georges Doriot’s VC firm, American Research and Development Corporation, being publicly traded (see here). But being a public company ended up causing issues, and Doriot merged the firm with a conglomerate in 1972. Since then, VC firms have been private, and there hasn’t been a market for buying or selling them.

Today, that changed. I read this article, which says that Goldman Sachs is buying Industry Ventures (IV) for a reported $665 million plus an additional $300 million based on performance. IV has about $7 billion in assets under management. This is interesting because VC firms weren’t considered assets that could be sold. Their founders’ wealth came from carry (profit-sharing) and management fees.

I’m curious to learn about the details of this transaction and see how the market reacts to it. If VC firms become assets that can be bought and sold, I imagine we’ll see a shift in the strategies and actions of founding partners of VC firms.

I had a good conversation with a friend this week about the number of recent IPOs. He’s a physician, so this really caught my attention. If someone who isn’t a professional investor or entrepreneur is noticing the increased activity, it’s noteworthy.

I’ve noticed the uptick in IPOs and public market investors being receptive to buying shares in these companies over the last few months. Several companies have sold shares above their target range, meaning the company’s valuation and capital raised were more than anticipated. Positive signs like that excite entrepreneurs and investors to pursue more IPOs.

Though the IPO market is picking up, we’re nowhere near 2021’s gargantuan levels (see here). I’ll dig into the year-to-date IPO stats and share what I find. The end of Q3 is right around the corner, so I’ll likely wait until then.

Yesterday, I shared why I love what Andrew Carnegie said about why you should put all your eggs in one basket, which is counter to how most people think. It’s simple, but it’s far from easy to execute. And even if you execute it well, success isn’t guaranteed.

Picking the right basket to put all your eggs in is the hardest part of execution. Whether you’re founding a start-up or making a concentrated investment, this choice is critical. And you must have conviction in your decision so you can weather the inevitable ups and downs. Therefore, you can’t haphazardly pick something based on a whim. You must do the work to deeply understand each of your options. Doing the work often leads to what others might consider an obsession, but it’s what uncovers the insight that others miss—the insight that reduces your risk, tilts the probabilities in your favor, and helps you build the conviction needed to go all in.

Andrew Carnegie’s method isn’t something that everyone is suited for. Making that kind of decision and sticking with it to the end requires mental grit and toughness. But for people with the right mind-set, when it’s done well, it can lead to outsize results.