All storms are perfect

Bruno Teixeira, Managing Partner, Raio Capital

Bruno Teixeira, Managing Partner, Raio Capital

In nature, animals are wired to identify early signals of a storm and seek protection. Of course, as with any probabilistic distribution, there are casualties. But the mean of the distribution points to an extraordinary connection to the variables of the natural world. 

Sharks swim to deeper layers of the ocean. Birds fly back to their nests, and will only migrate when weather conditions are favorable.

While the science behind these affirmations may be questionable, a larger point screams to our faces. Connection to the environment is key for survival. Domesticated animals lose their edge. 

Humans are also fascinating creatures. We blend our natural origins to our supernatural capacity for abstraction and creation. We devise tools that push our survival rates through the roof. We create systems that govern human relations, use of natural resources, animal rights. We put dashed lines on top of the terrain, creating an intricate puzzle of converging or conflicting interests. In short, we are ever-increasingly capable of influencing our environment in ways that separate us from our place in the animal kingdom. 

This web of abstraction shadows our vulnerability to things not in our control, which ripples through every dimension of the human endeavor. We talk of perfect storms, like the one the global economy is suffering, as if we hold knowledge of what it takes to create or avoid one. 

In Brazil (where I'm from) our connection to uncontrollable variables is sharp. We are creatures of an adverse environment, where volatility is not the exception, but the norm. Businesses that are successful in the long run must find the right mix of creativity, structure, flexibility and grit – not only to remain competitive and attractive, but also to withstand whatever comes from the "non-market" side of the local and global arenas. Managing cash flows, worrying about unit economics, seeking money from actual customers are not things to play with. Businesses need fundamentals in order to survive and thrive.

There is a lot of talk nowadays of venture capital-funded companies having to brace for impact since capital is less available and business models lacking the proper fundamentals are to suffer from a reality check. Of course, some of the people shouting these words are the same ones that incentivized companies to "burn baby, burn" – which seems self-serving, as well as disconnected from what a well-functioning business environment should be like. There has been such a hype in Brazil as well, where valuations for companies with no track-record or real business fundamentals were inflated and VCs kept pouring money in. 

We are not talking about stupid people doing dumb things. No, far from it. This is an army of very sophisticated individuals taking advantage of the unnatural environment while they can. And there is nothing wrong with that. Who is to say they should not do this? On what moral grounds could anybody stand to impose their ways of thinking? 

Along with my partners, I choose to position Raio Capital's investment philosophy in ways that are more connected to fueling relevant businesses that create positive externalities while returning fabulous amounts of capital to investors. There is, of course, no fool-proof way of doing this, and we are, at the same time, students, makers and observers of methods and results. We think that investing in early stage ventures requires the capacity to merge the objective and the subjective in ways that can be tracked, measured, and back-tested so that positive feedback loops are incorporated into our decision-making process. This needs to be disciplined, methodical and, most importantly, mindful of how much we can actually know and understand, versus how much is out of our hands. 

We know that the companies we invest in will be subjected to unforeseen situations that will test their capabilities to the extreme. We also know that our own firm will go through such challenges from time to time. There is a lot we can't influence, so we work hard to excel in every little thing we actually do control. Companies should solve real problems in today's or tomorrow's world, founders should have the right motivations, teams should be committed and skillful, communication should flow. 

In our context, there should be no talking of why the skies have suddenly turned gray. What needs to exist is connection to the environment and the effort to thrive under all conditions.

Of all man-made storms, not one came from humans masterfully controlling the socio-economic variables of the global equation. They all came from the unintended consequences of constructs that were too complex to manage. The unnatural aspects of our economic and financial systems make room for the unfit to survive, and this, on a large enough scale, leads to a wipe-out. 

The storm separates the fit from the unfit (sometimes the lucky from the unlucky). Rationality is invited back to the conversation for a while. These are great opportunities for those that have prepared.

In nature and in business, there are only perfect storms. And since all storms are perfect, they are just storms. 

Weekly Brief

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