In and out of VCLab

Though VCLab removed me from one of their programs again, I do believe that merit will ultimately win because of the duty required by the Mensarius Oath. I still expect by the end of 2025 to have a fund administered through VCLab’s traditional VC protocol.

I am heartened because, so-far, I am failing up in VCLab! I first started in Venture Institute, and was flunked out of it. A year later, I was offered my own GP position in VCLab Cohort 17 because of how much I accomplished after leaving Venture Institute Cohort 1. VCLab was so impressed, that they added me to Emerging Institute Cohort 1 for Fund II and Fund III GPs despite the fact that I am starting Fund I.

However, after our second Venture Institute Cohort 1 fund, I was removed from a VCLab GP position all together. The problem is that VCLab does not invest in Crypto and Web3.

As a legal engineering thought leader, I have to engage with the cutting-edge of legal engineering technologies. In the past, that meant engaging with markup language technologies that eventually lead to the creation of the Internet. If VCLab had legal engineering GPs back then, those GPs would have likely invested in the very beginning of the Internet!

During the current zietgiest, smart contract technologies are the legal engineering focus. However, AI is quickly becoming as important of a focus. And, of course, markup language and the more modern JSON interdata are still critical, which is why I proposed ERC-7827 to Vitalik Buterin as my MegaZu demo in the Fall of 2024:

Progression from Venture Institute Cohort 1 to Emerging Institute Cohort 1

Venture Institute Cohort 1

I participated in the first half of VC Lab’s Venture Institute Cohort 1. However, I did not agree with the superlinear power-law focus in Article 3.1 as the most efficient strategy to realize exponential returns.

I do not know why I was not able to progress on to finish Venture Institute Cohort 1, but I do believe it had something to do with me believing that there was a better way than traditional VC offered and voicing that belief in our LinkedIn group.

I have spent a lot of time in the sublinear power-law environment. As such, I’m excited about the potential quadratic funding has to be a sublinear power-law mechanism. This is a simplified explanation of why sublinear and superlinear together provide the environment for exponential returns:

Mensarius Oath

As a financial professional that invests in enterprises using personal or investor capital, I hereby pledge to honor these values. If it is determined by myself or a panel of my peers that I have violated these values without reconciliation agreed between all involved parties, then I will voluntarily leave the industry.

1. In my profession of finance, I endeavor to help create positive outcomes for all of humanity.

2. With my dealings, I create positive outcomes financially and otherwise for all of those involved, including the conscious avoidance of harm to any parties.

3. Being in the industry, I will help others to achieve the highest standards that I set for myself and my organization.

4. As a steward of the trade, I work against any abuse of power that leads to unfair advantage, seduction, corruption or mistreatment.

5. As a person who can affect the outcome, I commit to reducing inequality and increasing fairness in society.

6. In honor of the community, I pledge to treat all that approach me with fairness, equality and the attention that each opportunity deserves.

7. As a professional, I am open and honest in all of my dealings with those that I serve, including Investors and Founders.

8. As part of my work, I keep all matters that are understood to be private with all available protections to keep safe from public or other unwanted disclosure.

9. To continuously improve, I solicit and respect feedback from those that I serve and from my wider industry professionals.

what is a power law?

A power law is when there is a nonlinear asymmetry between X and Y in dimension n as X changes magnitude, such as Y = X^n.

An exponential function, for comparison, is when there is a nonlinear asymmetry between X and Y in base X as n changes magnitude, such as Y = X^n.

n = 0 and n = 1 are not power law dimensions (they are power law poles): X and Y remain constant in n = 0 (no change); the ratio between X and Y in n = 1 is linear (no acceleration / no relative arrow of time).

According to research, n = 1.16 is the dominant equilibrium super-linear distribution and n = 0.75 is the dominant equilibrium sub-linear distribution.

Graphed on a logarithmic scale, power law distributions are scale-invariant. Scale invariance simplifies scaling up or down, since there is no change between scales.

The Power Law in VC

“The Power Law concept originated in the late 19th century with the work of Vilfredo Pareto, an Italian economist and sociologist. Pareto noticed that 20% of the pea pods in his garden produced 80% of the peas. He extended this observation to wealth distribution in society, noting that 80% of the land in Italy was owned by 20% of the population. This 80-20 rule, later termed the Pareto Principle, laid the foundation for the Power Law….

The Power Law is clearly visible in the world of startups, particularly in the tech industry. Companies like eBay and Google are prime examples. Both started as small ventures but rapidly grew to dominate their respective markets.

eBay, founded in 1995, revolutionized the online marketplace, becoming a platform where anyone could buy or sell goods. Its growth was exponential, and it quickly overshadowed other online marketplaces. Similarly, Google, launched in 1998, rose to dominate the search engine market, outperforming competitors and becoming a household name.”

A) The power law in VC is the super-linear power law exhibited in competitive economies of scale.

B) The sub-linear power law is exhibited in cooperative economies of scale.

C) The magnitudes of the economies of scale rate of change enjoyed by eBay and Google are exponential, which are greater than super-linear power law magnitudes.

hypothesis

D) Eventually achieve the much more lucrative C) exponential growth (which is natural powers scale-invariant graphable with (c-b)/a calculus) via a social network effect composite of: A) super-linear power law growth; and B) sub-linear power law growth.

E) VC follow-on rounds provide circulation between the super-linear and sub-linear elements of a successful startup investment portfolio.

F) Quadratic funding provides circulation between the super-linear and sub-linear elements of a social network, and can redistribute ‘heat’ from ‘overheating’ super-linear competition to ‘freezing’ sub-linear arms length cooperation.

T) Compared to their competitors, VCs who adopt quadratic funding follow-on will make better returns and better achieve Mensarius Oath values 1), 2), 4), 5) and 9).

letter to VC Labs about starting a quadratic fund

.… I'll continue becoming the world's leading expert in the quickly emerging legal engineering field (e.g. Charles Goldfarb and Nick Szabo are legal engineers, SGML and Smart Contracts respectively)….

I got a lot out of my first Founder Institute attempt! The high points were:

• My team drafting a 'giving-PACT' based on your open source PACT that led to us getting a 30ETH hard circle for enough funds to start and establish the OpenCivics round on Gitcoin.

• Realizing the relationship between power law economics, quadratic funding 'QF' and the Mensarius Oath:

  • Big Hairy Audacious Goal: improve VC long-tail returns ('Operation Prehensile Tail'):

    • less than half of portfolio companies VC backed return a loss;

    • status quo is more than half of portfolio companies VC backed return a loss.

  • Practical next-steps: test hypothesis that Gitcoin 'portfolio follow-on' rounds will improve VC long-tail returns.

  • Idea: a VC portfolio is like a record label roster, it's cool and should prioritize growing a 'fanbase' community from the start.

  • Diagram: super-linear is competitive (Walmart vs. Kmart) and sub-linear is cooperative (Walmart over time).

Quadratic Funding was developed by Microsoft’s Office of the Chief Technology Officer Political Economist and Social Technologist as a means to encourage budget cooperation across departments.

Thank you for your consideration.

Sincerely,

Kyle

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