Understanding a process is a type of knowledge, but it’s the exact type of tacit intelligence that AIs are bad at. The best places to find and create durable value using AI will be where the secret sauce is in the little details, the workflows, the division of labor between agents, and the human taste that improves the experience. 

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

I worked as an Associate Partner at McKinsey for three years before starting Meanwhile. Folks often find that surprising. I wasn’t the only YC graduate there but there weren’t many of us. 

I did this for both practical and aspirational reasons. 

Let me get the practical reasons out of the way: 

• I wanted to make money and provide stability to my family after having worked four jobs in three years. 

• McKinsey is prestigious.{1} I had never worked at a traditionally recognizable company, so I wanted to derisk my resume by working somewhere with high signaling.{2} 

• The work was more interesting than {insert name brand tech company, and the people were, on average, more curious.

Let me unpack the aspirational reason I joined. I wanted to understand my competition. I thought McKinsey would be a great way to see many concrete challenges inside large banks and insurers. I could then pick a problem to tackle in my next company. That didn’t quite work out exactly but I learned deeper truths about where startups can win and compete. 

A common criticism of McKinsey is that clients hire them to give answers they already know. It’s all just cover-your-ass. I am sure that happens (perhaps a lot), but in my ~25 engagements at McKinsey, I can honestly say that not once did I think the client already knew the answer. 

Most of my time was split across two types of projects: building new things inside incumbents and helping incumbents address deep-seated risk/compliance topics around or through technology.

On the first, McKinsey has this practice called “Leap by McKinsey,” where a client hires them to build a new business unit, a new division, or a new “startup” within the company. I would go in and be the “entrepreneur in residence” along with a core startup team, like a CTO or head of product. I’d serve as the interim “GM” or “CEO” of this new initiative. The team would grow with folks from the client. Then we would slowly replace ourselves with leaders from the company, coaching them through the transition until we were out of a job. 

This was really fun, actually. I got to start one startup a year for three years. And the big lesson here is that if you can create a team that ships inside one of these companies, you can grow very quickly. Two of those three projects got to $25M in ARR (or equivalent) in my time working on them. If you launch something decent (I won’t even say good) inside a big incumbent, they will sell the hell out of it. They have an install base, they have salespeople, and they have enterprise relationships. 

The adage that "first-time founders are obsessed with product, and second-time founders are obsessed with distribution" took on new meaning for me through these projects. What I discovered wasn't just that distribution matters—that's obvious—but that the relationship between product development and distribution advantage is symbiotic rather than sequential. At McKinsey, I witnessed how even incremental product improvements could achieve remarkable traction when paired with established distribution channels. But I also observed the limitations: when incumbents tried to disrupt themselves or their industry genuinely, organizational gravity often pulled them back toward the familiar. This tension revealed a critical insight that would later shape Meanwhile: to break into a highly-regulated, commoditized market like insurance, you need both a truly differentiated product that incumbents can't easily replicate and an associated distribution strategy that leverages their blind spots. 

On the second project type, I worked on risk transformations for two of the Big Four banks.{3} These projects are very high-profile, critical projects that no one is happy about. They are driven by some regulatory mandate from the Fed or the OCC or whoever, who has made clear that the bank doesn’t have control of their risk and compliance issues. Usually data, technology, tracking, metrics, etc, is a huge part of both the problem and the presumed solution. 

This work was less “fun’ but perhaps more instructive. On one level, it made me wonder whether any scaled institution is governable. If you have hundreds of thousands of employees, whether you're a huge bank or the California State Government (where I was inaugural Chief Data Officer), I’m not sure there is any system you can set up to make it work. I’ve become sympathetic to Brandeis’s notion of a Curse of Bigness.

To be less abstract, though, there is no fixing institutions that have gotten so big. They can build a new business unit that does something innovative (well, if they hired me), but reforming their core business is impossible. Just too many people, too many processes, too much regulatory overhang. But if you start from scratch…

Which gets me to my actual theory of the world right now. AI and automation create a significant opportunity in developing vertically integrated, full-stack solutions to compete effectively and capture substantial market share.

Our vision at Meanwhile is to build the world's largest life insurer as measured by customer count, annual premiums sold, and total assets under management. We aim to serve a billion people, using digital money to reach policyholders and automation/AI to serve them profitably. We plan to do with 100 people what Allianz and others do with 100,000. 

And though when we started our business in January 2022 (ChatGPT wasn’t out yet), you could begin to feel that something like that was possible in a way it wasn’t before. Every day, we feel closer to that vision as AI tooling improves. But it’s a mistake to think the easier thing to do is to build an AI tool for the incumbents. My experience tells me that won’t work. The path of building yourself anew is much harder, but the prize is much bigger.

Footnotes

{1} McKinsey has had a lot of scandals uncovered since I started there, particularly around their historic work on opioids. That work was quite bad.

I never witnessed anything unethical or unexpected at McKinsey; folks were generally thoughtful and well-meaning. Internal self-reflection and debate (“uphold the obligation to dissent”) were celebrated. I remember when one of the NY Times exposés came out, a member of the Shareholders Council (the board of McKinsey) was fielding questions/comments/reactions in the San Francisco office. A Business Analyst got up and ripped him apart. I thought the BA was naive, to be honest, but there aren’t many professional settings where the most junior person can honestly debate the most senior with applause. 

{2} I grew up somewhere between working class (my Dad as a postman) and “elite” poverty (my Dad as a college and then graduate student). The point is that where I grew up, I didn’t know any professionals: none of my friends' parents were lawyers, doctors, accountants, professors, or whatever. It was entirely outside my experience until I went to Brown. There was undoubtedly a part of me that saw the opportunity through McKinsey to get a credential that is part of that pull-myself-up-by-my-bootstraps narrative. 

{3} At McKinsey, there are usually stringent rules around not working for competitors, or even talking to folks who work with competitors. This is taken very seriously, but on work that is considered non-competitive back office like risk, compliance, people/organization/HR, these rules (with client permission) are relaxed. 

We conceived of Meanwhile three years ago, between Thanksgiving and Christmas 2021. In January 2022, we raised our first seed round from Sam Altman and Lachy Groom. We knew very little about long-term insurance; now, we know a lot and have a licensed and regulated life insurer. That's part of the entrepreneurial journey. 

I use the phrase long-term insurance because “life insurance” encompasses many things—it can include protection, savings, retirement products, insurance bonds, tax and estate planning, investment accounts wrapped in insurance products, etc.

To me, the space is endlessly fascinating. Ambition and actuarial science don’t naturally go hand-in-hand, however. Max and I understood early, though, right from that Holiday season, that this space could keep our curiosity and attention for decades to come. This is an ancient financial service. The world is underinsured and our goal is to serve a billion people. Every double-click led to more places to explore. Every topic is a rabbit hole. 

To many people, though, long-term insurance is opaque and, worse, dull. What about it keeps my interest? It’s partially the simple humanity of it — living and dying, uncertainty, and risk. It’s a philosophical study of how we all have an asset we don’t often think about: our own mortality and longevity. Turn that around; we all have a liability we don’t manage — the slight chance we’ll die before we should or live longer than we expect with our savings. 

Actuarial science may seem dry, but there is riveting pure math in estimating mortality, probability distributions of our demise, discounting and present values of the far future, estimating returns on investments, liquidity management, and the impact — oh, the impacts — of simple assumptions, both right and wrong. 

Underwriting is the complex question of estimating someone’s longevity given the information received and a struggle against adverse selection. On one level, insurance product designs are a game-theoretic competition between the insurer and the insured, and on another, they are a simple and critical financial service provided to policyholders. 

Principal-agent problems are everywhere. Policyholders want both prudence and returns from insurers. Insurers want to make money (even the mutuals). Regulators want to protect policyholders but depend on insurers for their financial stability and economic impact. Insurers want policies sold carefully (adverse selection!), and agents (the people who sell policies) want them bought for commissions no matter what. The agent is literally an agent against the principal of the policyholder and will sometimes sell the highest commission products instead of the best one for the user’s needs. 

Insurance is good for society, so governments give it tax incentives, leading to another game of cat and mouse to be navigated and managed. 

Life insurers are permanent capital, free to invest with long time horizons (see my post on life insurance and abundance). 

Then, there are insurers' pure tech and operations— well, okay, maybe that only excites me. 

The point is that there is just SO MUCH there. Without writing a textbook, this post attempts to explain the basics with an eye toward the United States. I go over why users buy life insurance and annuities, how regulators think about life insurance, and how insurers conceptualize and operate their business. 

In the future, I’ll write about the problems in the space, and how and why we use digital money. 

The job to be done by a life insurer

Life insurance is a critical financial service. Life insurers have unique ways to support users in managing the financial risks associated with major life events, saving for their or their beneficiaries’ futures, and optimizing investments for tax purposes.

Why users buy life insurance

None of us knows when we will die, but we can be confident that we will. 

Policyholders buy protection from the uncertain timing and impact of their mortality through a contract with life insurance companies that promises a payout upon death. When the insured dies, the policy's beneficiaries receive the payout. A policyholder might be of prime working age with young children, so although they have a low statistical likelihood of death, that event would be catastrophic to the family. Insurance protects the people they love. 

Governments have decided that adequately insuring individuals against their mortality risk is good for society. This has led most countries with developed tax regimes to offer generous tax benefits to insurance products. These tax benefits themselves become a reason to buy life insurance contracts for tax and estate planning purposes, even for users who are wealthy enough that they do not need to provide financial protection for their families through insurance.

In the United States, for example, death benefits to beneficiaries are income tax-free, and policies' (cash) surrender value grows tax-deferred. Policy loans taken from (cash) surrender values are also tax-free. 

Why users buy annuities

The flip side of mortality risk is longevity risk: none of us knows if we will live longer than expected. An individual might outlive their savings. Like mortality, though, predicting aggregate longevity becomes easy as the number of individuals increases. Annuities are contracts that provide fixed payouts for life based on an initial investment. 

Governments have decided that supporting individuals in adequately saving for retirement is good for society. This has led most countries with developed tax regimes to offer generous tax benefits to annuities. So much so that many annuities are used as retirement accounts and are never actually annuitized—users do not elect to transform them into fixed payouts for the remainder of their lives and keep them as tax-efficient retirement accounts. 

For example, in the United States, money invested in an annuity grows tax-deferred before payouts begin. If a potential user has maxed out their other retirement product options — like an IRA or a 401(k) — an annuity is a tax-advantaged structure for their retirement savings. 

The business of life insurance

Life insurers make long-term promises to their policyholders. The life insurance business is about accurately modeling the underwriting risks taken in products, distributing those (profitable) products widely and efficiently, and managing the balance sheet prudently for appropriate returns. 

Long-term liabilities come with long-term assets to support them. In recent years, many asset managers have realized the opportunity to manage an insurance company's long-term permanent capital. Apollo, Brookfield, KKR, Blue Owl, and others have set up life reinsurers or direct insurers for this purpose. 

How life insurers make money

Life insurers make money in three ways: charging premiums that exceed the actuarial cost of mortality or longevity coverage (underwriting income), investing assets for returns that exceed guarantees and promises made (investment income), or through other fees. 

Underwriting income

When a life insurer designs a product, they must decide how much to charge for the protection they provide. Pricing differs for applicants of various ages, sexes, and risk classes (due to health or smoker status, for example). Accounted within that pricing is a range of assumptions around the acquisition cost of the policy, operations and technology expense, capital and reserve requirements, lapses (a user surrendering their policy before they die), and much more. After all those assumptions are set, any pricing that exceeds those expenses is underwriting profit. Products are sometimes sold at an underwriting loss, with investment gains making up the difference. 

Investment income

Insurers invest the premiums they receive. Returns above their promises and guarantees are investment income (analogous to net interest income in banking). For example, in a fixed deferred-annuity product, the life insurer might promise a crediting rate of 5% but design its investment portfolio to support those promises at 7% returns. The 2% difference is the margin to the company.

Fee income

Life insurers charge fees and expenses for some products. Annuities, for example, frequently have a management fee or expenses load. Universal life policies might have an administrative fee above and beyond the cost of insurance. 

How life insurers operate

Life insurers are contractually required to meet their promises to policyholders. To do that prudently, they must understand the risks they are taking. Actuarial science is concerned with carefully managing insurance liabilities and the reserve set aside from premiums to pay future claims. 

Insurance companies and their actuaries also carefully model investment risks. Regulators closely oversee them, setting strict guidelines on the types of investments they can make and the amount of capital they must maintain and hold. 

Insurers manage many trillion dollars globally and have long-term liabilities to match long-term assets. There is nothing like demand deposits in insurance; without that promise of liquidity, insurers are not subject to “run risk” like banks are (in theory, there can be “mass lapses” which insurers have to model and protect against). 

Reserves

Reserves are the portion of premiums an insurer sets aside for future claims. For a rough approximation, the reserve amount equals the present value of the expected value of potential future payouts subtracted from the present value of the expected value of possible future premiums. 

Capital

Insurance companies hold capital in addition to their reserves to account for risks beyond payout liabilities. Such risks can include investment performance, interest rate shocks, and the stickiness of the capital base itself. Those risks and their probabilistic potential impact on the balance sheet are calculated, and a capital requirement is calculated given the assets (investments) and liabilities (guarantees to policyholders). If capital exceeds regulatory requirements, given all the risks, the company is solvent. Otherwise, it is insolvent, and regulators will act.

Governance, risk, and compliance

Insurance companies are tightly regulated due to the long-term financial guarantee made to policyholders and the opportunity for investment and operational mismanagement. This leads to various regulatory requirements around board and internal governance, enterprise risk (including underwriting, financial, credit, financial crime, operational, and other risks), and compliance with relevant reporting and due diligence regulations and laws. 

Reinsurance

Reinsurers provide insurance to insurers. They can take on all or only part of a carrier's obligations. Life insurers can use reinsurance to protect against excess individual and collective risks or to free up regulatory capital. 

Insurance carriers can also operate in the same group as reinsurers, typically consolidating risk across carriers and centralizing the balance sheet into regulatory jurisdictions with favorable capital and investment rules (like Bermuda). 

How insurers distribute their product

In many jurisdictions, including the United States, licensed agents must sell life insurance. Life insurers can either distribute through a captive agency (as New York Life and Northwestern Mutual primarily do) or work with third-party distribution. 

Third-party distributors can be independent or closely affiliated with a bank or wealth management company. Independent third-party distributors include brokerages (including MGAs and BGAs), independent marketing organizations (IMOs), and field marketing organizations. 

Whether captive or third-party, agents are frequently held at arm’s length with little to no practical support, tooling, or software to make their jobs easier. 

Short-term thinking dominates our world. The quarterly performance of a company, the daily performance of a stock, the hourly performance of a meme coin. Folks approach their careers in two-year chunks and the projects they work on in two-week sprints.

Yet the companies and individuals we most admire are those with long time horizons. Maybe that's what the best of what founder mode means: building for the long-term. SpaceX caught a reusable booster rocket in its 22nd year!

Like many in “Silicon Valley,” I am motivated by an abundance mindset. Growth is good. I see the world as a positive sum game, one where we can choose to create a better future. Where we have the agency to build and create a better world: clean energy so cheap it's not worth metering, increasing lifespans, the reduction and elimination of poverty, plentiful food and clean water, material prosperity, and much more. Optimistic, yes, and proudly techno-utopian. After all, look at the material abundance of our lives — and the global median life — today compared to a hundred years ago, let alone two hundred.

We are all invested in the future being more prosperous than the present. The stability of our government, the Social Security trust fund, and our society depends on growth and improvement (and likely less government spending). Every 401(k) and IRA retirement account is a claim on future prosperity and wealth. Investments in the stock market don't magically go up. They have gone up 7% a year on average for the last 80 years because our society's production and output have improved.

It might not be intuitive, but this is why I started a life insurer. They are among the only companies required to think in those long time spans rather than those few who can choose to because of their leadership by charismatic founder-CEOs.

Life insurers must plan for the deep future. They measure their promises in decades. This is the critical service they provide their users: pooling together life's risks through long-term pledges. Helping your family after you die — that's life insurance (mortality risk). Preparing you and your family if you live — that's an annuity (longevity risk).

That means life insurers must grow their balance sheets prudently and steadily. They hold a considerable percentage of the world's real estate, infrastructure, and long-term mortgages, mixing their obligation to be thoughtful with their ability to invest with longer time horizons than almost anyone else.

But a well-functioning life insurer should both invest its balance sheet carefully and take significant long-term positions to invest in the prosperity of the society in which it operates. None of the incumbents act that way. Instead of financing the future, they capture the upside of the past. They are grounded in seeing their balance sheets as merely a passive pile of money to grow rather than an opportunity and obligation to drive our world toward growth and prosperity. We're on a mission to change that.

At Meanwhile, we are starting in a niche as the world's first Bitcoin life insurer. Our ultimate vision to serve a billion policyholders in managing life’s risk. We see Bitcoin, stablecoins, and other digital money as the best policyholder experience to get there. I’ll write much more about that in the future. 

Our success depends on a prosperous future. If our company grows and our world stagnates, we will fail—not just as a startup but as a country and a world.

Our vision is to manage the resources entrusted to us by policyholders while also having a vision for our unique long-term role in society. To build a better future. To invest in prosperity and abundance. To make the long-term bets that no one else wants to. To help scale the dreamers.

Meanwhile will invest both our balance sheet and our creative energy in enterprises that advance human prosperity.  Our investments will focus not just on capturing existing value but on creating new possibilities. As we scale, we're committed to making the long-term investments that others won't consider—funding nuclear power plants through decades-long purchase agreements, providing expansion capital for space manufacturing, or financing large-scale carbon capture facilities. Closer to home, we'll support companies developing quantum-resistant financial security systems, fund critical blockchain infrastructure, and finance the next generation of autonomous software maintenance platforms. The goal wouldn't be to take on the early venture risks of these bets but to be the exact type of capital that invests in scaling abundance, particularly when it has paybacks of 10, 20, or 30 years. Without that, there wouldn't be the material societal growth needed to meet our obligations.

What good is the future if it's built for the past?

No one small can hope to win the infra layer in AI (NVIDIA) or the model layer (OpenAI, Anthropic, Meta). The opportunity is to compete at the application layer. There will be three levels of business opportunities in app-level AI based on the amount of work a company can take on:

1. The most modest opportunity lies in developing agents that can replace or augment existing worker profiles — software engineers, accountants, marketers, etc. However, this type of intelligence will become commoditized and diminished through competition. It will be trivial to stand up companies here in the long run. We will see excitement and investment but little long-term viability - with only a few durable businesses likely to emerge. I predict market capitalizations ranging from a few billion to tens of billions of dollars.
2. The medium opportunity lies in building comprehensive agentic workflows with domain and application-specific reasoning tailored for a fragmented and competitive market. To deeply understand the space and its opportunities and create a specialized vertical operating system. This is analogous to the existing vertical SaaS plays but with more significant growth potential. The unique intelligence and problem-solving capabilities necessary to compete, capture, and retain enterprise customers will support the development of durable businesses worth tens to hundreds of billions of dollars.
3. The most significant opportunity lies in developing a vertically integrated, full-stack solution to compete effectively and capture substantial market share. This approach can substantially increase profit margins in the right market, allowing these companies to compete on price and establish market dominance. These markets often feature only a few significant players or have deep regulatory moats. Companies with this business model have the potential to redefine the makeup of global markets.

I believe the latter two opportunities are the durable ones worth focusing on.

The recent essay "Generative AI’s Act o1” by Sonya Huang and Pat Grady had the correct arguments but the wrong conclusions. The three points that resonated with me are:

"[W]e still need application or domain-specific reasoning to deliver useful AI agents. The messy real world requires significant domain and application-specific reasoning that cannot efficiently be encoded in a general model.”

“Application layer AI companies are not just UIs on top of a foundation model. Far from it. They have sophisticated cognitive architectures that typically include multiple foundation models with some sort of routing mechanism on top, vector and/or graph databases for RAG, guardrails to ensure compliance, and application logic that mimics the way a human might think about reasoning through a workflow.”

“Cloud companies sold software ($ / seat). AI companies sell work ($ / outcome)”

However, the essay doesn’t go far enough. It makes a critical assumption: building individual AI agent types for others is the best way to capture value. It presumes the horizontal or functional SaaS business model—whether they rename it Service-as-a-Software or not.

They are wrong. To take an example, McKinsey, Accenture, the Big 4, Tata, EPAM, etc., are just derivatives of global economic activity, not the bulk of that activity itself. Those firms all do well for themselves but suffer from always being one step away from the actual work.

Horizontal (functional) agents and intelligence will be commoditized

The future of agentic applications is vertical. Verticalization has been the trend over the last few years and will only accelerate with AI.

By ‘horizontal’, I primarily mean functional. In many ways, this is the original era of SaaS — every function or department inside a company would be replaced by software. We’ll have a SaaS tool for the legal department and one (or more) for sales, marketing, finance, operations, engineering, product, etc. The idea is now to reimagine that “software” as “service,” rethinking making tools for a department as creating agents that replace workers — we have built the lawyer agent, or the SDR, marketer, accountant, analyst, or software engineer.

Applying that functional/horizontal software playbook misses the opportunity. There will be some billion-dollar companies that way, but that isn’t the big prize. If you buy individual agents like software, you are recreating the functional divisions that slow down work. You're recreating the friction that exists in organizations. We don't need an AI lawyer; we must reimagine legal work. To use that example, the fundamental problem in the real world is that legal analysis isn’t embedded in workflows and processes.

Horizontal or functional software will also be trivial to create internally or through competing startups trying to sell to enterprises. Horizontal SaaS margins will disappear. Intelligence alone will be a race to the bottom.[1] Individual agents will be trivial to spin up.

Choosing between being a vertical OS or a full-stack vertical competitor

To truly solve a problem, one has to understand it completely end-to-end. Solutions are where the ultimate margin expansion will come from. That opportunity comes from doing the much more challenging job of understanding a complete problem, integrating and mixing AI, software, automation, and workflows to do the actual work.

That means two business models will drive the next wave of innovation: being a vertically integrated “operating system” for customers (currently labeled “vertical SaaS”) or vertically integrating a solution directly.

Choosing between these two models depends on the magnitude of economic transformation, the inefficiency of selling software, the market composition (lots of players / or a few, is there power law in market share), and the equity efficiency of the build path.

In some ways, this can be summarized by the famous Alex Rampell quote — “The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.” Incumbents are vertically integrated — the battle in every sector will be whether they will adopt vertical AI tooling before a startup integrates an end-to-end AI solution, reimagining the cost structures in the process.

This can be summarized in two questions:

1. How competitive and fragmented is the space? The more competitive a space is, the more likely individual companies inside it will adopt solutions to outperform one another. The more monopolistic, oligopolistic, or regulatory capture in a space, the better it will be to integrate a solution vertically.
2. How much of the work in a space is automatable? The more work there is in a space that must continue to be done by humans, the better it is to be a vertical OS vs vertically integrated directly. That way, you’re building high-margin tooling and leaving the human-intensive tasks and management to your customers.

Our bet: vertically integrated life insurance

It is informative to explain the industry we’ve taken on and why we choose to be vertically integrated.

Life insurance companies are traditionally slow to adopt new technologies and unlikely to embrace full-scale, end-to-end automation, even when they purchase horizontal agentic point solutions. The industry has a deep regulatory moat, and even though the market is fragmented (in the United States, no single company holds more than 10%), it operates much like an oligopoly.

Despite their large workforces, life insurers are essentially data and technology companies. The majority of their activities are centered on white-collar, knowledge-based work.

Recognizing this, we saw the right opportunity to vertically integrate a solution, leveraging agentic AI, to transform the industry (and also a generational opportunity for digital money to enter the market).

Our vision is to build the world's largest life insurer as measured by customer count, annual premiums sold, and total assets under management. We are a tech-first, vertically integrated insurance and reinsurance stack. Our secondary goal is to achieve the lowest combined ratio globally (a measure of cost structure) while also operating with a workforce three orders of magnitude smaller than the largest incumbents (hundreds of employees instead of hundreds of thousands).

Nevertheless, we plan to collaborate with life insurance agents and other embedded distribution partners because life insurance agencies are both highly competitive and fragmented spaces that are very human and relationship-driven. We plan to develop tools that empower these partners.

Ultimately, we have launched a fully operational life insurance company. We are regulated and licensed in Bermuda — the insurance capital of the world, a jurisdiction known for its stringent regulatory standards for life insurers. We have the exact requirements as any other life insurer, including actuarial modeling and reserving, capital calculations, underwriting, investments, customer service, claims, know-your-customer and anti-money laundering compliance, risk management, (internal and external) audit, and much more.

We manage all this with just eight people through homegrown software and automation. We have also developed customized AI agents for four key roles: (1) reserving actuary, (2) sales/customer support, (3) underwriter, and (4) risk specialist (in the future, we plan to add a claims agent too) - however, more importantly, we have integrated these agents into automated workflows to handle the full spectrum of insurance operations.

Size of the prize

There is another, not particularly intuitive, seemly small advantage that I think makes a huge difference in building a company vertically: In any of the cases where you're selling something, software, agents, or "outcomes," you still need to build the software, agents, or outcomes to sufficient completeness and robustness that you can actually sell them. You still need a sales team and sales cycle to do B2B.

But if you are just doing the work yourself, the software can be used internally, and that is SO much faster and more flexible when building with a good team.

Suppose you're founding a startup or a new business unit today. In that case, you must ask yourself: Will fragmented incumbents dominate the space I’m attacking, or is this a once-in-a-lifetime decade to redefine it?

If incumbents are likely to maintain their dominance, focus on building the operating system that powers the industry. This can be a highly profitable business with significant margins to capture.

However, if there is an opportunity to create a vertically integrated solution, seize it. The work may be more challenging — you will have to slog through rugged terrain; that’s why the space is defensible. In our case, life insurance and annuity premiums account for 3% of the world’s GDP. The market capitalizations of the largest public life insurers are over $100 billion. Our aim is significantly higher. Yours can be, too.

[1] Marc Andreessen recently said, “Are all those {AI} companies actually in a race to the bottom in which it turns out that selling intelligence is like selling rice?” If intelligence is rice, you have to make paella or risotto — somewhat challenging to cook, with a lot of other ingredients. Andressen was talking about the big model providers like OpenAI, Anthropic, and Google, but I think it applies equally well to the next level of horizontal intelligence — the accountant agent or the SDR agent.

As an entrepreneur, I think higher valuations are usually better. Or perhaps I should say lower dilution is better.

But I have learned my lesson on this a little bit. In my first startup, Standard Treasury, we were a relatively hot company coming out of YC in the summer of 2013. That was a mistake, likely, but there was buzz.[1] We chose a party round at a higher valuation ($15M) rather than an offer from Keith Rabois and Dana Stalder to split the round (at $8M) and join the board. We might have still failed, but we were young, and they likely would have helped. 

At Meanwhile, we optimized for slightly different things as we mostly wanted to be left alone but we did take the lower seed round valuation offer. Sam Altman and Lachy Groom offered to do our first seed of $7M on $28M. We had offers at $35M, and I bet we could have pushed it even higher with others. However, Sam and Lachy stuck to that price; they wouldn't go higher. We knew they would be easy to work with, so we went with them (we didn't know that Sam would become such a master of the universe at the time). 

However, today, I have gained a new appreciation for the entry price and its implications for investors, and I now understand why Sam and Lachy stuck firm on valuation. 

I have made seven angel investments (or so I can recall): two unicorns (Astranis, Bridge), three who have done a series A (Griffin, Kettle, and Juniper), one zombie, and one acquisition/merger (Compound). These are all tiny investments. So small folks shouldn’t have said yes! 

I have no special knowledge and have gotten no confirmation on the deal, but let’s assume for a moment that Bridge is being bought for $1.1B by Stripe. 

I invested $7.5k at a $40M post in their seed. Public reports are that they then raised a $40M Series A at a $200M valuation. Let’s assume that I’ve taken a thirty percent dilution. 

This means something like 

$7500 investment /40,000,000 valuation * .7 dilution * 1,100,000,000 exit valuation == $144k or a 19X return.

But now let’s look at Astranis. I invested $1,000 (Thanks, John! Though I may have been the first or second check[2]) at a $7,000,000 valuation. Their most recent announced valuation was said to be $1.6B.

I don't know the actual dilution; I don't have a lot of visibility with that check size! But let’s assume 30% from the Series A and Series B and then 20% from the Series C (publicly reported at $250M on $1.4B) and 15% from the Series D (publicly reported at $200M on $1.6B): 

$1027[3] investment /7,000,000 valuation *.7*.7*.8*0.85 dilution * 1,600,000,000 current valuation = $78k or a 78x return, though I hope that will be even more! 

Even if we rolled back the last two rounds and set the valuation equal to Bridge: 

$1027/7,000,000*.7*.7*1,100,000,000 = $79k

Entry price matters, even with a lot more dilution. 

I'm still going to push for the higher valuations when I can of course. 

[1] At the time, YC companies pitched to their batch twice: prototype day and rehearsal day. After those pitches at the time, the whole batch voted on who they would invest in if they could — we won both votes. This was an absurd outcome and a testament to my ability to pitch over business rationality. Congratulations to the real winners of the batch: Doordash, Casetext, Webflow, and others.

[2] John and I knew each other from that S13 YC batch. He spent a few years thinking about building software businesses, a la Elon Musk with Zip2 and Paypal, and for years I was telling him he should build a satellite company. Thank goodness he did. 

[3] A time before SAFEs, this was a convertible note, so I got some interest. 

In 2013, the Bank of England revealed a decision to encourage new banks to start in their banking market. The goal was to introduce competition into the industry and respond to consumer demands for greater transparency and better services.

In contrast to the United States, there were very few banks in the United Kingdom during the financial crisis. Their regulatory thinking was that the crisis was the result of light-touch financial regulation and misaligned incentives. Once the crisis hit, the impact was made much worse because of the concentrated market. The banks were "too big to fail". This result of this oligopolistic market and they wanted to encourage more banks to create a more stable system in the future.

The landmark new rules by the Bank’s Prudential Regulation Authority (PRA) stipulated a simplified two-step process for setting up new banks called “Option B”.

I frequently find that the financial technology community here in the United States is only vaguely aware of the new challenger banks in the UK, what they are doing, and the lessons to be drawn. Given that my partner Dan and I spend some of our time and capital investment in the UK, we have been tracking them quite closely. The purpose of this post is to give an overview of some of the new banks, how they are approaching the market and their innovations.

The new banks have many implications for the continually growing fintech market in the UK and point the direction for some of the innovations we hope to see in the United States if new technology-first banks are ever chartered (For example, I’m hopeful for Varo and some other unannounced new banks in the US).

The new age of banking

With the change in the rules, the regulation enabled the authorization of more than a dozen new banks between 2013 and 2016, which has led to a visible change in the market. About 8 or 10 new banks are basically savings-and-loans companies targeting older people who have a lot of savings (e.g. Oak North, Paragon, Charter Court, etc). They raise fix-term deposits competing solely on price and then lend into interesting niche markets.

Then there are a few banks really focussed on transactional accounts, targeting millennials via a smartphone app. These are a new breed of banks: built for a mobile, primarily millennial, market and designed for customer service and user experience. Their offering includes personalized products and intelligent services that are accessible at the touch of a button, and genuinely useful to users.

The Bank of England noted the positive impact and innovation of these new banks, "whether it be the service they provide, the customers they target, the products they sell or the technology they use." These new banks were able to avoid the legacy brand and technology debt of established institutions. Untarnished by the financial crash and negative consumer perception, they were able to start afresh from both a reputational and technological standpoint.

The banks have designed a delivery strategy that centered around consumer expectations, and purpose-built their technological infrastructures from scratch (or at least their user experiences and user interfaces). They provide an entirely digital banking experience, which saves them the costs of maintaining inefficient legacy systems and expensive brick and mortar branches.

Not only do they deliver powerful capabilities like spending analytics, instant transfers and overdrafts, and intelligent money management, they do so in a way that’s intuitive, visual and immensely user-friendly.

Who are some of the challengers?

I’m going to go over who I think are the five most interesting new entrants to the market.

There are four new digital-first consumer banks -- Monzo, Starling, Tandem, and Atom banks. At the highest level, it's interesting to compare and contrast here. Monzo and Starling build core systems from scratch and were able to launch current accounts relatively early. Atom and Tandem chose to outsource, which appears to have slowed down their product launches. Monzo, Starling, and Tandem are all aiming to be "transactional hubs", while Atom is savings-and-loans.

The fifth bank is ClearBank, which is the first new clearing bank in the UK in more than two centuries.

1. Monzo: a focus on user acquisition and growth in consumer accounts

Arguably the most trendy of the digital-only challengers, Monzo is designed for “people who live life on their mobiles” and targeted to millennials: half of its users are under 30, and a further quarter are under 40.

Monzo was launched in 2015 and made history with its first round of crowdfunding in March 2016: the company raised £1m in 96 seconds, the fastest crowdfunding campaign ever. In 2017, it received another £71m in funding and was granted its full banking license. As of December 2017, it had almost half a million UK customers, who have spent more than £800m on the platform. They recently passported to Ireland as well.

Monzo’s offering is a current account with a contactless debit card and a mobile banking app. They started their offering with a bank account (originally just a prepaid card built on someone else’s infrastructure) and are now working on ways to monetize their customer base through lending products and cross-selling.

Users don’t receive interest, there’s no cash incentive or offer to join, and although it offers attractive savings on spending abroad, as Monzo’s CEO and Founder Tom Blomfield acknowledges, “For something like 90% of our customers, the free foreign exchange is nice, but they might go on holiday once or twice a year”. So, what’s driving all the user acquisition: as Blomfield points out, it is not about the tangible offering. It’s about “the feeling of visibility and control”. The app’s standout features include intelligent spending notifications, real-time balance updates, and clear, dynamic budgeting and financial management.

2. Starling: searching for a niche

Like Monzo, Starling Bank specializes in current accounts. Like Monzo, it’s built for the “millions of people who live their lives on their mobile phone”. The similarities are undeniable - and they’re not incidental.

Founded in 2014 by Anne Boden, the former chief operating officer of Allied Irish Bank, Starling went through a major management change in 2015/6 when members of the founding team left to set up rival Monzo.This included former Starling CTO, and current Monzo CEO, Tom Blomfield.

Harald McPike, an American quantitative trader, agreed to a tiered fundraise with Starling from their earliest days. A year after the major management change, the company received its banking license and the bulk of the $70 million in funding from McPike. The bank received a restricted license in July 2016 and started allowing current accounts in March 2017. In 2017, it also announced the expansion to Ireland.

Despite similarities with Monzo, Starling claims to offers a different focus and unique value proposition: personalized services with intelligent analytics. In addition to consumer current accounts, they are testing the waters on a number of other products, including a business current account. They’re partnering with lots of early-stage financial technology companies, and working on credit card processing to compete with the likes of Stripe (and potentially mirror Chase Paymentech at scale). All of this would be impressive but it seems to have led to relatively little customer uptake --  I've yet to meet someone who actually has a Starling account whereas I see Monzo cards everywhere in London.

3. Atom Bank: focused on savings and mortgage without a current account

Atom Bank was the first of the digital-only banks to start offering products.

Atom Bank was founded by Anthony Thomson, who also launched Metro Bank, the first high street bank in a century when it opened six years ago. Atom was authorized to take customer deposits in November 2015 and launched in full offering and mobile app after the lifting of regulatory restrictions in 2016. The challenger is backed by the veteran City investor Neil Woodford while Spanish bank BBVA has a 29.9% stake.

Atom’s first products were a one-year fixed saver offering an interest rate of 2% and a two-year savings product with a 2.2% rate. In 2017, it announced it was suspending the planned launch of current (i.e. checking) accounts for at least a year. Their decision to postpone the checking accounts was because of high growth in the savings and mortgage products (and because of IT problems with their outsourced core banking system supplier) despite the lack of a checking account.

Their big investment in brand, early marketing (the "AI future of banking") and channel (primarily through a smartphone app) is totally at odds with their main product -- a fixed term savings account. They're much more like the other savings-and-loans banks like OakNorth and Paragon. Their biggest depositors will be 55+ years old, but all their marketing choices seem like they're going after young people.

This raises interesting questions about whether a checking product is necessary for a consumer bank or whether it can offer a more a la carte menu without it, and focus (like many non-bank financial technology companies) on offering a niche, focused product, although with a cheaper cost of capital off the balance sheet. I find the approach pretty interesting: raise a lot of money and start lending immediately, making your business stable without necessarily having to worry about acquiring massive amounts of customer deposits.

Later last year, it partnered with Deposit Solutions to offer retail deposits in Germany.

4. Tandem: smart savings

Although less well established than its rival Monzo, Tandem bank is designed with similar goals in mind:  to help users manage their finances and save money in an easy and intuitive way.

Tandem was founded in 2013 and received its license in 2015, becoming the second digital-only bank after Atom Bank to get approval from the UK financial authorities. In 2017, Tandem lost their banking license due to the collapse of a deal that would have seen them gain £29 million in funding, and regained it in early 2018, after taking over Harrods Bank.

Ricky Knox, Tandem’s CEO, claims that the app’s aim is designed to find ways for users to save money on services and providers, and “ figure out how we can get you a better deal on all the stuff you're buying, whether it's your utility bill, whether it’s a credit card or your mobile bill.”

According to Knox, Tandem is different as it is “not designed for finance geeks” but for people "who are a bit rubbish with their money and can’t be bothered to spend Saturday afternoon budgeting.”

The company’s products reflect this. A bare-bones approach means that their app and credit card are simple to use and conditions are transparently presented. In early 2018, Tandem launched the credit card, which offers holders 0.5% cashback on purchases above £1 and access to borrowing services. As with Monzo, a part of the card’s appeal is the fact that it doesn’t charge fees abroad.

Unlike its competitors, Tandem’s app doesn’t just track spending on its own card. Instead, users can add any bank account on to an app that lets users track their spending, gives them updates on their bills, and enables them to switch service-providers if a better deal exists elsewhere.

5. ClearBank: UK’s first new clearing bank in 250 years

The UK’s first new clearing back in 250 years is the new venture of Nick Ogden, founder and former CEO of WorldPay. The bank was set up in 2015 with an investment of £25 million from PPF Group and CFFI Ventures in addition to investments from the founding management team. The bank was granted a license at the end of 2016 and launched in 2017.

ClearBank does not offer retail banking services. It is a bank for banks and (FCA-regulated) financial technology companies, offering open access to payment, current account, and transactional clearing services for all UK Financial service organizations including both incumbent and challenger banks.

ClearBank claims that “the improved efficiency delivered by [its] built-for-purpose technology” can save users £2-3 billion on their transactional banking, annually. It has a custom-built, integrated core banking system, known as ClearBank Core, and APIs that allow it to offer services free from the constraints of legacy technology.

What lessons do we learn from these and other challenge banks?

1. A mobile market: banking branchless

It’s no surprise these neobanks choose to operate on a digital-only platform and mobile-focused approach. They’re building their platforms to capitalize on a seismic market shift from banking at branches to banking through digital channels. The British Bankers Association (BBA) reported 19.6 million U.K. consumers used banking apps in 2017, an 11 percent increase from 2016. These numbers are set to reach 32.6 million by 2020. In addition, the use of banking apps rose 356% between 2012 and 2017, as a result of customers using apps more frequently, and for a greater number of transactions and tasks.

Prior usage for banking apps had focused on simply checking balance and bills, while as of 2017, 62% of U.K. adults prefer to conduct all of their banking activity online instead of at a branch.

2. Digital delivery: built for a better consumer experience

Monzo CEO Tom Blomfeld is candid about the philosophy behind Monzo’s intuitive design and user interface: “[Monzo is] built for the way we live today… it’s an app that’s designed in the same way that WhatsApp, Citymapper, Uber and Amazon are. It just works the way they expect” Atom Bank has a similar design philosophy, promising to make banking “easier, intuitive and there whenever you need it, all on your mobile.”

Like most in-demand apps, Monzo, Atom Banks, and other digital banks have designed their delivery channels with customer engagement and seamless user experience in mind.

Their front-end interfaces are designed to be intuitive, enhancing both functionality and usability.

Opening bank accounts in the United Kingdom has historically been very difficult. Unless you're dealing with Metro Bank it can take weeks to get an appointment (to open a current account, say), and then you have to present tons of paperwork and spend hours getting grilled by bankers. Business current accounts are even worse - generally takes months to open an account.

By contrast, you can open a challenger account in about five minutes on your phone and get a debit card in the mail a week later. The degree to which customer experience is awful really inspires a potent distaste for banks and bankers here and young people want something new.

The intuitive interface bely the complexity of powerful back-end platforms that offer artificial intelligence layering, predictive analytics, cash flow forecasting, biometric security, and open API integrations. The focus on user interfaces and consumer experiences are certainly paying off: these digital-only newcomers outperform traditional banks in customer service, customer loyalty, and referrals.

3. Leaving behind legacy architectures: the advantages of modern software development methodologies

As challenger banks are the first to acknowledge, it’s their lack of legacy architecture that allows them to deliver their innovative technology and customer-centric approach. According to Stewart Bromley, Atom Bank COO, big banks have “tied themselves up in knots” with their sprawling, often patchwork technological structures. He notes that “The technology [big banks] use is typically 50 to 60 years old, and that in itself is a massive inhibitor to changing anything.”

Nick Ogden, ClearBank Executive Chairman, echoes this concern. He believes “the industry will never truly move forward while it’s constrained by the challenges of legacy operational structures” Banks typically spend 80% of their IT budgets on maintaining outdated, inefficient, and aging systems, as opposed to investing in innovation, which gives a real opportunity

When banks do innovate or make expensive updates in order to meet regulatory requirements, they usually add more technology to their stack, further adding to the complexity of the outdated systems they will one day need to replace. As Bromley points out, “Most banks have layered technology onto technology onto technology, [making it] very difficult for them to move off of those legacy platforms.”

Due to the sheer volume of customers at big banks and their huge bureaucracies, it is difficult for these institutions to make disruptive changes to their technology environments, which can take as long as 18 months.

With legacy-free modern architectures that are already modular digital-only banks have been built like startups. They’re are designed for innovation, with agile operating models and technical architectures in place for rapid scaling.This allows them to choose a niche in the value chain to specialize and excel in while integrating offerings and data from third parties.

4. Open platforms and marketplaces

Starling, for example, is emphatic about its chosen niche: “current accounts - nothing else”, according to Anne Boden. “We are going to give the best current account in the world, and when they want the best mortgage in the world we are going to offer it, but through somebody else, not us". This vision is made manifest in Starling’s Marketplace platform.

Monzo takes a similar approach, writing that “the bank of the future is a marketplace”. By offering APIs that allow partners and third parties to integrate their services within the Monzo app, it’s positioning itself to capitalize on that future.

An open approach is clearly supported by consumer demand: as of 2017, 39% of customers are willing to share financial data in order to receive benefits such as an integrated view of all their accounts, and tailored offerings from third-party providers.

Platforms and marketplaces also face uncertain monetization paths, as no one has quite figured out the right path to sustaining revenue in the space.

The challenges faced by challenger banks

Ultimately, the success of the challenger banking model depends on the trust banks are able to build with their customers. Challenger banks are quick to empathize with and address consumers loss of trust and dissatisfaction with big banking: it’s what helped build their business model and brand position.

Their brand philosophy is built on the insistence that they’re not like those banks.They’re making a fresh start.

Monzo, addresses the issue head-on, acknowledging that “banking has been obtuse, complex and opaque” and that they aim to be radically different and “build a new kind of bank.” Anne Boden of Starling is a little blunter: “banking is broken… and the only way to fix it is to start from scratch.”

However, when it comes to the question of storing, sharing, and securing highly sensitive personal and financial data, these new banks face a greater disadvantage than established institutions. While starting from scratch may mean a fresh beginning, this lack of legacy proves a double-edged sword for these revolutionary new banks.

Although established banks are mired in the morass of their reputational and technological legacies, they also have centuries of history, billions of capital, and lifetime relationships with millions of legacy customers: before the introduction of a switching service in 2013, consumers would, on average, stay with ‘their’ bank for 17 years. Even with the switching service, very few customers switch their primary banking relationship every year.

Challenger banks lack history, trust, and the loyalty of customers -- critical factors that take a long time to develop. This means that despite the meteoric rise of the challengers, established banks still dominate the market today. For example, although Starling and Monzo both specialize in current accounts- with arguably better service and delivery - more than 80% of the UK current accounts market is ‘owned’ by the five big banks: Lloyds, Barclays, HSBC, the UK arm of Santander and Royal Bank of Scotland. It not clear how much that is changing -- I have been unable to find any data on how well the challenges have done in getting people to use them a primary checking account rather than as something to try on the side or only use for particular value like free foreign ATM withdrawals. (Simple.com ran into the same problem in the US -- many people signed up for novelty, not to replace their primary bank relationship).

Challenger banks will need to demonstrate sustained long-term growth, prove that their technologies are secure, remain committed to their current level of service and innovation, and, by the way, prove they can get real revenue. Many are focused on low-value customers and they need to prove out how their customer value will grow over time (and the impact that interest rates will have on their businesses). Challenger banks also struggle to acquire and build awareness with customers, and typically lack the capital required to build brand visibility or incentivize acquisition with loss-making offers.

In addition, like with any entrepreneurial venture and emergent business model, there are no guarantees. As Tom Blomfield acknowledges, “The investors who put their money in Monzo know they’re taking a big risk for an outsized return. But - there’s a really big chance you’ll lose everything.”

That thought is one that venture investors are quite comfortable with, but when it comes to where consumer put their money, it can be a challenge even though the Financial Services Compensation Scheme protects every dollar.

The future of finance: APIs and the move to Open Banking

Having said that all banks can no longer delay major reform of legacy architectures. Financial services in the United Kingdom as an industry is fast moving towards an increasingly open structure and API-based modular architectures as it evolves to meet consumer demands for a personalized, integrated, and seamless customer experiences.

In 2018, two key pieces of regulation come into effect that will mandate banks to make the move to “opening” their APIs to third parties. Open Banking rules have forced the UK’s nine largest banks to open APIs to share their data with licensed startups. While the Second Payment Services Directive (PSD2) will require all banks to allow third parties access to their payments infrastructure and customer data assets by opening their APIs.

To me, the future of challenger banks is uncertain in the United Kingdom. The market becoming more open is great -- and will allow more financial innovation. Customers historically have not switched primary banks at all easily, the 2003 attempts to promote bank switching in the UK - including allowing customers to port their routing and account numbers to new banks, achieved very little. Almost no one switched. So, the more focus these banks on lending and payment products, the better. Getting people to switch their primary checking account has proven very difficult.

Having said that, as the majority of these banks are now licensed, they’re attractive targets for partnerships, investments, and acquisitions. Investments by legacy banks, like BBVA with Atom, are likely to continue. As the financial services industry becomes more open, these challengers can attract many partners to their platform, and perhaps create lasting brands at the center of consumer’s financial lives.

(This article originally appeared as an op-ed in the Financial Times published Monday, April 15th). 

The writer is a partner at Deciens Capital, a venture capital firm focused on early stage financial technology

My recent thoughts on housing policy (Broken Promises: The Housing Market in San Francisco (And Ten Ideas to Fix It)) have gotten a big response — positive and negative — on Reddit, Hacker News, Twitter, and my email box.

This post comes from the frequent question: "what can be done, if anything?"

The political situation can be changed. Below I outlined how I believe there is a political majority for change, the three policies necessary to actually move the affordability needle, what to do in the next few months — vote in the June 7th primary for pro-housing candidates! — and what I think needs to be done to build a more permanent, structural change. That change likely starts with an in-person organizing meeting, sign up here or at the bottom this post to get more info in the future. 

The Unorganized Majority Wants To Address Affordability Through More Housing

Some have criticized me for being disconnected from the politics of San Francisco. I do not agree. Though you would be forgiven for disbelief after watching the Trump circus these many months, there are still some of us that believe politics should be about real policy. That isn’t to discount messaging, media, and all of that, but the fight is supposed to be about ideas.

There are many San Franciscans who want to solve the housing affordability problem, and create a more fair and functioning city. This problem has known, quantifiable solutions. I didn’t invent the solutions — they are composed of common sense approaches that have worked in other big cities. Some people, those that have been sucked into the San Francisco political dynamic as it exists today, consider these solutions politically unfeasible.[0]

I believe these people are wrong. This is a classic story in politics: of an entrenched, vocal, well-organized, and self-interested minority defeating an unorganized majority. Who is opposing this housing? Many activists opposing new housing are the very landowners that benefit from the resulting scarcity. These "housing activists" oppose housing, because they focus on affordability and neighborhood character so much that they curtail supply. It is difficult to overstate this. There is also an entire cadre of land use attorneys that specialize in opposition to housing projects of all shapes and sizes, dating back 20-30 years and even penetrating the ranks of the San Francisco Board of Supervisors. Rich homeowners are making San Francisco a gated community, some intentionally and some accidentally. The majority needs to take back San Francisco and make it affordable again.

And it is an unorganized majority: I’ve seen polling that 60% of adults in San Francisco would agree with a “Manhattanization” of the city if it meant solving the affordability crisis. The problem is that we aren’t voting: the number drops to the 40s amongst voters in the most recent election. The solution is simple: let’s get organized, let’s get out the vote, and let’s take San Francisco back from those that would continue down the road of an unequal and unjust city.

The Three Policies To Create Housing Affordability

There needs to be a concerted effort to pass at least three housing policies and those ideas need to be presented as a single, holistic package that is big and bold enough to solve the affordability problem. Of the ten ideas from my last post, these three get the most bang for the buck. 

One of the things I learned when working with city governments early in my career was that sometimes bigger policy ideas are easier to get done than smaller ones. It's just easier to sell the bigger dream that’s right than the smaller, incremental one. This fact is because big ideas can plausibly solve big problems.[1] So, I try think about the truly desired world and figure out how to fight for that.

The three easy-to-explain ideas that together are significant enough to largely end the housing affordability problem[2]:

1. As-of-right zoning. We've spent dozens of years and millions of dollars formulating community zoning plans throughout the city, with intense outreach and engagement efforts, only to have those very plans challenged and re-opened when finally approved and/or enacted. Let’s end that process and allow people to build when it complies with the zoning already in effect.

2. Build a taller city by upzoning for more height.

3. Allow for the creation of more units by lowering or eliminating density limits. This is not about unlimited expansion of the building envelope but rather about encouraging more smaller units. (Sometimes called form-based zoning).

Near Term: Vote For Housing June 6th

When I talk to my friends, who live across the ethnic and socio-demographic profile of the City, they are disengaged and discouraged. “Things are screwed up” they say, or “politics is broken”. These people actually do care, want a diverse and affordable city, but don’t know what to do.

I want to change that.

Let’s start by voting in this June's SF election. Click here to see who to vote for. Tell a friend who agrees with you to vote.

Also, there are many organizations investing and fighting for big and small policy changes in housing — SPUR, SFHAC, SFYIMBY, GrowSF and SFBARF are amazing. I’d suggest joining at least one of them. 

Long Term: Creating Structural Change

A repeated, proactive, planned narrative, will animate voters clearly. It would be a single campaign with a clear message: make housing affordable.

The BMR debate, the density bonus, inclusionary targets, etc, none of it means anything to a normal person and none of it is going to move the affordability needle. Worse still, pro-housing advocates always seems to be responding rather than pushing policies forward.

We need to integrate the short-term, small stuff into a larger singular movement toward a big change. Above there are three big (simple) ideas that can actually solve the massive housing problems facing San Francisco. We need to start fighting for the big things we believe in rather than playing defense against anti-housing, anti-affordability forces. 

I’ve begun some of these conversations and am starting to clearly see the political and campaign path forward.[3] I’d like your help in putting together a plan, organizing around one narrative, one campaign, one moment, one set of things to remember that we believe is big enough to solve the affordability problem — that’s the only way to make others people believe it too.

So let’s get organized. Let's raise money. Let's knock on doors. Let's change things for the better in San Francisco. 

Who’s in?

I’m serious, shoot me an email or sign-up here.

ENDNOTES

[0] The political machine makes them unfeasible. The real, underlying story here, is that the "Moderate" forces in the city are shockingly unorganized. Self-admittedly so. The "Progressives" really do meet in dark rooms, conspire, get organized, make plans, and stay on collective message. The "Progressives" are a real machine, corrupted toward their own goals over the needs or desires of the city-at-large and they even have the villainous Boss Peskin, and his well-known intimidation tactics.  

[1] We need a lot of housing. Even if Mayor Lee's policies got us his 30,000 (wait, some of that is refurbished, right?), that's a big number, but it is not big enough. Mayor Lee's efforts, although admirable, always seem to have a shoulder shrugging: “it's as big as we can get. It will help. But this is beyond anyone’s capacity to solve (politically).”

[2] There are a range of other problems and ideas too. There is everything I wrote about in my last post and more. Some ideas apply to just San Francisco, my current focus, other apply to the entire Bay Area or to all of California. For example, local and state regs (CEQA and others) that actually enable virtually endless challenges and expansive definitions of "environmental impact", affecting privately and publicly funded projects. There is prop 13, as some commentary on HN pointed out. But, despite the multitude of problems and potential solutions, I believe these three policies would get us very far in San Francisco.

[3] Perhaps for obvious reasons, I don’t think sharing all the details publicly is wise. It requires people and money, though, so I could use your help. 

Almost everyone who visits San Francisco falls in love with it. People love the character of the city. To me, that spirit isn’t contained in the way the buildings look or even the beauty of the Bay. The city’s greatness comes from its diversity and its attitude. It’s the combination of the collection of people here and the space provided to be weird, to be different, and to be experimental.

When I talk to my friends and acquaintances throughout the community, though, people feel like something is off these days. My recent blog post on housing policy seemed to hit a nerve for many. I was surprised about the people who reached out to me who didn’t care much about the specifics of the housing policies. They were more interested in chatting about the first few sections, where I talk about the type of city I want: multicultural and economically diverse. I believe in Cities for Everyone and fighting for the policies that make that possible.

We all want a fair and functioning city. We don’t have one now. Between housing costs, school quality, and underperforming public services, it is starting to feel like the city is slipping away.

What I have the hardest trouble understanding, though, is the folks in San Francisco who seems more interested in dividing people into factions. Some people want to make it tech vs. the rest. Others want to divide us into the business community vs. the incompetent who don’t get it.  We have a chattering political class that talks about problems and points fingers, rather than bringing us together to solve very real problems. They seem to confuse activity with accomplishment.

I believe the tech founder and the teacher, the doorman and the designer, and most every San Franciscan believe in the same things: an affordable city, a diverse set of jobs and an education system that makes it possible to attain them, and the wise use of public funds.

I know what’s it’s like for many in the City, my single Dad and I struggled to make ends meet when I was growing up, even with the help of things like free school lunch and other programs. He was on-and-off unemployment until recently. I got lucky, I tested into a great public high school, and went on to a great university. But you shouldn’t have to get lucky. I’ve spent my career trying to address the problems I’ve seen: human trafficking in Rhode Island, improving public services in New York City and Newark, NJ, and taking on the financial system at Standard Treasury.

I’ve always been the squeaky wheel, the argumentative one, the one whose elementary school teachers told me I should be a lawyer, even when no one in my neighborhood knew any. And I have found some measure of success built on my personal mission to combine a passion for the serving the public and that fight in myself.

I built and sold a company targeting the rot I saw in the financial system, and I hope to continue to focus (at least my writing and my free time) on targeting the problems I see in San Francisco, building community, togetherness, and a shared focus on fixing problems and not just talking about them.

Got a problem? Come tell me. Maybe we can figure out how to make the city fix it. I am the first to admit that I have a lot to learn. If you’re reading this post, and care about what I’m talking about, I’d love to meet with you to chat. Coffee or tea is on me. Shoot me an email by taking the first letter of my first name (z) adding it to my last name (townsend) at Gmail.