Investment Themes in a Populist Era

Investment Themes in a Populist Era

Beyond simply looking at technology sectors and trends, a long term investment thesis should incorporate the zeitgeist of our time and sociopolitical trends, as these things are all inextricably linked. Macro investors like Ray Dalio have pointed out a growing sentiment towards populism while this debt/business cycle comes to an end in parallel. The combination of these events will likely spark major systematic change over the next decade. There’s no doubt that populism is on the rise globally, from Brexit to Italy, to Brazil to France, and of course the U.S. Both sides of the political spectrum are running on more and more populist-based platforms, and this will only continue to culminate.

Without getting too political here, many factors and causes have led up to this point but the outcome has been a fundamental mistrust in financial systems and governments. Trust in a variety of institutions (government, media, banks) is at lows. Centralized systems necessitate an enormous amount of trust and the pendulum is swinging away from this model, or at the very least being seriously questioned.

Populism comes with a lot of baggage, regardless of which type it is. While some the intentions seem to be directionally good, most of the substance and details are foggy at best. There’s often very little sense of pragmatism or implementation, largely emotional appeal and hyperbole. However, this doesn’t mean that positive change won’t also come about in the end when real solutions come to the table through the fog. Since these populist platforms are far less structured and often tread new grounds, there is a lot of room for innovation and building new infrastructure, although it comes with its own big risks and volatility, a sort of Darwinism and creative destruction are at play.

The question becomes, what will the new infrastructure look like in 10–15 years? The answer to this will be a massive opportunity. From a technology perspective, we’re already seeing some these new foundations and/or business models starting to be built (e.g. Bitcoin, Ethereum, Coinbase, Robinhood, Square, Airbnb, Stripe, Uber, Lyft, etc) as well as a strong onus on open-source software movements.

In China, we have not seen any substantial populist uprising in this generation, but certainly a lot of underground and localized development of technologies and creative ways to combat “the great firewall” and government overreach. China’s major centralization, fueled by its Communist party, will likely reach a tipping point in the next 5 to 10 years as things like the social credit system become increasingly authoritarian. This is also something to think about in parallel.

What’s clear is the theme of decentralization is consistent with all the various flavors of populism. This can mean different things to different people however, so there are a variety of solutions to the issues being surfaced (some are perhaps just purely political but some can be solved with new tech systems and innovation). To a lesser extent, disintermediation is a theme, which perhaps only resonates with certain types of populism. But at the center of it all is trust. Think of alternative systems and models that don’t rely on so much third-party trust. It seems technologies like blockchain and distributed computing are helping define foundations for an automation of sorts — one that is specifically concerned wherever trust is at the center (e.g. money, contracts).

We don’t believe it’s a coincidence that the recent theme of decentralization has simultaneously surfaced in both technology and politics. The advent of Bitcoin a decade ago post-financial crisis certainly invoked a strong type of populism that lacks a fundamental trust in parts of the existing system (namely the Federal Reserve and fractional reserve banking). So where are we going from here? How do you invest in this overarching change? Instability and change can be scary for many but it also breeds the biggest opportunities to be bold and pragmatic and make a difference.

It is not about literally investing in some kind of specific brand of populism, rather investing in impactful outcomes that are likely to be prompted and initiated by facets of populism.

We've brainstormed this rough list of general areas and/or use-cases that may apply to this theme:

  • Mainstream adoption of cryptocurrency. The future generations will live in an increasingly digital, hyper-connected, and ‘smaller’ world. Cryptocurrencies and blockchain-based networks are the new digital foundation to power this future and open up opportunities around the world.
  • Privacy-focused and censorship-resistant technologies. As stakes become greater in challenging the existing system, individual privacy becomes more crucial, especially in certain countries. Moreover, the big hacks and data breaches that have happened will continue to get worse. Privacy and security will generationally become a central theme.
  • Trustless systems with little-to-no third parties required. This is a specific kind of automation where trust is involved, and in removing glorified rent-seekers and middlemen. Products and startups will become more focused on the disintermediation of various trust-based services (e.g. banking, insurance, real estate) allowing not only for new liquidity opportunities, but for more inclusiveness and transparency.
  • Disrupting tech monopolies with open-source networks. Tech monopolies were historically beaten by grassroots open-source development (e.g. IBM for microprocessors in the 70s, Microsoft for operating systems in the 90s). Open-source crypto networks and distributed systems will disrupt the current big tech incumbents. This trend will continue (another example: open-source databases like Hadoop and MongoDB have already disrupted traditional relational databases like Oracle and SAP).
  • More crowdfunding opportunities. Opening investing options up for more non-accredited investors, allowing more people of all backgrounds to have skin in the game.
  • Moving away from advertising model dependency. Direct-to-consumer funding models and customized, perk-based subscriptions. Removing an intermediary and allowing content creators and viewers to connect and engage directly.
  • Healthcare technology. Models that allow for the disintermediation of middlemen and improve things like wait times and cost. Direct Primary Care (DPC) networks are the real future of modern healthcare.
  • Networks and apps that reward and monetize user engagement. Shared equity, digital asset rewards, and common interest incentives for being a participant/contributor in a network.
  • Alternative banking built for younger generations. Tech and platform-focused banking, new incentive/reward mechanisms, low/no fees, less bureaucracy, and lower barriers to entry. Offering equity to users.
  • More sharing/gig economy platforms. Putting buyers and sellers of fractional use goods and services directly in touch and not necessarily relying on a centralized party.
  • Digital ownership in property and real estate. New ways to buy and sell property that are more liquid (or previously illiquid), transparent, and accessible to more people. The tokenization / digitization of assets.
  • “Social Impact” models and investments. Business models such as donations to charities when you buy X product or investment platforms that curate for popular social causes.
  • More ways for users to monetize their online data. Voluntary systems that allow users to take back and own their data and online identity securely, along with ways to monetize this data.
  • Decentralized social media. Prioritizing free and open, user-feedback social networks instead of centralized content filtering and algorithms, which are vulnerable to censorship, politicization, and limit user reach.
  • Distributed data systems and decentralized storage. A better architecture to prevent many of the recent hacks (e.g. Equifax, Yahoo, Facebook, Quora, etc) where millions and millions of users’ information is leaked because of centralized, easily hackable databases with single points of failure.
  • Remote Work. Platforms like Turing that empower talented developers around the world to land the best jobs, have flexible work hours, as well as allowing employers (especially those in tech hubs) to find the best global talent for a fraction of the cost. This will take focus away from big city hubs — more people will leave major cities over the next 10 years. This also allows more time for creative endeavors, family, and participation in new incentive networks.
  • Online Course Ecosystems. Allowing anyone to take specialized courses for a fraction of the cost, as well as allowing teachers to start their own courses and sell them. Fixing the broken incentives in the current education system.

Although this list of potential investment areas is iterative, it is directionally where we would like Visary‘s fund allocation to go towards on a 5 to 10 year time horizon. We believe these pieces are coming together and that many of these areas are the biggest investment opportunities of this generation.