Founder Tourists | Better To Be Lucky | Redemption & Closure

Here are three stories that caught our eye this week:

1) Founder Tourists

Building a business from nothing takes a lot of blood, sweat, and tears.

Founders do this one of two ways: bootstrapping (self-funded) or by raising money.

Raising money from others — typically venture capital (VC) firms — is where founders get the big bucks.

Adam Neumann’s WeWork raised over $14.3 billion from Japanese investment firm Softbank alone. (WeWork just declared bankruptcy. Softbank lost pretty much everything. And reported a $6.2 billion loss this past quarter.)

Entrepreneurship is admirable. We applaud anyone taking a shot on themselves. Especially when the business is providing a needed service or is helping to make the world a better place.

But, not every entrepreneur does that. Especially not tech entrepreneurs.

There’s plenty that chase the narrative like Wall Street and the VC firms they’re trying to raise money from.

Longtime readers know we’ve written about narratives being the driver of stock prices.

In 2021, it was crypto. Last year, the narrative was cutting costs and reducing the workforce to improve profitability. This year is AI and weight loss drugs.

Unsurprisingly, founders are “switching” their business models to stay alive.

From the Wall Street Journal (emphasis added):

“In 2021, at the height of the investor frenzy for crypto startups, entrepreneur Chris Horne raised $2 million in seed funding for Filta, a marketplace on which customers could buy and sell custom nonfungible token face filters that could digitally augment their face, say, by adding cat whiskers or a block head. But by the time the company launched in late summer of 2022, enthusiasm for crypto had waned and Filta was faltering…

Horne is among a group of founders abandoning their crypto ambitions and shifting to start an AI company. Driven by the diverging fortunes of the respective sectors, founders are restructuring their startups and rewriting their pitches as they aim to capitalize on the mania over AI, according to interviews with roughly a dozen industry observers, including investors, entrepreneurs and analysts.

Robert Le, a crypto analyst at data provider PitchBook Data, said he first noticed crypto startups migrating to AI while compiling a crypto report this year. Several companies he wanted to include had, it turned out, morphed into AI companies.

Some investors and fellow entrepreneurs criticize a subset of these crypto founders for jumping ship to chase venture dollars. 

Pete Flint, a general partner at venture firm NFX, which targets AI and other sectors, said many crypto entrepreneurs moving to AI are committed to moving the technology forward, but there are some simply aiming to cash in on AI hype.

“I can’t fault anyone for pivoting into a new transformative technology,” said Paul Hsu, the founder and chief executive of crypto-focused venture firm Decasonic. “AI is here to stay. If you’re young and you’re striking out in crypto, of course you should do that pivot.”

Hsu said that of the 200 early-stage crypto founders that his firm reviews each week, nearly 20 will pivot from crypto to AI. 

Not long ago, crypto entrepreneurs could raise capital from investors with little more than a sketch of a business plan; today, it’s a different story. Global venture funding for crypto startups plummeted 86% to $1.75 billion in the third quarter from its peak in the first quarter of 2022, according to crypto data provider RootData.”

Most of these startups are unprofitable. So they need more VC dollars to survive.

No one is funding crypto anymore. So the only way to raise money is to pivot to the latest fad — AI.

So what did Horne pivot to in order to try and raise more money? Back to WSJ (emphasis added):

“Horne pivoted to the new hottest sector: artificial intelligence. He ditched the NFT idea, and this year relaunched Filta as a generative AI-powered digital pet, one that talks and can offer its owner emotional support. The technology behind his new company is OpenAI’s large language model, ChatGPT. And Horne is running his new Filta venture off the capital he raised for his original concept.”

We can’t blame Horne for pivoting to digital support pets. He’s just doing what he’s gotta do to cash in on the new narrative…

We just scoff at the VCs willing to give him money.

2) Better To Be Lucky Than Good

Randall Atkins is on the verge of being very lucky.

Atkins — a former Wall Street banker — bought an old coal mine outside Sheridan, Wyoming for $2 million back in 2011.

His goal was modest: Make a profit.

Atkins did just that. The coal mine still operates to this day.

But government researchers asked to run some tests for rare-earth elements a few years after his purchase.

Rare-earth elements aren’t really rare, per se. But they’re instrumental in the use of things like electric vehicles, semiconductors, defense tech, and wind turbines.

Turns out, Atkins’s mine might have rare-earth elements valued at $37 billion.

From the Wall Street Journal (emphasis added):

“When Atkins acquired the mine, he says he “didn’t know the difference between rare earths and rare coins.” When he got the test results, including some as recently as September, he says he was surprised and humbled: His sleepy mine contains what might be the largest so-called unconventional rare-earth deposit in the U.S., according to government researchers. 

At current market prices, it could be worth around $37 billion. 

Atkins’s company, Ramaco Resources, recently started extracting larger samples for more analysis. If the project proceeds as intended, it would be the first new rare-earths mine in the U.S. since 1952.

It is a heady expansion—and lofty mission—for a $620 million company whose main focus has been mining metallurgical coal, the kind used in steelmaking. And it could be personally fulfilling for Atkins, whose father built a global energy conglomerate before he became ensnared in a series of scandals, including Watergate.”

Ramaco Resources has shot up 80% over the past month.

What makes investors so giddy about Ramaco is more than just the potential value of the rare-earth elements in the ground.

It’s the idea that if the project proceeds and becomes a functional mine… it’ll be the first new rare-earths mine in the U.S. since 1952.

More from WSJ (emphasis added):

“In a move seen as retaliation against U.S. export restrictions, China recently limited the export of two minerals, gallium and germanium, which are used in semiconductors, missile systems and solar cells. Though not rare earths, gallium and germanium were also found in the samples tested at Atkins’s site in Wyoming. 

The U.S. consumed an annual average of 8,300 metric tons of rare-earth oxides in recent years, according to estimates from the U.S. Geological Survey. Ramaco and its third-party consultant estimate there are as much as around 1.1 million metric tons of rare-earth oxides in just over a quarter of the nearly 16,000 acres of land that comprise the site

Atkins is convinced his is the right strategy, given that the company is selling metallurgical coal for an average price of $184 per metric ton, while one of its rare earths goes for more than $1 million per metric ton. ‘We prefer going in that direction,’ he says.” 

The feasibility and development of Ramaco is important because China dominates rare-earth element production and refining. They control 60% of rare-earth element production. 91% of refining activity, 87% of oxide separation and 94% of magnet production, according to the Centre for European Policy Studies, or CEPS.

The U.S. and China continue to butt heads over several issues. Tensions are rising.

But China has the leverage over the U.S. in this category. And is holding it over the U.S.’s head.

It’s similar to the leverage Russia is holding over the European Union’s (EU) head with oil and natural gas.

Ramaco is the U.S.’s way to get some of that leverage back. Our guess is the U.S. will continue to fast-track these studies and eventual production.

Atkins never dreamed of getting this lucky. But we’d take luck over skill most days, too.

3) Redemption & Closure

To the victor go the spoils.

Porter Stansberry must feel elated.

Porter won his company back last month after a long and bloody battle with MarketWise’s board and executive management.

We wrote about Porter back in January. He lost out on over $100 million after getting backstabbed by some of his friends and business partners.

There were several press releases over the past few months. Some more incendiary than others.

From MarketWise’s press release back in August (emphasis added):

“The Board takes seriously our obligation to serve and protect the interests of MarketWise and all of its shareholders. As part of this responsibility, the Board engages with the Company’s shareholders and welcomes constructive feedback focused on maximizing shareholder value.

Our previous attempts to engage with Mr. Stansberry have been met with his disparaging statements about the Board, the Company, and management. The Board has made decisions with the best interests of all shareholders in mind. We are both concerned and dismayed that Mr. Stansberry continues to knowingly assert fabricated allegations.

We understand that some shareholders are frustrated. But we are beginning to see the benefits of the Company’s responsive actions with the recent stabilization in results...

CORRECTING MR. STANSBERRY’S FALSE AND SELF-INTERESTED STATEMENTS

While our priority is to focus on our business, we feel obligated to respond to Mr. Stansberry’s baseless allegations. He has made countless false assertions about the Company, which creates uncertainty among the Company’s shareholders, employees, customers, and other stakeholders.

We have had numerous private conversations with Mr. Stansberry to address his concerns and allegations, many of which he previously apologized for and retracted. Nonetheless, he continues to take harmful actions and publicly spread intentional misrepresentations and disparaging remarks about the Board, the Company, and management.”

Porter got a seat at the Board of Directors table two weeks later.

The tone started lightening up.

“‘Porter founded this business. His passion and creativity fueled it for decades,’ said Amber Mason, Chief Executive Officer of MarketWise. ‘I’m thrilled we’ve found a way to work together and tap into that passion and creativity again.’

Mr. Stansberry added, ‘I want to thank the entire Board of Directors who unanimously support my joining the Board. I have deep respect for Amber and am eager to work with her and the team to improve the Company’s results.’"

A month later, they nominated Porter as Chairman of the Board and Chief Executive Officer, effective immediately.

He proceeded to clean house. From the Press Release:

• “Amber Lee Mason has resigned as Chief Executive Officer of MarketWise and from the Board of Directors.

• Mark Gerhard and Riaan Hodgson, both members of the MarketWise Board of Directors, have resigned their positions, effective immediately.

• Marco Ferri, Chief Corporate Development Officer of MarketWise, was terminated without cause effective October 13, 2023. Mr. Ferri will remain with the Company as a consultant.

• The Company has announced that it will initiate an internal review of current operations with the intent to enhance alignment, improve efficiency, and increase cash flow and intrinsic value of the business.”

And decided to pay himself a massive dividend (emphasis added):

• “The Company announced a regular dividend to shareholders of Class A common stock of $0.01 per share. A comparable distribution of $0.01 per unit has also been approved to holders of MarketWise, LLC units. The dividend and distribution, which totals approximately $2.9 million in the aggregate, will be paid on January 25, 2024, to shareholders and unitholders of record as of December 25, 2023. At June 30, 2023, the Company had a cash balance of $187.0 million.

• Given the strong balance sheet of the Company, and after a capital allocation review, the Company also announced a special dividend to shareholders of Class A common stock of $0.15 per share. A comparable distribution of $0.15 per unit has also been approved to holders of MarketWise, LLC units. The dividend and distribution, which totals approximately $50 million in the aggregate, will be paid on December 1, 2023, to shareholders and unitholders of record as of November 10, 2023.”

Savage.

But Porter didn’t gloat. He didn’t continue on his rhetoric rampage about how he was wronged. His press release comment was quite amicable:

“I’m grateful to our shareholders and the board members who asked me to come back and resume leading the company. MarketWise is an incredible business. It has a long history of performing for its subscribers and its shareholders. I am confident that, working with our talented teams, we can improve the company's financial performance, while building out great new products for our subscribers.”

Best of all… shareholders are loving it. MarketWise broke out to a new 52-week high.

Now that’s redemption.

Good investing,

Lance