Previously:
In critically acclaimed television series The Wire, there are two primary characters that represent two distinct generations. And one scene perfectly captures all of their differences. Avon Barksdale and Marlo Stanfield are both kingpin drug dealers. Avon is an old school kingpin with a strong sense of principles despite his corrupt line of work. He invests in his community by financing local gyms and performing random acts of kindness for the kids. He has a level of charisma that affords him respect usually paid to political leaders. Even some of the law enforcement guys develop a liking for him. In one episode, some members of his crew shoot at a rival dealer on a Sunday during a church service. When Avon hears about it, he expresses a fatherly disappointment, as if though his young gunners’ moral failure was a reflection of his failure as a leader.
Yes, Avon is a criminal who floods the street with dope - but he conducts himself in a respectable, gentlemanly manner. He’s a ruthless man with a big heart; a living, breathing, walking paradox. Avon goes to war in order to preserve the peace. Marlo is a young, modern kingpin with no sense of morality; absolute expansion is his life compass, and he will take off as many heads as necessary to achieve it. Bloodshed is his love language; he finds peace in war. In Season 5, Episode 2, “More With Less”, Marlo and Avon come face to face, a rare occurrence. Avon is behind bars and Marlo is taking advantage of his absence on the streets. Eventually, Marlo runs into a problem while trying to cut out middlemen and improve the margins on his product. Word on the street gets to Avon, and Marlo pays him a visit to negotiate terms. When Marlo walks into the prison facility, the guard tells him “Number two”, both directing him to the second booth to talk to Avon and signaling to the viewer that Marlo is still second in rank to Avon, regardless of Avon’s imprisonment. The conversation is controlled by the older man and his quick wit. Over the course of two minutes, he asserts himself as an “authority figure”, dropping lines like “you gotta go through me first” and “let me help you find your tongue”, flawlessly flowing in and out between cold dominance and warm humor. Marlo on the other hand, shows his youth, and by the middle of the scene, he looks more like a student listening to an interesting professor than a rival dealer. At the end of the three minute clip, an agreement is reached to pay Avon $100,000 in order to cut a middleman out of the loop.  Beautiful things happen when two different generations unite for a common purpose. The older generation brings wisdom, patience, and human understanding to the table. They have reverence for institutions while acknowledging change is inevitable, and possess a sense of timing that only comes with deep experience. The younger generation brings scrappiness, a sense of urgency, and execution. Endless energy and tenacity that, when combined with the wisdom of old, can be lethal.
Professor Edwin Burton has spent equal parts of his career in academia and Wall Street. He was a Senior VP at Smith Barney, President of Rothschild Financial Services, and an alternative investments consultant at Lehman Brothers. He was the longest serving trustee of the Virginia Retirement System (VRS) and served as Chairman of the VRS from 1997 to 2001. Burton was also an Economics professor at Cornell for 11 years and has been a professor at the University of Virginia for more than 30 years. We consulted Prof. Burton to make sure we weren’t insane.
It’s important to note, neither us nor Burton are anti-private markets… Quite the opposite, actually. We’re just against bad incentives and blatant inefficiency. The problem with problems is that they represent the epitome of incompletion. Nothing so quite offensive to human dignity than highlighting injustices without bringing along a solution or two to sweeten the lemon. The problem we’ve previously identified is two-fold:
For this double-headed monster, we need a two edged sword sharp enough to cut through the noise and restore justice in full force. But before any random acts of violence take place, let’s talk about why war is important. The first American cars were purchased almost ten years before Ford’s Model T. In 1899, Adolphus Greely, an American general, bought three cars for the U.S. Army to experiment with. The Los Angeles Times was one of the first publications to reference cars in American media: “(Cars) can be used for the transportation of light artillery such as machine guns. It can be utilized for the carrying of equipment, ammunition, and supplies; for taking the wounded to the rear, and, in general, for most of the purposes to which the power of mules and horses is now applied.” Less than ten years later, the Los Angeles Times talked to Wilbur and Orville Wright about airplanes: “The utility of the airship, they think, will lie entirely in its advantage as a reconnoitering agent in time of war. They have no desire to sell their invention to a private company but desire to have the War Department at Washington take it up.” Every revolutionary technology was either developed or bought by the military many years before it reached the commercial market. Innovation is driven by incentives, and no incentive is greater than war. Now take a step off the battlefield and into the boardroom. The investing equivalent of war is a financial crisis; when the markets tank into oblivion and investors begin to panic, the seeds for change are planted. From the crash of 1929, financial markets as we know it were born. The Securities Act of 1933 required public companies to disclose financial information to investors. Professional investment management grew significantly, with firms like State Street gaining market share. Markowitz began to formulate Modern Portfolio Theory. After the crash of 1987, derivatives became mainstream because investors wanted new ways to hedge downside exposure. David Swensen was quietly starting a revolution, allocating previously risk averse endowment capital into alternative investments. Venture capital, private equity, and hedge funds began to slowly blossom. Quant trading firms like Renaissance and D.E. Shaw started to attract capital as investors looked for different ways to invest. Following the crash of 2008, bitcoin was invented. There was a massive increase in ETF assets under management, and algorithm driven financial management became more widespread. Low interest rates drove more dollars into venture capital. I asked Professor Burton what he thinks will be the turning point crisis that sparks change in private markets. He said: “We’re in a crisis right now, ask any private equity guy who owns a fund.” The liquidity problem in private equity is even bigger than it seems, especially considering the IPO window is not as wide open as investors expected it would be in 2025. Continuation funds are being created by private equity firms to buy the assets that they can’t sell, so that limited partners get synthetic liquidity. A continuation fund is analogous to a lemonade stand owner creating a lemonade stand holding company to buy his unprofitable lemonade stand so that his initial lemonade stand investors get their money back. The amount of continuation funds being created by private equity funds is concerning to Burton. 2025 was supposed to be the year of endless mergers, acquisitions, and IPOs, but instead, the only hope is for private equity investors to unload some of their assets into your 401k. No one knows when the party will end, no one ever does. But when the music stops and the lights come on, we will see carnage. After the darkness, the dawn will bring incredible innovation to private markets, endowments, and the business of college. Throughout this series, one question kept lingering in my head: what is a college’s primary asset? A college’s primary asset is not its endowment portfolio. If the Harvard endowment - the world’s largest - was to fund university operations from their endowment alone, it would be completely depleted in seven years. The endowment is secondary. A college’s primary asset is not its brand. Although the brand is undeniably important, it takes just a generation of bad decision making for a brand to completely erode. The brand is secondary. A college’s primary asset is not its research. Research is critical to advancing technological breakthroughs and keeping American IP competitive, but even this answer fails to pass. Peter Thiel started the Thiel Fellows program in 2011, and through the initiative, he has since mentored and invested in young founders who have launched companies collectively worth $500B+ in value, including Ethereum, Scale AI, Figma, Loom, and more. These founders are paid $200,000 to drop out of college for two years and work on a startup or project in the Bay Area. More than a dozen Thiel Fellows (out of 271) have founded unicorns, and a disproportionate number of selected fellows come from MIT and Stanford. Y-Combinator was founded in 2005, roughly half a decade before the Thiel Fellows program. The company was originally called Cambridge Seed; Paul Graham, Robert Morris, Jessica Livingston, and Trevor Blackwell pooled $200,000 together and sought to invest in a large number of young founders in the area. The first class of Y-Combinator founders was just fourteen deep, but featured a handful of founders that would make a dent in Silicon Valley, including Sam Altman (OpenAI), Justin Kan (Twitch), Alexis Ohanian (Reddit, 776 Fund), Steve Huffman (Reddit), and Chris Slowe (Reddit). Y-Combinator today has backed over 5,000 companies with a combined valuation of $800B+, including Reddit, Twitch, Airbnb, Coinbase, Doordash, Dropbox, Scale AI, Stripe, Instacart, and more. The Y-Combinator fund is currently led by Garry Tan and has more than twelve billion dollars in assets under management. Dozens of venture funds center their entire value proposition around having access to Y-Combinator companies. YC founders disproportionately come from Stanford, MIT, UC Berkeley, Harvard, University of Toronto, Cornell, and Georgia Tech, among others. While Thiel and Tan are the poster children of investing heavily into young, inexperienced founders from top colleges, they are not monopolists on the playground. Take the Phoenix Fund at Harvard: a fund founded by former Harvard students, investing exclusively into Harvard students and alumni. According to a study done by their partners, 107 unicorns in private markets were founded by Harvard alumni at a collective valuation of $393B. Companies include Stripe, Ramp, Rippling, Shield AI, Modern Treasury, and more. In February 2025, a trio of 21 year old dropouts, including a Harvard student, raised $100M at a $2B valuation to scale their startup, Mercor AI. The trio started Mercor during their Thiel Fellowship. Benchmark, Felicis, and General Catalyst are some of the names on Mercor’s cap table. Last week, two 21 year old MIT dropouts raised $32M at a $300M valuation to scale Delve. The round was led by Insight. A college’s primary asset is the students. Students pay tuition, the most significant revenue source for a college. Students create jobs for the faculty, who go on to do research that brings in funding, IP, and prestige. A small percentage of students go on to become fabulously wealthy, which (a) leads to endowment donations and (b) strengthens the university’s brand. Nearly every node in the value chain can be traced back to students and alumni. This is not to diminish the role of faculty, researchers, the endowment, etc… It’s simply a moment of clarity - without students the college will cease to exist, whereas every other constituent is important but not mission critical per se. Nowadays, as discussed above, a small cadre of students are starting to venture out on their own and build billion dollar companies without finishing their educational programs. Not a new story, but the rate at which student founders are generating outlier outcomes has been growing significantly over the past five years and is positioned to grow even more over the next ten years given the advancements in artificial intelligence and open information on forming startups. Colleges ought to worry because every success story of an MIT dropout raising $50M after joining Thiel Fellows or Y-Combinator is another brick in foundational brand equity for Thiel Fellows, Y-Combinator, etc. Eventually, these programs will adopt larger and larger class sizes until they start to look like full blown universities for startups. Y-Combinator’s first batch in 2005 had 8 companies. Y-Combinator in 2015 had two batches with a total of 200+ companies. This year, Y-Combinator will have four batches with a total of 600-700+ companies. While YC is the largest known operation at the moment, more startup schools are starting to pop up in recent years and the trend will continue as the downside of starting a company has never been this low and college costs have never been this high. We are approaching an inflection point, where, for the top 1% of college students, taking multiple years off from college to work on a startup is the economically intelligent decision. A Stanford dropout signals just as much value to a venture investor as a Stanford graduate, and in many cases, the former clears the latter. Loyalty to institutions is another worrying trend that colleges may have to address in the long term. Generation Z and Millennials are far less likely to donate tens or even hundreds of millions of dollars that the previous generation of wealthy alumni gave out. The new wealthy are less loyal to their alma mater and aim to take increased ownership of their philanthropic endeavors. This is neither in support or against that trend, it’s simply an acknowledgement of the reality facing future administrative executives in higher ed. A solution for the bevy of problems at bay must be both multi-faceted and bespoke for any given educational institution, as each college has its unique strengths and weaknesses that must be leveraged and minimized, respectively, in order to optimize efficiency gains. Nonetheless, the engine for each solution should look similar and can be broken down into two main components. First, colleges must establish internal startup schools to retain student-entrepreneurs, capture economic upside in ventures created by faculty, students, etc., and increase future brand equity. Second, colleges must drastically restructure their endowment operations. The brand equity of top tier schools is built by yesterday’s students. Without Tiger Woods, Phil Knight, Reed Hoffman, Sergey Brin, and Larry Page, Stanford would be another school in California. Their past students shaped a brand now synonymous with tech moguls and business savvy athletes. A flywheel effect is now in place, and the aspiring tech CEOs of tomorrow compete with one another for acceptance into Stanford, thereby increasing the probability that more innovative business founders will emerge from the school in Palo Alto. When other viable options emerge, the previous oligopoly top schools had on top students begins to level out into a more competitive, fragmented landscape. Today’s discourse on choosing the right college overwhelmingly focuses on whether the return on investment still is what it once was. The opportunity cost of college - for a select group of risktakers - has never been this high. Colleges that formalize new programs for business incubation will add a new layer of shiny paint to their old moats. Most schools already have some type of affiliated accelerator or incubator program, such as Cornell’s e-Lab or Stanford’s StartX, but this is not enough. University affiliated accelerators in their current form are typically non-profit, lack a robust capital base, and do not offer full time study programs. When a student at Harvard creates a startup and joins the Harvard i-Lab, the chances they get funded are slim; only one startup wins the President’s Challenge and gets a $100,000 prize. When a student drops out of MIT and joins a seasonal Y-Combinator program, there is a guarantee of $500,000 in funding from YC, in addition to millions of dollars in funding from funds that invest in YC companies on Demo Day. YC has completely de-risked the fundraising process for the founders they deem exceptional enough to participate in their program. The funny thing is, if YC had ownership of a college campus - let’s say UC Berkeley - it’d probably take ten years for YC to be more valuable than a lot of S&P 500 companies. Consider the advantages a top 30 college has on Y-Combinator. Elite colleges are a breeding ground for intellectual capital; there is no other geography with such concentrated intellect per capita as a top college, from intelligent undergrads to ambitious MBAs, from cutting edge researchers to seasoned professors. Professors could identify market pain points, team up with students to validate the most pressing pain point, craft a minimum viable solution, raise the necessary capital to go-to-market, generate revenue, and raise the funds for scaling all in one ecosystem, powered by an opportunistic portion of the endowment. Furthermore, the time horizon for an endowment is most appropriate for building a long lasting venture: while VC funds search for explosive growth, often unsustainably, college ventures, powered by the endowment, would be able to build over a more human timeline, with respect to the process of creating value. The concept is to create what will become a holding company for the college, taking a larger stake in companies that venture funds do, building slower with an attention to sustainable quality, and having direct upside in the value created from the university ecosystem. Imagine you are a farmer with an abundance of apple seeds in your arsenal. You prepare the soil carefully, plowing, harrowing, and fertilizing the plot of land you’ve chosen. When the day to sow comes, you mount your tractor and pull the planter machinery along the length of your field. Nature does the rest, and in due time you reap your reward, apple trees with fresh apples for you to distribute. Three merchants visit your farm to make deals. The first merchant buys one hundred apples from you for thirty dollars, with the intent to sell on the east side of town. The second merchant buys one hundred apples from you for thirty dollars, with the intent to sell on the west side of town. The third merchant buys one hundred apples from you for thirty dollars, and he tells you he will do business in a neighboring town. After a few months, the merchants return. The first sold all one hundred apples at a profit of thirty dollars. He asks for two hundred more apples. You approve of his request. The second sold all one hundred apples at a profit of sixty dollars. He asks for three hundred more apples. You realize there is more demand on the west side of town, and you become wary of allowing the merchant to profit too much from your generosity. You grant the second merchant his wish, but if he comes back with similar margins, you intend to make a different decision. Now the third merchant did not sell his apples. He took the apples he bought, went back to his house, and made three gallons of apple juice. Then, he went to the nearby town, which has neither apples nor apple juice nor any comparable substitutes, and sold the gallons at a profit of one hundred and twenty dollars. After he tells you this, the third merchant asks for an additional one thousand apples. You feel as if though the third merchant has overstepped his boundary - his cleverness is at your indirect expense. Your first thought is to increase the prices of the apples to reflect their new demand. But alas, what if this shrewd businessman absorbs the temporary margin compression, hires other merchants, and creates an apple juice empire that stretches as far as your eyes can see? You lift your head up and stare directly into the sun, until an answer beams into your mind. Instead of selling your apples to the three merchants any longer, you will cut out the middlemen and become the exclusive apple juice provider for your town and all surrounding areas. In due time, you will reap the rewards for your decision. If colleges had holding companies that were free from non-profit constraints, they would be able to cut out the middlemen that devour the value sowed on campus. Wealthy alumni give money to the endowment, which then gives money to consultants and third-party private funds, which then give money to private businesses, often businesses founded by students, alumni, and professors of said college. Wealthy alumni → holding company → top professors / alumni / students / researchers is a lot cleaner in my mind, and it keeps the value in-house. It’s a direct, efficient, wealth transfer from the older generation to the newer one, and the alumni own something tangible with higher upside than an endowment donation and arguably higher impact than an endowment donation. Have the endowment staff or a third party with clearly aligned incentives manage the holding company on behalf of shareholders and make direct investments rather than fund of fund investments. Rebalance the endowment portfolio and take a significant position in the S&P 500, and remain opportunistic on alternative investments. There is no longer an advantage to having 40%+ of the portfolio in alts when everyone else does.
An alternative source of funding for the proposed university holding company - let’s just call it the mainstreet model for now - is to slash a significant percentage of grant money and redirect it to holding company investments. Granted, this would be controversial, and heavily opposed by faculty members. Nonetheless, in their current form, grants are a case study in improper incentive structure. Grants to cutting edge research issues are important to advancing technology, science, etc., however, the vast majority of grants go to supporting researchers investigating trivial matters. There are young Ivy League professors in Economics departments receiving hundreds of thousands of dollars in grants to do research on basket weaving in Maine. Scroll through the research subjects that got grant money at top schools and you’ll be shocked at the shameless use of funds. The reason this happens is because in order to get tenure, professors need to become an expert in their field. All of the best fields already have a deep roster of experts, so academics choose niche topics that are often random and low impact relative to the funding received. The main purpose of grant money is to buy teaching time, so if you find a research topic in an enviable location like South America or the Mediterranean, it’s essentially a paid vacation. This is how colleges end up spending billions of dollars on faculty compensation. One of the sources we spoke to during this project said something along the lines of, “I’m not a huge fan of the DOGE concept… But if you were to bring something like DOGE into a top college, you’d be appalled by the amount of waste and inefficiency.” Grants are the low hanging fruit - I’ll spare you the details on other opportunities. The mainstreet model brings colleges closer to pareto efficiency, but I’m sure skeptics will poke holes at the potential for profits to destroy the academic focus that a college should cultivate. Nonsense. Without a strict examination of current ailments and a prompt surgical realignment, the college model’s livelihood will be under grave attack from a growing band of technocrats. In Peter Thiel’s utopia, there are no college students with humanities degrees. The mainstreet model is a sweet syrup that has the potential to revive college as we know it and by extension, the arts as well. After all, inspiration for the world’s most ambitious ventures often stem from the humanities - be it an outlandish idea from a science fiction novel, insight on human nature from classic prose, or visual stimulation from a beautiful movie. A future with more powerful technology than ever will push us back into an artistic renaissance where people crave deep substance and enlightened writers, thinkers, and filmmakers deliver it in abundance. My vision stretches beyond restructuring economic incentives on campus. I dream of a new world with old beauty.
Bonus:
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Selasa, 29 Juli 2025
Master Gardener: Aestas Praeteriit
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