Welcome To A Brave New World — A Multi Trillion Dollar Disruption Journey

Dovi Frances
14 min readOct 4, 2023


By Roxane Googin, Chief Futurist, Group 11 and Dovi Frances, General Partner, Group 11

“In the seventeenth chapter of Saint Luke it is written:

- “The kingdom of God is within man”

Not one man, nor a group of men, but in all men; in you.

You the people have the power, the power to create machines, the power to create happiness. You the people have the power to make this life free and beautiful, to make this life a wonderful adventure.

Then in the name of democracy let us use that power. Let us all unite!

Let us fight for a new world, a decent world that will give men a chance to work, that will give youth a future and old age a security.

The misery that is now upon us is but the passing of greed, the bitterness of men who fear the way of human progress:

the hate of men will pass and dictators die and the power they took from the people, will return to the people and so long as men die liberty will never perish”

Charlie Chaplin, The Great Dictator, 1940.

Charlie Chaplin, The Great Dictator, 1940


With the hindsight of yet another chaotic six months, our 10-year outlook looks as cloudy and chaotic as ever. Even as we are writing this update letter, treasury yields just pierced through their highest levels since 2007.

We have shared our once-controversial thoughts about the end of predictability and stability in our 2021 missive “The Coming Era of Chaos” we were also spot on in predicting the demise and the ultimate burst of the Silicon Valley bubble, which we shared in our 2020 missive “Unicorns vs. Alicorns — Real vs. Fake Disruption” almost 3 years ago to this day.

While our commentary is oftentimes macro-economic in nature, the latter missive mentioned above was centered around Venture Capital.

Venture capital is indeed a miniscule asset class, (in size not in ultimate economic impact), when comparing it to the stock or bond markets. However, it is the best indicator of the market’s enthusiasm about the future. Considering the risk that is associated with investing in this long-term asset class.

An informed spectator, or even a market participant, will rush to declare that: We were sugar high on the future which was fueled by record low interest rates and we are now overly bearish about the future fueled by high interest rates.

But this is not really what is going on. We wish things were as simple.

Thinking about what’s to come next through the lenses of a once-all-powerful Fed and the invisible hand of interest rates adjustments, is simply wrong and even worse — It is an ill-fated recipe for anyone who manages their wealth or other people’s wealth as a fiduciary.

In this note, we want to highlight that it is not interest rates, or politics, or even climate, that matters most right now.

What matters most is we are in a new world and we face not interest rate tweaking but a generational restructuring of the economy.

The big change is again we are moving from a stable, global, consumption-driven Boomer economy to an unstable, localized and investment-driven millennial replacement.

Despite this uncertainty, the choices we need to make now seem increasingly clear.

The last 40 years were fun, for Boomers at least and for some of the Gen X’rs, who have taken advantage of low interest rates in a predictable market, but they have left us with depleted resources that include a wasted and angry planet, rotting infrastructure that has turned lethal (think Santa Rosa and Lahaina), embedded and costly monopolies (think health care) along with upside down demographics and high debt levels.

Like cleaning a hotel room after a wild party, we face quite a lot of work just to get back to where things look somewhat organized again. The upside is that with everything so broken, we can build new structures, on new foundations, using new tools, that can scale for the next generation.

But the old power structures will not give way without a fight. So we have more destruction and chaos to come. Look no further than Russia and China. They can lash out disastrously and unpredictably at any time and with global consequences. While what they do is entirely TBD, what we know for certain is that as big producers fall offline, the resulting supply chain disruptions will be much more inflationary than anything the Fed can fix by fiddling interest rates.

This shows how existing tools built for the past era are really reaching their due date and new solutions are needed. Tools built for scale in a stable, global environment are not designed for such a chaotic, localized world.

This hunger for change is evident in the massive interest in generational AI, a tool that promises to revolutionize agility. The retooling has begun, but the true chaos is just beginning.

As 1990s era economist Herbert Stein reportedly said: “Trends that can’t continue won’t.” In this note we will review the current Federal Reserve stance on the core cost of capital, both their goals and their errors.

Then we will visit how the new generative AIs can potentially be used as part of a new business solution which will surely require a separate missive on its own.

But even here we need to be wary, as a knife cuts both ways and mismanaging a new, unknown but powerful tool, is a very big risk.

Despite these risks, the early adopter adults in the room stand to benefit handsomely. With Trillions of dollars at stake.

The Fed’s Blind Eye

Currently all eyes are on the Federal Reserve as they believe they have their hand firmly on the lever that determines whether our economy grows or stagnates. Restricting capital removes oxygen from the system while making it more available, either through lower costs (interest rates) or availability (extending credit or printing money) turbo-charges latent demand and therefore spending, as we have been witnessing recently with all the Covid-related relief programs.

While everyone likes easy money, it ultimately degrades the system by debasing the currency and encouraging risky speculation that is ultimately unproductive.

With inflation over their 2% goal, the Fed will restrict capital. Period. On August 25 in Jackson Hole, Fed Chairman Jerome Powel repeated multiple times that they will not ease conditions until they see that 2% rate. Nothing else will do. Importantly, they seem to assume they are operating in a pre-Covid world where they can actually control the situation. Big mistake.

Instead of smoothly guiding economic growth, we expect them to continue to get hammered by one chaotic event after another that prevents them from reaching their goal. They were surprised by Covid. Next they will be surprised by China going offline, a fire bigger and more deadly than Lahaina, crop failures or warlords replacing Putin or Xi or (?) and creating havoc with global food and energy markets.

Pick your poison, but this is the current state of the world. The US is no longer entirely in control and we need to consider exogenous events.

The effects of this chaos are already evident in the cost of capital, and make no mistake; destruction increases the cost of production and things just cost more. A few weeks ago it was Lahaina, recently it was Hurricane Idalia. In two weeks it will be something else.

Replacing all these assets just to get to where you were before represents a low return investment. It becomes a tax. This will show up in the cost of capital.

As the chart below highlights, the lovely 40-year downtrend in 10-year Treasury rates that was first pierced last November mostly due to Covid and Russian chaos is to remain broken. The Fed did not return to their long standing “Fed Put” stance of lowering interest rates at the first sign of trouble in the capital markets.

This is primarily because their long standing fear of financial armageddon from the 2008 financial crisis has finally been replaced with fear of financial armageddon from a return of 1970s style inflation due to forces beyond their control

10 Year Real Interest Rate Trend, FRED

Sadly, we did not expect rate relief eight months ago and we do not expect it now. The only question now is whether rates go up versus staying at a restrictive level indefinitely. We think flat is the new down.

While Fed members seem to assume their existing cause and effect economic data remains relevant, we unfortunately are not in the 2008 period and we are not in the 1970s either.

We are in the 2020s, facing different demographic, climactic and geopolitical forces. For interest rates to relax, we need a new equilibrium. We are not there. The old balance between supply and demand is forever lost. Perhaps this is why Chairman Jerome Powell stated: “We are navigating by the stars under cloudy skies.”

The Fed Logic: The All Powerful PCE

Powell’s problem is the economy is not exactly doing what he expected. He is also operating under the famous “long and variable lags” effect of the slowly responding debt market. Constrictions applied today may not be felt for a year even as fixes to over-tightening could take yet another year to manifest.

Despite this known uncertainty, the Fed measures inflation monthly via the PCE (Personal Consumption Expenditure) index which is divided into three main buckets: goods, housing services and services ex-housing.

PCE inflation has fallen from 7% a year ago to 3.3% this past July. While this is great progress, we are still above his magic 2% number, calling for continued restrictive interest rates. Just like losing that last 10 pounds is difficult, we expect continued progress to be slow as the easy gains have already been made. Below we will look at each of those Core PCE segments:

Price Indexes for Core PCE, BEA via Haver Analytics

As seen in the auto market, the goods market is behaving as expected with supply growing after the Covid-induced semiconductor shocks got resolved and demand weakened in the face of tighter and more expensive credit. As a result, inventories grew and prices fell. That is normal. That is, until we de-globalize. Then all bets are off.

If, for instance, we really separate from China, all sorts of parts will need to be re-sourced. Such sudden near-shoring or reshoring promises to make employment tighter even as it increases unit costs. No amount of Fed rate hiking can fix this problem/opportunity. Without deflationary goods, maybe 3–4% inflation becomes the new norm. The outlook here is simply non-deterministic.

Housing prices are sort of beginning to react as expected, but not entirely. Higher interest rates initially weakened housing demand, but demand for new homes is now stabilizing despite continued high rates as well as massive build-outs of multi-tenant dwellings. Here, we suspect 1970s-esque demographics are coming into play as the upward pressure on demand as the large 72M strong millennial cohort comes of age before the 69M remaining Boomers abandon their houses.

There is just more demand than supply. Many builders estimate we are 5M units short of equilibrium.

Thus, it is likely there will be a limit to how helpful housing will be to solving overall inflation as desperate buyers just spend an ever larger percentage of their income to be housed and maybe take on family members and roommates to make ends meet.

PCE Ex-Housing

That leaves us with services ex-housing. Here Chairman Powell noted how prices in this labor-intensive segment of the economy are relatively sticky. We would also add this is the least efficient and most opaque and monopolistic part of our economy.

This segment includes notably inflation-resistant segments including; healthcare (18% of GDP), education (6% of GDP) and financial services (11% of GDP).

Representing about 55% of the PCE and sporting a robust 4–5% inflation rate, the rest of the economy would now have to be in a deflationary spiral for the overall PCE to reach 2% unless this is fixed.

Government Spending

There is also something to be said about Government Spending (with Fed Net Overlay as a % of GDP surpassing 20%). We should also think about what needs to happen to bring government spending under control.

So bottom line

Covid has thrust us into a chaotic period between generational paradigms. We left the last 40 years of US control and cheap growth behind and face rebuilding a new future for a new reality.

The good news is we can make it more sustainable and fair. The bad news is this is not going to be easy. We will all suffer from massive cognitive load as our brains struggle to make sense out of constant risk and chaos.

AI to the Rescue?

Fixing this mess will take both political and economic change. Actually they go together. For great detail there, please refer to Daron Acemoglu and “Why Nations Fail”, or “Power and Progress”. For now, just take our word.

We will leave politics aside, but to anyone paying attention, a new level of power struggle is evident globally.

This is not a strange coincidence, but rather just what happens in the face of economic upheaval. The US had control for 40 years, and now, not so much. So you change both at once and you can’t fix one without fixing the other.

Our prior inquisitive attitude two years ago towards the ability of AI to cope with a fast changing world, changed with the emergence of generative AI where the Group 11 team spent considerable time in the past two years working with OpenAI leadership amongst others.

Group 11 hosting OpenAI leadership for a dinner with Israel’s largest unicorns, June 2023

Generative AI is truly different. While all historic computer based tools were passive, generative AI is active.

Instead of telling the computer what to do, the tables turn and the computer tells us what to do. They make and can act on decisions on the fly. You can embed them in a workflow.

Conversely, existing systems just mechanically follow fixed instructions. Old AI is an order taker while generative AI comes up with suggestions. Generative AIs are also generalists, not specialists, so they can conceive new solutions.

Maybe those hideous bots on customer service pages will ultimately become helpful. It is as though we have been raising a baby for the past 50 years and suddenly, as a toddler, it began talking. But don’t blink, because this toddler is growing exponentially and will soon be unimaginably smart, like in a year from now.

This learning curve is evident in how experts test generative AI against human capabilities. While ChatGPT 3.5 beat 20% of all participants in legal and medical exam questions, GPT 4 is beating 90%. By next year it won’t be GPT 5 beating 100% of participants, because actually the ruler is too short. GPT 5 will be smarter than any human and we have no ruler to even measure that. Compared to us, AI dealing with us would be like you talking to your dog about philosophy. Next year, GPT will simply be beyond our comprehension. And then, it will just grow from there. So we are in luck, as we will soon be among the first to experience a ‘being’ smarter than humanity.

Despite great promise, we also assure you generative AIs have great warts that we have not discovered yet. Like a toddler, they can run off on tangents. In New Zealand a “meal-bot” recently suggested an “aromatic water mix” that actually produced chlorine gas.

If you trust these models with your special data to make them most useful, anyone can craft a query so it happily spills the beans. So these tools are best used in the hands of mature adults, meaning any company aggressively and successfully adopting this technology today will probably do well as the opportunity is great and the talent supply quite limited.

But the timing to lead this move to generative AI was so last February. On the down side, this also means putting this power in the hands of corporate drones everywhere who mostly use Excel could be like handing a gun to a toddler.

We expect generative AIs to turbo-charge software companies first, because these companies are full of programmers already and also because generative AIs write great code.

In addition to making their code more useful, they can deploy powerful new code at superhuman speeds because if they want more, all they have to do is ask. This trend seems evident in the public markets at Affirm, whose revenues grew 25% in their recent quarterly report despite a weak retail market even as expenses remained relatively flat.

When asked how sustainable this upside was, CEO Max Levchin just said they got very productive this past six months. The pace and effectiveness of their new code releases on flat operating expenses is nothing short of astonishing. We suspect they are just beginning.

But it gets better, because all the legacy code in all the legacy companies now becomes obsolete.

Maybe Affirm replaces Mastercard who will not be nearly as fast to adapt?

Maybe Sunbit replaces Synchrony? Tipalti eliminates Coupa and Bill? Navan destroys Amex GBT? Next Insurance creates an insurance class of its own?

We will surely learn soon and are excited about Group 11’s more mature portfolio companies’ cohort.

Itactually gets better for Group 11, even further than our more mature portfolio cohort, which will continue to grow and deliver outsized alpha for us over the next decade and beyond —

Remember that we have just begun a generational restructuring of the economy?

If you had to totally reimagine how the next decades ought to look like and knowing all you know (and have read here) about what’s at stake, all while noting the power of generative AI, where will you begin a massive multi-trillion disruption journey?

The answer is abundantly clear and is found in the PCE and in Government Spending — To this end, we believe some of Group 11’s new and existing, AI-powered, portfolio companies are going to play a major role in this restructuring.

Keep an eye out for MasterSchool (Education), Dream Security (Government Defense Spending), BridgeWise (Financial Services), Healthee (Healthcare), Venn City (Real Estate) to name a few.

This new Group 11 portfolio cohort represents not only the massive opportunity that is currently in play but also the evolution of our investment thesis where Saas and FinTech now send their long tentacles well above and beyond their original architecture, coordination and application layers into adjacent, massive and opaque industries, once neglected due to their complexity.

More on this in our next missive. For those of you who would be focused enough / brave enough to read it all the way to the end.

Conclusion: Brave New World

We are at a generational inflection point. Our interest rate chart in Exhibit 1, shows in numeric form how the last political-economic era has ended. Forty years of a perfect downtrend where everything worked to our advantage has for sure been violated.

To that end we are not holding our breath on 2% inflation returning any time soon so the Fed can cut rates. That is actually the least of our problems. What we face is restructuring, not arranging deck chairs on the Titanic. We have eaten our seed corn and have too much to fix to be that efficient any time soon.

Rather, we face the task of rebuilding our global political-economic structures from the ground up in a more sustainable way. But this can only happen after power is forced to let go, which is always unpleasant. Just watch Putin and Xi. Keep an eye also on the Middle East and the dynamic unfolding between Saudi Arabia and Israel. The timing is not a coincidence.

So things look messy near term. While it is best to fix things after they are broken, not while they are breaking, we don’t have that luxury. You can see the wreck in progress and you just have to prepare. It is best to simply put on your helmet, get in that kayak and run the rapids with gusto so you come out the other end first and face a world of opportunity.

Visibility will be low. The risks and cognitive load will be high. Change and uncertainty will be constant. But just as the small mammals outlasted the dinosaurs, the small and agile will survive the rigid old order to take over the world.

We will be near-shore. We will reinvent our education, healthcare and financial systems. We will fix our energy system that is literally burning us to death.

The new world order will be barely recognizable from what we know today, so it is best not to look back, or you will turn to salt. Rather, look at what might be and use the tools at hand aggressively to shape that future.



Dovi Frances

Dovi Frances is a financial services entrepreneur and founding partner of Group 11, a venture capital firm based in Los Angeles, California.