Having aura lowers your cost of capital. Imagine a 2x2 matrix. Aura on the x axis and real vs fake company on the y. The bottom left corner is irrelevant, ignore it. The top left is going to struggle to hire talent and raise capital at attractive prices and the bottom right is eventually cooked. If you are starting or running a company, it is imperative you find yourself in the top right.
Aura is defined as “A special feeling or quality that seems to surround a person, place, or thing.” It’s perhaps Gen Z’s best addition to the popular lexicon. It puts a word on something that we all know is real but otherwise hard to describe.
Besides building and selling, the job of a CEO is to attract and retain the best people in the world, and to raise capital from time to time. Both of those things depend on your aura.
The best modern example is of course SpaceX. I should make a careful distinction here - this is not to say that a specific company deserves to trade at a premium to the market because of its or its founder's perceived aura. That idea drifts us into meme stock territory, most of which (and idk if you’d say GameStop had “aura”) find themselves firmly in the bottom right.
In the process of searching for the inevitable, we’re looking for timeless companies that are 1. really sick businesses 2. perceived as being high aura. Returning to SpaceX - does anyone do this better than Elon? Is Space Exploration Technologies not the hardest name of all time? There’s no question the company has been able to hire the best and brightest in the world - having a civilizational scale mission certainly helps, but being able to raise $75B in a public market debut has a lot to do with the aura premium.
Zooming out to our finance basics for a second - the risk free rate is the rate offered by US Treasuries (usually the 10 year.) Credit is issued at some spread to that rate. Investors weigh decisions based on the interest rate and the perceived creditworthiness of the borrower. Corporate bonds, for instance, are benchmarked against the treasury yield for a similar duration. The logic being, how much excess return do you need from an Apple 10 year bond to buy it instead of a 10 year Treasury? The spread is basically the compensation for the risk that Apple doesn’t pay you back.
When we move to equities, there’s no guaranteed cash flow the way there is with bonds. As an investor you’re taking on volatility risk along with a greater risk of permanent capital loss. Without taking a detour through modern portfolio theory, the necessary excess return is called the equity risk premium. There are “scientific” ways to “try” to calculate this, but in practice it’s just vibes. Think of it this way - say bonds return 5% and the market returns 8-10% (on average), that extra return is the cost of having your money invested in the equity market.
When you want to invest in an individual stock, you’ll often hear the term “beta” which describes how volatile the stock is compared to the market. In other words, you’d want increased returns as compensation for increased volatility. The capital asset pricing model (stay with me) is the risk free rate + a stock’s beta times (the return of the market minus the risk free rate.) Markets treat high aura companies as if they have lower beta, which means a lower return demanded from investors and thus a lower cost of equity.
There’s a line that’s like - stocks can be valued, but private rounds are priced. If you want to issue equity, it’s always (in theory!) going to be more expensive than debt. As a CEO, you’re ideally doing everything you can to lower your cost of capital. SpaceX and companies like it are proof you can do so by having aura. Aura compresses the spread without the risk necessarily changing, and lets a generational company raise at prices its fundamentals can eventually grow into.
Zoom out for a second and consider those two elements of company building - raising capital and attracting/retaining talent. Talent, in this sense, has a cost of capital too. The best people in the world will take a lower offer from the higher aura company.
Put yourself in the shoes of an investor or potential hire (many reading this ofc will be) do you want to invest in a founder with no aura? Do you trust them to hire the best people in the world? Do you want potential founders to look at your portfolio and think “mid?” If you’re super talented, do you really want to work at a company with no aura? When you get hit with the inevitable “so what do you do?” at a SF party, what does that company say about who you are?
There’s no need to include further examples. If you’re an investor, founder or talented employee, you’ve already populated the matrix in your head.