I use this question quite often as a discovery tool. My job as an early-stage investor is to find crazy, interesting people building interesting things. By the time things look less crazy (at least at face value, without digging), I’m likely too late.
To founders who are fundraising, I often ask this question with respect to VCs. Most VCs default to the usual.
Tell me about your company.
How much revenue do you have? Growth rate?
Tell me about your 2-year plan. Your financial projections.
Tell me about your competitors.
How much are you raising?
Who else is investing?
And I’ve probably missed a plethora of usual suspects when it comes to questions VCs ask founders. But I love people who ask different sets of questions. People who think different, see different, and as such ask different. How are they slicing the cake differently? What might these people be seeing that most others are not? And then, I go back and reflect… is there alpha in that way of thinking.
But first, it’s about the questions. Some examples of such… here, here, here, and here, and also here and here.
So when I ask, “What’s the most interesting question you’ve been asked so far?” to founders, they can help me uncover new VCs I may not have noticed before. Probably investing in ways the industry has not seen before. And probably also investing in companies uncorrelated with most others. At least in the early stages. When I ask it to GPs, I can find LPs whose portfolios may look different from others. Or at the very least, will have arrived at their conclusion differently than their peers.
The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“When you bring people in as partners, being generous around compensating them from funds they did not build can help create alignment because they’re not sitting there getting rich off of something that started five years ago and exits in ten years. So they’re kind of on an island because everybody else is in a different economic position and that can be very isolating.” – Jaclyn Freeman Hester
We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.
Lisa Cawley is the Managing Director of Screendoor, a highly respected LP of GPs, investing in firm-builders by firm-builders, with a unique model for partnering with allocators to access the emerging manager ecosystem.
Ben Choi manages over $3B investments with many of the world’s premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning over two decades founding and investing in early-stage technology businesses.
Jaclyn Freeman Hester is a Partner at Foundry. Jaclyn helped launch Foundry’s partner fund strategy, building the portfolio to nearly 50 managers. Bringing her unique GP + LP perspective, Jaclyn has become a go-to sounding board for emerging VCs.
[00:00] Intro [01:55] Lisa on documenting the how and why behind decisions [05:52] Ben on leadership transitions at VC firms [08:08] GP commits by young GPs at established firms [11:56] What makes Kauffman Fellows special [14:33] Should Kauffman sponsor Superclusters? [15:34] A rising tide raises all ships [16:41] Partnerships that choose to stay together [18:21] Jaclyn on leadership transitions at VC firms [25:48] The economics of succession planning [31:28] Lisa on succession planning vs wind-down planning [33:10] Jaclyn on pros & cons of succession planning & committee decisions [41:50] Thank you to Alchemist Accelerator for sponsoring! [42:51] If you liked this 3-part series, do let us know with a like or a comment below!
“If it’s not documented, it’s not done.” – Lisa Cawley
“If somebody is so good that they can raise their own fund, that’s exactly who you want in your partnership. You want your partnership of equals that decide to get together, not just are so grateful to have a chance to be here, but they’re not that great.” – Ben Choi
“When you bring people in as partners, being generous around compensating them from funds they did not build can help create alignment because they’re not sitting there getting rich off of something that started five years ago and exits in ten years. So they’re kind of on an island because everybody else is in a different economic position and that can be very isolating.” – Jaclyn Freeman Hester
“When you think about succession planning, you actually have to take a step back and think: Is that even going to be my approach? Do I need to think about succession planning or am I really talking about wind-down planning? And when I stop raising a subsequent fund.” – Lisa Cawley
Last week, I was chatting with an LP about decision-making processes at institutional LPs, whether a large family office or a pension or an endowment. And I asked her:
“When you come across a new investment opportunity, do you often find yourself starting from a yes and working to find ways to disprove yourself to get to a no? Or do you start from a no, then spend the next few years working your way to get to a yes?”
(To be honest, I could have phrased the question. But alas, you get the gist.)
She gave a light chuckle. Thought for a moment. And said, “In the first conversation I have with a GP, I either get to a quick no or a tentative yes. And in the next few months, I try to find signs of why this investment could be a no. But if I don’t find any strong disproving evidence in that exploration, that’s when we choose to invest.”
Of course, she’s not alone. I haven’t actively gone out to measure the distribution. But out of 20 or so LPs I’ve asked, I’d say anecdotally, it’s about half who start from a yes, and half who start from a no.
There’s no hard and fast rule here. But what I seemed to notice is that it depends heavily on how easily people get to conviction.
Some people are more prone to saying yes. They get easily excited about new opportunities. The feeling of love at first sight. As such, their investment process accounts for that by delaying gratification and impulse purchases. The discipline of their investment process allows to take time to find clues that may either prove or disprove their intuition.
Among thousands, if not tens of thousands of opportunities, for others, it’s easier to say no. Most LPs don’t have a time horizon they have to commit capital before, barring fund of funds, and potentially some large institutions who act as fiduciaries for others’ capital. Unlike a GP whose mandate is potentially stage-specific, to most LPs, a Fund I commitment versus a Fund II or a Fund III is virtually the same to them. If a pre-see-only fund says no at the pre-seed, they lose that window of opportunity because they’re not allowed to invest net new checks at seed or Series A.
For LPs, this takes the possibility of a near-term transactional relationship out. Then as the relationship matures over time, one might stumble across something about a GP that gets them over the activation energy to dig deeper. And eventually, when enough evidence is collected, they’ll pull the trigger. More often than not, it’s not “enough evidence,” but rather enough time to realize the one or two brilliant things about a GP.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“We overcomplicate almost nothing as LPs. And this is a criticism of myself. And I think we oversimplify almost everything. Because by definition, we’re the customer of the end product. […] LPs watch the movie, but don’t read the book.” – Ben Choi
We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.
Lisa Cawley is the Managing Director of Screendoor, a highly respected LP of GPs, investing in firm-builders by firm-builders, with a unique model for partnering with allocators to access the emerging manager ecosystem.
Ben Choi manages over $3B investments with many of the world’s premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning over two decades founding and investing in early-stage technology businesses.
Jaclyn Freeman Hester is a Partner at Foundry. Jaclyn helped launch Foundry’s partner fund strategy, building the portfolio to nearly 50 managers. Bringing her unique GP + LP perspective, Jaclyn has become a go-to sounding board for emerging VCs.
[00:00] Intro [02:00] Questions Ben asks GPs to see if they’re thinking long-term [06:50] Questions Jaclyn asks GPs to assess long-term thinking [09:45] What does leverage look like for a GP? [20:13] The role of AI internally at a firm [21:06] Advice to people looking to take junior VC roles [25:33] Questions Lisa asks GPs to assess long-term thinking [29:19] When does a fund turn into a firm? [31:26] Lisa: What do LPs often oversimplify vs overcomplicate about firm-building? [35:31] Ben’s answer to oversimplification vs overcomplication [41:00] What do emerging and established GPs oversimplify and overcomplicate? [45:06] Thank you to Alchemist Accelerator for sponsoring! [46:07] If you can’t wait for Part 3 of this conversation, leave us a like or comment!
“How do you get the most out of the least amount of people? […] I don’t think getting more bodies solves it. I think getting high leverage from a smaller set of resources is better.” – Jaclyn Freeman Hester
“If I hire someone, I don’t really want to hire right out of school. I want to hire someone with a little bit of professional experience. And I want someone who’s been yelled at. […] I don’t want to have to triple check work. I want to be able to build trust. Going and getting that professional experience somewhere, even if it’s at a startup or venture firm. Having someone have oversight on you and [push] you to do excellent work and [help] you understand why it matters… High quality output can help you gain so much trust.” – Jaclyn Freeman Hester
“What’s your right to win? Why are you going to be a founder and talent magnet? Why does the world need you as a firm? Why does the world need you as a VC? And how do you define success?” – Lisa Cawley
“We overcomplicate almost nothing as LPs [about the firm building process]. And this is a criticism of myself. And I think we oversimplify almost everything. Because by definition, we’re the customer of the end product.” – Ben Choi
“LPs watch the movie, but don’t read the book.” – Ben Choi
“Ultimately, Job #1 as an emerging GP is to be a great investor. We want you to be a great investor that lasts the test of time. But if you’re a mediocre investor that lasts the test of time or a great investor that doesn’t last the test of time, we prefer the second.” – Ben Choi
I’ve always been fascinated by how to get to the bottom of things. Yes, you can do your homework into the data, but at the end of the day, you have to go back to people and their experience.
Jeff Bezos has this line: “The thing I have noticed is that when the anecdotes and the data disagree, the anecdotes are usually right. There is something wrong with the way that you are measuring it.”
So, when it comes down to finding the right anecdotes, I’m a big believer that asking the right questions gets you most of the way there. It’s why I started the DGQ series on this blog. Naturally, I spend a lot of time studying others who are better at the craft than I am. After all, I have a long road ahead of me. While this is obviously useful in the context of my podcast, studying the best interviewers has also helped me when:
Listening to founder and GP pitches
Doing diligence
Interviewing potential candidates for a role
Making friends
Small talk
Coffee chats / when asking for advice
And of course, when doing research.
So while you may not have a podcast — or maybe you do — I hope you find the below useful in regards to other aspects of your life.
The callback
What is the callback? A callback — a term quite often used in the comedy circuit — is an allusion to something previously brought up in conversation. It’s not only a sign that you’re actively listening, but that you’re actively engaging in the flow of the conversation. For instance, say you hear someone bring up a quote they liked recently. For the purpose of this example, it’s Amos Tversky‘s line. “You waste years by not being able to waste hours.” Then later in the conversation, they say the last hour flew by so quickly. Then a callback could come in the form of, “Better than wasting a year with me.”
Conan O’Brien is world-class at this, if not best-in-class. If you watch his show or his podcast, you’ll see multiple examples. But probably best illustrated in just the number of times he did it in one episode, I’d recommend his episode with Larry David.
Surprise and delight
The first question in a conversation is often the hardest, but also has the greatest impact towards the rest of the conversation. Getting someone to put down their guardrails without pre-established rapport is really, really hard. It’s why podcasters and TV show hosts alike have pre-chats, where they spend time with each guest to warm them up.
It’s for that reason I have a lot of respect for Sean Evans who hosts Hot Ones. The number of times his guests have responded to his questions with “How did you know that?” and “You really did your research” or “I’ve never been asked that before” is a refreshing take in a world where talk show interviews are just a formality for a celebrity’s road show. And not only does the style and how Sean ask questions set the show apart from literally every other interview that celebrities go on, you can see how his first few questions help him build instant rapport with a guest whether or not they knew each other well before.
That said, I’d be hard-pressed to find just one as he’s able to execute well for most episodes of Hot Ones already. If you’re short on time, the only ones I find to be little less helpful, at least to see the mutual banter, are probably the ones where he’s interviewing himself, or a fictional character (i.e. Donald Duck or himself), or the guest and him go through less than 10 chicken wings (aka the full gauntlet).
Underneath the surface
Despite having hosted a number of fireside chats, when I first started Superclusters, I was obsessed with hitting every question I had prepared. An internal expectation that because the podcast is a public asset and is likely to be online till the end of time made me feel I had to cram as much information into each interview as possible. The funny thing is I still didn’t end up covering the lion share of questions.
For each episode, I end up preparing anywhere between 10 and 30 questions. Yes, you read that latter number right. And yes, for a roughly hour-long podcast. Naturally, there’s no way in hell I’d get to the vast majority of questions, but in mind, I had an internal drumbeat that I felt compelled to keep on pace with.
The more I talked with other seasoned podcasters, the more I realize that while others may not prepare as much research as I do before each interview, the best ones let the conversation flow. They ask great follow-up questions. They spend time on the nuance of words, phrases, even micro-reactions and flinches when guests speak or hear something. One of the most useful pieces of advice I got from a friend, Erica Wenger, was to do all the research you humanly can before each recording. Then, ask the first question, and throw the rest out the door. Which I’ve sinceinternalized.
Tim Ferriss is my favorite on this front. And he does this for almost every single one of his episodes. That said, if you’re looking for a starting point, his episode with Eric Ripert was the first one I actually sat down with pen and paper purely to take notes on how Tim follows up with each of Eric’s comments.
By a friend’s recent recommendation, I also stumbled across The Diary of a CEO podcast. I will admit that the first few episodes I came across I found less interesting from a content perspective. But when three episodes later, I tuned into his episode with Marc Randolph, and holy cow, the depth of questions was clearly a cut above the rest, specifically around when Marc had to step down as CEO of Netflix. And you can just see Steven Bartlett asking one great question after the next.
Avoiding the yes
The fallacy with many rookie podcasters, admittedly my own rookie mistake as well, is that the host doesn’t push back on the guest’s answers enough. When an answer just isn’t good enough. Either the one answering dodges the question or kept their answer too broad.
Hasan Minhaj is my go-to person on this front as he’s incredible at pushing back thoughtfully, which is a really hard thing to do. One of my favorite interviews he did by far was the one he did with Kevin O’Leary on FTX, which Kevin personally invested in.
Drills, drills, drills
I can’t say I got this from any one podcaster, but actually something I learned from my time as a competitive swimmer. For every race we competed, we had to practice sets of twice the distance regularly. Even more so, we had to practice with a handicap, focusing on refining the technique for only part of our body. Be it legs only, or arms only, hell we even swam with our goggles black-sharpied out before. To us, these were drills that would help prepare us for the real thing.
As a podcaster, in case you couldn’t tell, I’m still a work-in-progress. Likely will always be. That said, one of the most helpful ways I’ve found to practice the art of asking questions (since I’m not in race mode every day) is I often listen to the above shows, hear the host ask the question. Then wait for the guest to respond. Then right before the host asks another question, I practice what I would say and where I’d interrupt. And only after I’ve said my response aloud, do I press play again and see what the host would say.
To me, those are the drills I run through when I can to prepare myself when I am eventually on camera. Other times, it’s just fun to see how my response or line of questions would differ from some of these other hosts.
In closing
I’ve often given the excuse that I’m a better writer than I’m a speaker. Which may be true. I often sit with myself during the editing process and wince at words I’ve used or using some complex language to explain what could have been a 140-character question. And the truth is, I’ve held myself back. By giving that very excuse. So now I am earnestly trying to improve. To close that gap, that delta between the way I write and the way I talk. At least from a proficiency standpoint. It may take me a while. But I appreciate every one of you being on this journey with me. And if there’s any advice you can share along this path, as some of you are further along, I’m all ears.
I hope the next time I write something like this, I’ll be further along. And maybe… just maybe, find myself circa today to be embarrassing to watch and listen to.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“There’s this amazing, amazing commercial that Michael Phelps did, […] and the tagline behind it was ‘It’s what you do in the dark that puts you in the light.’” – Lisa Cawley
We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.
Lisa Cawley is the Managing Director of Screendoor, a highly respected LP of GPs, investing in firm-builders by firm-builders, with a unique model for partnering with allocators to access the emerging manager ecosystem.
Ben Choi manages over $3B investments with many of the world’s premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning over two decades founding and investing in early-stage technology businesses.
Jaclyn Freeman Hester is a Partner at Foundry. Jaclyn helped launch Foundry’s partner fund strategy, building the portfolio to nearly 50 managers. Bringing her unique GP + LP perspective, Jaclyn has become a go-to sounding board for emerging VCs.
[00:00] Intro [02:03] The job that goes unseen by others at a VC firm [09:01] The psychology of curiosity [11:12] The story of Charlie Munger and Robert Cialdini [14:17] Lisa’s perspective on the intangibles of firm-building [17:41] Heidi Roizen and why glassblowing builds relationships [21:09] The people you surround yourself with [23:06] Jaclyn’s perspective on the intangibles [26:23] Examples of how to communicate strategy drift [27:34] Ben’s perspective on the intangibles [33:19] The metric many LPs don’t use but should use to evaluate GPs [36:16] Thank you to Alchemist Accelerator for sponsoring! [37:17] If you enjoyed Part 1, and want to see Part 2 and 3 sooner, leave a like or a comment!
“The job and the role that goes most unseen by LPs and everybody outside of the firm is the role of the culture keeper.” – Ben Choi
“You can map out what your ideal process is, but it’s actually the depth of discussion that the internal team has with one another. […] You have to define what your vision for the firm is years out, in order to make sure that you’re setting those people up for success and that they have a runway and a growth path and that they feel empowered and they feel like they’re learning and they’re contributing as part of the brand. And so much of what happens there, it does tie back to culture […] There’s this amazing, amazing commercial that Michael Phelps did, […] and the tagline behind it was ‘It’s what you do in the dark that puts you in the light.’” – Lisa Cawley
“At the end of the day, the job is to take a pile of money from your LPs and give them a bigger pile. And giving them back a really big pile is the legacy thing. […] And consistently insane returns are hard. That, to me, are the firms that go down in history.” – Jaclyn Freeman Hester
“In venture, LPs are looking for GPs with loaded dice.” – Ben Choi
(FYI, the first three paragraphs, from a content perspective, are all ‘gotcha’ moments and are irrelevant to the lesson one would probably take from this blogpost. Feel free to skip to paragraph four if you don’t need the extra context.)
Yesterday, a good friend of mine invited me to an intimate event he was putting together for experts to share their insight around a particular problem in today’s society. If he’s reading this blogpost, he’s going to insist on the fact that I’m a co-host. A title I’m embarrassed to take on since he does 99% of the work of why this event is as thoughtful as it is every month he does it. But I digress.
At the very end of the event, my VC buddy who came, came up to me to ask for some advice. “David, I host these poker nights every month for about 30-40 people. But I would love your thoughts on how I can make this event format more engaging and also unique, like the way you host your events.”
Spoiler alert. I never gave him a good answer to that question. So, if you came for that answer, joke’s on you. Or if you really want an answer to that, DM me, and I’ll share my thoughts.
But what happened after was quite interesting. My buddy who hosted the event last week — let’s call him, Danny — posited that poker was a particularly bad activity to do for an audience of founders and investors. Why? Lying is not a practice investors want to encourage in the founders they’re backing. The worst thing that can happen in a VC-founder relationship is that you find out the company is dying when it dies because the founder couldn’t be honest with you sooner. You want a clear line of communication between investors and founders all the time, so investors can help you course correct if they see you heading down the wrong road. And poker is a game that encourages lying.
To which, I agree from the angle of VC to founder relationships. Even personally, I don’t jump in any investor-investee relationship if I don’t think that investee (be it GP or founder) cannot be honest and vulnerable with me in the moment or in the long run.
My other VC buddy — let’s call him, Josh — countered with the fact that yes, poker does encourage you to lie, but most people he plays with have a clear separation of church and state. They know that poker is a game. And as a game, the behavior that is exhibited under such rules stays in the game. What happens in Vegas stays in Vegas.
At the same time, while poker isn’t really the game to play to be vulnerable, Josh said that poker is a great environment to see how a founder reacts to stress. As well as, how they deal with the hand they’re dealt, figuratively and literally. You get to see if a person is risk-averse or risk-taking. Under what conditions? And when their competitors get aggressive, do they step up to the challenge or take a back seat. Do they spend time looking at their hand or analyzing their environment?
Again, also a lot of merit to what Josh said.
Then, ensued a bit of back and forth.
In my opinion, they’re both right.
In my experience, most founders don’t lie easily. While I haven’t done any market surveys if founders are more likely to lie if they play poker versus if not, I also believe that most invitations to poker nights among closed circles stay in closed circles. In the sense that most poker hosts pre-qualify if a person is a high integrity individual before they invite a guest to play poker. So in other words, a high selection bias.
People are more prone to lying or hiding facets of the truth when their ego is attacked. When something so core to their identity is questioned and put at risk. The higher the stakes, the more likely someone is to lie. In most poker games, and with sane people, the bets never exceed a meaningful portion of someone’s net worth. They’re not risking tomorrow’s dinner on the table.
Admittedly, in games where the primary adversaries are the other people present there, one is less likely to have opportunities to be vulnerable. Like poker.
On the other hand, in activities or games where the primary adversaries are themselves or the environment, there is no need to hold pretense. As such, people are more likely to be vulnerable. And have opportunities to be vulnerable. Like pottery, or glass-making, or maybe even golf.
That said, humans are creatures of comparison. We tell ourselves narratives that prescribe meaning to our actions and the actions of people around us. So even in the latter situations where the primary adversary is either themselves or the environment, you want the variation of proficiency levels to be low. In other words, each individual’s proficiency level needs to be as close to the median proficiency level as possible. Or what many will call, levelling the playing field.
For instance, let’s take painting. Painting is a skill where the dispersion of proficiency in the world is rather high. Some people exhibit the talent of Picasso or Georgia O’Keefe. Many others are happy with a decent looking stick figure. If the activity is art, one way to level the playing field is that everyone is blindfolded. Each person loses a sense that is quite crucial to their ability to produce great art. A handicap that instantly brings the variance very close to zero.
Take another example. Golf. Another sport where skill levels may differ drastically. One way to collapse the variance function is simply to have everyone swing with their non-dominant hand.
The goal here is not to only handicap the skilled, which may lead to passive aggressive discontentment. The goal here is to handicap everyone and help everyone divorce themselves from tying the result to their ego.
I’ve always optimized for activities and event formats that help people bond. If you search up ‘social experiments’ on this blog, you’ll see exactly what I mean. I love events that elicit curiosity, as opposed to competitive spirit. Maybe it’s to atone for my own competitive spirit. Knowing that if I have the chance to compete, I will. And well, sometimes, when I’ve set my goal on winning, I can be a misery to be around.
P.S. I appreciate all founders and investors who have invited me to poker nights. While I have played in a few, I can confidently say that I suck. I have a terrible poker face. 🙂
P.P.S. For my readers that are way wealthier than I am — you know who you are — I cannot afford your million dollar buy-ins at the table. That is just way too much funny money I do not have.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
I went shoe shopping with my partner the past two weekends, and I’ll be the first to plead ignorance to the difference between the B and D suffix for shoe sizes. And even after two weekends, I’m still learning.
I’ve never looked much into shoes. Having spent much of my early life bathed in chlorine (so much that at one point, my hair was brown with blond tips. FYI, for those I’ve never met in person before, I sport naturally black hair.), I’ve spent more time choosing the right $300-400 swimsuit than what I’d wear on my two lower appendages the other eight hours of the day. All that to say, I’m ill-equipped to speak the language of sneakerheads and running shoe geeks.
But just as I’m still learning how shoe geeks around the world understand the finer nuances of heel to toe drop impacting ankle versus knee strain, most founders who haven’t spent the time understanding the nuances of VCs think all money is green. In fact, just last month, I spoke with a founder I randomly met at an event who said, “Money is money.”
And he’s not completely wrong. There is some truth to it. At the end of the day, as investors, we sell money. Moreover, most investors who promise to be helpful are not. As well-intentioned as they are at the time of investment, most fall short of being truly helpful. There are multiple studies that show that founders believe a huge majority of their investors are not helpful.
That said, one of my investor buddies said something quite interesting to me earlier this week. Many founders see investors as saviors not partners. A source of capital to save them when they’re near the gates of hell, but not while they’re building their stairway to heaven. All that to say, as someone who’s been an operator, now a “VC”, but also someone who invests in other VCs, here are some of the nuances I’ve really come to appreciate over the years that I overlooked when I first stepped into the world of entrepreneurship.
Consensus and conviction-driven decision making
Some firms are consensus-driven. Others are conviction-driven. The former requires majority or unanimous buy-in. The latter doesn’t. Neither is universally better than the other, but knowing how decisions are made is extremely helpful. Not only to know who else you need to convince on the team, but also to know how the firm will help you post-investment.
The former is usually a firm where carry is split equally among all partners, so all partners are theoretically incented to see every portfolio company succeed. So as a founder, if you want to rely on the expertise and network of the collective partnership, these are the firms you should pursue. The latter, the conviction-driven ones, are most helpful if you really want one specific partner’s experience. They’ll be the person who takes the board seat. Opportunistically, they may ask for 1-2 junior team members to also have board observer seats. The downside is when and if this partner leaves the firm, there may be a gaping hole in governance as well as interest in the continued success of your company. But otherwise, this will be the partner you will have on speed dial.
I shared a presentation I made recently on LinkedIn. Of which, I share that three kinds of friends in the world. When shit hits the fan at 3AM in the morning…
There’s the friend you call. They see the call. And they go back to sleep.
There’s the friend you call. They see the call. And begrudgingly pick up.
And there’s the friend you call. And as they’re picking up the phone, they’ve got their pants on already and are running out the door with their keys.
Conviction-driven firms, where the partner that pounds the table for you will likely be on you board, or even if not, they’re going to be the third friend. At consensus-driven firms, and I’m clearly being reductive here, you’re more likely — not always — to have the reluctant one or sleepers.
Then it comes down to how the team is compensated. Not something most founders can find out or ask out, but how carry is distributed for each fund matters.
Disagreeableness
I’ve realized a lot of the best investors are quite disagreeable. They have their opinions and are quite vocal about them.
A lot of them quite often score incredibly low on investor review sites. Of course, some just score low on NPS purely because their assholes. But I want to caveat. Assholes are often disagreeable, but not all disagreeable people are assholes.
But it takes a lot of courage to have a contrarian viewpoint that one can back up. You don’t have to agree with it. But it matters. More often than not, these folks will also have negative references. For an LP evaluating VCs, that’s ok. Negative is always better than neutral references. The latter means you’re easily forgettable.
Regardless of whether you agree with these investors or not (equally, if not more true, in great founders), they make you stop and think. And that pause to think makes you a more well-rounded professional, and makes your own opinions more robust when you choose to adopt or not adopt said piece of advice.
There’s a great Steve Jobs line, which I think is quite applicable here. “Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”
Great investors are troublemakers. In a good way.
P.S. To the three verified troublemakers I know who are reading this blogpost, can’t wait for your debut.
Small talk
Small talk was definitely one of those things I was rather dismissive of earlier in my career. Who da hell cares about the weather? Or what you did over the weekend?
But over the years, I realize some of the best investors are remarkably good at this. Not in the sense that they know how to ask great weather questions, but they learn how to build rapport early and quickly. And even better, they get a founder comfortable, honest, and candid about where they are at.
No one’s perfect. Every investor gets that. Most founders often pretend that they are. But a great investor is great at helping a founder realize they don’t have to be, and also get to understand a founder from a personal level. Not jumping straight into the pitch. Or give me your metrics. Or how much are you raising at how high of a valuation?
Radical candor
Borrowing this phrase from the amazing Kim Scott, the best investors are upfront with expectations. They don’t waste your time. Some even go as far as to share what their incentives are. And the harsh reality that they may be wrong many times before they’re right. They don’t beat around the bush. They don’t delay the inevitable. They’re great at ripping bandages off quickly, so they can prioritize their focus on other matters that require more attention. They have tough conversations early and synchronously. The last thing one can ever say about them is that they aren’t thoughtful. It seems remarkably simple, but most cannot do just that.
To be fair, it’s sometimes easier said than done. Even for myself, and I would not even dare to put myself in the category of great, I’ve been berated, gaslit, and shamed (haha!) for giving and attempting to give honest feedback to founders and investors. In fact, I was introed to a fund manager recently for the purpose of giving feedback. When I realized a couple red flags about her fund (namely her raising a $100M fund with no track record), I asked if she wanted feedback. To which, she replied with something to the effect that she only takes feedback from people who invest and that I didn’t deserve to give her feedback.
So I can see why some managers are averse to giving any.
Raising junior talent
I was reminded of this in my recent episode with Rick Zullo. And I noticed Rick is really good at giving credit and lifting up his team. In a soon-to-be-released episode, Eric Bahn from Hustle Fund does the same. I’ve asked him to speak at events before and he’s often referred one of his junior team members to the event. Not as a “I don’t want to do this, so someone else should”, but as a “I believe XX person will be a great future leader of this firm, and I believe others need to hear her insights.” And he’s been right every time.
Building an institutional firm takes more than one person. It takes a village. To build a legacy also requires more than one generation. I often see great investors taking less credit and giving a lot more to their team. Those often hidden from the limelight.
Discipline
Every great investor I know does something consistently every day. They set ground rules and while it’s less so for others, they hold themselves accountable to do so. Whether it’s a cup of coffee brewed from home every morning, or going to the gym on a daily basis or quality time with family or calling their significant other at a set time every day, I have yet to meet an investor who can’t keep to a promise they made to themselves consistently.
Venture capital is a long game, and it’s very possible for these multi-decade games, to be lucky at least once. Good investors, at some point, hit a unicorn. Great investors can discover many before others do. But any more than twice requires extreme discipline and the ability to say no to things that are good to make room for the great. And it’s so much harder than one might think.
And the simplest proxy to an investor’s ability to do so is their ability to fulfill promises to themselves when no one else is looking.
In closing
At the end of the day, not all shoes are the same. Just like not all VCs are. But if all you need is to get from Point A to Point B, and you don’t care for what kind of support you get along the way, VCs, like shoes, may all be the same.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Rick Zullo is the Co-Founder and Managing Partner at Equal Ventures. which invests into the future of four verticals: climate, insurance, retail, and supply chain, and boasts a portfolio including the likes of Threeflow, Leap, Smarthop, Ghost, Starday, David Energy, Leap, Odyssey, Vquip or Texture, just to name a few — many of which Rick serves on the board of.
Prior to co-founding Equal Ventures, Rick was an investor at Lightbank, an early-stage venture fund based in Chicago, where he led investments in companies like Riskmatch (acquired by Vertafore), Vettery (acquired by Adecco), Neumob (acquired by CloudFlare), Expel and Catalytic amongst others. Prior to Lightbank, Rick worked with investment firms Foundation Capital, Bowery Capital, and Lightview Capital, investing in technology companies across the capital spectrum from seed-stage to buy-out and began his career as a strategy consultant at Deloitte Consulting.
Rick received an MBA with Honors from Columbia Business School and graduated from the University of Richmond where he studied Economics and Leadership Studies.
[00:00] Intro [00:42] Rick’s book and how Rick thinks about his habit of writing [05:45] How Rick became a VC [11:36] The speed Rick listens to audiobooks [12:38] How Sendbird closed their first customer [14:20] Is networking a feature or a bug in VC? [17:59] Rick’s three hat framework [26:07] Growing up with a stutter and weak knees [35:58] Going from getting a job in VC to starting a firm [46:42] What motivated Rick despite how hard it was to raise Fund I [57:16] What makes EMC different from other emerging manager communities? [1:04:03] How does Rick help people become vulnerable at EMC? [1:15:25] What’s broken with venture [1:18:50] Rick’s hot take on funds of funds [1:22:04] “Seed stage is the worst stage to be investing into” [1:27:54] Asymmetric insight and asymmetric value add [1:33:00] How to pick board members as a founder when VC currently has high turnover [1:39:54] What should people know about Rick that he isn’t already known for? [1:42:55] Thank you to Alchemist Accelerator for sponsoring! [1:43:55] If you enjoyed this GP episode, do let me know in the comments or in DMs!
“Everyone in venture is networking and not working.” – Rick Zullo
“When I played football once upon a time, our coach [was] screaming at us, ‘Three hats on the ball! Three hats on the ball!’ The runner wasn’t down until we had three helmets tackling them.” – Rick Zullo, on staffing at a VC firm
“Historically, if you look at the last 10 years of data, it would suggest that multiple [of the premium of a late stage valuation to seed stage valuation] should cover around 20-25 times. […] In 2021, that number hit 42 times. […] Last year, that number was around eight.” – Rick Zullo (circa 2024)
“If you don’t read the newspaper, you’re uninformed. If you do read it, you’re misinformed. […] What is the long term effect of too much information? One of the effects is the need to be first, not even to be true anymore. So whatever responsibility you all have… to tell the truth, not just to be first.” — Denzel Washington
Since I’ve first started this blog, I’ve always had a bias towards sharing evergreen content. Lessons that can be applied to any era. Of course, not all my thoughts withstood, nor will withstand the test of time, but the goal was to be intentional with what I was putting out there. The bias was also due to the fact that I didn’t think I was best in class in being first to news updates (although opportunistically I could be).
And while not SEO-optimized, I find peace in delivering content that is hopefully as useful today as it will be tomorrow. In that regard, this blog will forever stay a blog, as opposed to any semblance of the traditional definition of media, which at the end of the day is the acquisition and monetization of attention. The latter of which I don’t plan to do for this blog, ever.
That said, the consumption of information is often just as if not more important than the production of information. In the words of my friend, one’s information diet. And if you’ve been around this blog long enough, you’ll be no stranger to that term. Of which about 50% of my information intake is ephemeral and 50% evergreen. But for the purpose of this blogpost, this one is less about me, but about the information diet of friends and colleagues. Where do many of the VCs and LPs I respect consume their evergreen content?
So I went around and asked the simple question:
Do you have 1-2 examples of evergreen content you love revisiting or stays in your mind rent-free?
In other words, what do you read when you need to get to the bottom of things, not just to stay on top of things?
By nature of being friends with everyone I asked, and to reduce the noise in the below list, I’ve excluded every mention of a specific blog whose first word is a synonym to ‘mug’ and a specific podcast whose name is inspired by astrophysical concepts. I asked about 20 VCs and LPs each. Whose fund sizes ranged from 7-figures to 10-figures. Whose tenures in investing ranged from five years to thirty years. Geographically, all except two I asked reside in North America, but many also invest into geographies external to the star-spangled banner and the home of the maple leaf.
There was no particular reason as to why I sampled as such, other than an availability bias. All of whom I could text or ping pretty quickly and get a response. After all, I incubated the idea for this post earlier this week. Also, by default, all recommendations were kept anonymous.
But without further ado, I’ve compartmentalized the below content into:
The amazing Jamie shared the below bullets as to why Annie Duke’s book is just that good, and Jamie’s words were too good not to include:
Embrace Uncertainty: I can make more rational and less emotionally driven decisions
Resulting: People judge the quality of a decision based on its outcome rather than on the decision-making process. THIS HAPPENS ALL THE TIME IN VC!!!! Annie argues that a good decision can lead to a bad outcome and vice versa, so it’s crucial to focus on the process rather than just the results.
Probabilistic Thinking: Think in probabilities rather than absolutes. By estimating the likelihood of different outcomes, individuals can make more informed decisions. This approach helps in managing risks and setting realistic expectations.
Learning from Feedback: Learning from both wins and losses is crucial, instead of attributing success solely to skill or failure to bad luck, understand what contributed to the outcome
Decision Groups: Forming decision groups where members can share insights and challenge each other’s thinking- this can help identify biases and improve the quality of decisions, I would say a key part of what happens at Screendoor
Importance of process: Developing and following a structured approach, individuals can make better decisions even in the face of uncertainty.
Additionally, one LP shared their more comprehensive list of content they revisit often. One that’s well-worth bookmarking.
I don’t know about you, but I know what I’m doing this weekend.
Big thanks to all the LPs and VCs I reached out to for recommendations, including Jamie Rhode, Eric Bahn, John Rikhtegar, and everyone else who shared their thoughts on short notice before we had a chance to get the compliance’s blessing.
P.S. John had probably the most unique pieces of evergreen content he regularly revisited. While I won’t spoil which, you can probably guess based on which of the above seem like recommendations off the beaten path.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
