Back when I was still swimming competitively, one of the drills our swim coach always had us do was a set of hypoxic drills. The two that left the most indelible marks were:
10 sets of 100 yards, broken down by 25 yards. Lap 1, breathe every 5 strokes. Lap 2, every 3 strokes. Lap 3, every 7 strokes. And Lap 4, every 9 strokes.
20 sets of 55 yards. You start with a flip turn into the wall. First 25 yards (Lap 1), no breaths allowed. Second 25 (Lap 2), you’re allowed to only take one breath.
Naturally, those drills usually left me the most exhausted. Not only did I find myself catching my breath, we also had to swim those on specific intervals, which left less than five seconds of rest at best, while swimming at 80% our max speed.
All that to say, it was a set of exercises that trained us to hold our breath. We had less oxygenated blood. Naturally, it was harder to exert our max strength and endurance. But it tested our ability to weather exhaustion.
Just like today.
Our venture ecosystem needs oxygen. The whole industry is holding their breath. For IPOs. like Stripe’s. Which may be unlikely to happen in the near future given Sequoia’s recent share acquisition. Software acquisitions have also hit an all-time low, leaving LPs starved for liquidity from the major private market exit paths.
And of the few “acquisitions” that are happening, they’re done to circumnavigate anti-trust laws. As Tomasz points out, “they hire the core team [in other words the founding team], license the technology, but the majority company continues to operate as a separate entity.” In addition, a number of companies also need to get re-priced in the market, having raised in 2020 and 2021 on over three-year runways. Which to their credit, was the common advice given by VCs during that era.
Election season does not make this Mexican standoff any less strenuous. How will it impact the global economy? And who’s the last to hold the bag with all these hot AI deals? We all know AI has low margins and requires and immense amount of compute to deliver the results that we expect, but how much longer will this need to go on?
Who knows?
At least until we get to breathe again. The consensus seems to be Q1 2025. But until we have oxygen again, this is the hypoxic training that our world will have to endure for the foreseeable future.
In the words of my coach, “focus on distance per stroke.” In other words, executional discipline. Do more with less.
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.
In the last few months, I’ve been to a number of AGMs. For the uninitiated, annual general meetings. These annual summits VCs host once a year to their investors. Their LPs. Some of such events I go to because I’m an LP in those respective funds. The vast majority of which I am not. But I go because I’m a friend of the team, or the GPs want me to give them feedback on the event, or that I advised them on how to put together the event itself. The invite, in and of itself, especially to those I am not an LP in, is an honor and a privilege. Something I don’t take lightly.
The best ones bring in quality attendees, not just speakers. And that these A-players bring their A-game. They are willing to share their insights and experience with candor, and leave little to the imagination. They are battlegrounds of ideas and creative conflict. To take a line from Matt Ridley, a line I first heard also at a an AGM last week, “Innovation is when ideas have sex.” Quality events are simply “brothels of ideas,” to borrow a line from a speaker at that AGM, leading not only to a higher quality of conversation, but also a higher quality of eavesdropping.
In the words of someone I met at one last week, “I don’t have a membership to a country club, but this is the closest thing I have to it.”
In each, the general partners for each firm would typically share the progress of the fund. The good. The bad. The numbers. The trends. As well as the future of the fund. Then after all that, they would have 2-3 of their portfolio companies present on stage, with insight as to what innovation looks like from ground zero. My personal favorites are where the founders don’t pitch that they’re fundraising. It is purely, in its truest sense, an exchange of ideas. Occasionally, there would be an additional speaker — an influential individual in the space to highlight the GP(s)’ networks. These have ranged from published authors to established GPs to celebrities to bloggers and podcasters to Nobel Prize winners.
LPs often go to so many of these. Many more than I have to date. That at some point, every annual meeting starts looking like the next. If you knew nothing else, or if you’re ever curious of my favorite rule of thumb on whether an AGM is truly different and worth one’s time is one where less than 10% of the attendees are on their devices. And even if they are, they aren’t on it for long.
That said, one thing I couldn’t help but notice was that many of the founders who spoke on stage often reflected the personality of the GPs. A mirror of sorts. Not all the time, but enough for me to consistently notice. Which makes sense since like-minded people gravitate towards each other.
People with similar energy levels. People with similar levels of charisma. Those with similar levels of curiosity. Similar sets of hobbies.
I have no thesis here. Merely a hypothesis from a very anecdotal set of observations. How crucial is a GP’s personality in selecting and attracting founders? If there was a loose personality archetype of a great founder, does that mean LPs should pick GPs with that same personality archetype since they’re more likely to attract entrepreneurs with similar personalities?
Hell, as they sit two degrees of freedom away from actual innovation, do most LPs actually know what makes a great founder?
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
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.
Eight years back, at least at the time of publishing this blogpost, Steve Ballmer, former CEO of Microsoft, shared one of his favorite interview questions.
“I’m thinking of a number between 1 and 100. You can guess. After each guess, I’ll tell you whether high or low. You get it the first guess, I give you five bucks. [Second guess], four bucks. Three. Two. One. Zero. You pay me a buck. You pay me two; you pay me three… And the question is, do you want to play or not? What’s your answer?”
While he didn’t go too much in depth on all the answers he’s gotten to it over the years, I imagine different people would have given different proposals on how the game might be played. Of course, the classic engineer is likely to approach it was as an expected value problem.
Most people will lose money. There are far more numbers to guess on which one loses than wins. The question really comes down to… do you know the odds of the game you play?
I find it interesting as an investor to hypothetically ask to founders and/or GPs. That said, I never did. But equally so, I usually spend the first conversation with an entrepreneur (whether the product be software or a fund model) trying to understand a person’s motivations. And, if they understand the rules of the game.
Those who don’t understand the rules will often jump head first in, and take care of the consequences later. Asking for forgiveness than for permission. An attitude that is more excusable in a startup founder than a fund manager.
Those who do understand will take a more measured approach. It’s interesting how little some people understand the game they’re playing. Be it in a two-year financial projection that encapsulates all their assumptions, or a portfolio construction model to understand the enterprise value to return the fund 3X.
For the former, it’s less so of how accurate a financial projection slide is. Hell, your guess is as good as mine. But I always ask founders to unpack it to understand how they’re thinking about the future as a function of their reality today.
For the latter, it’s to understand the true power of the power law, no pun intended. For instance, if you have a $10M fund, writing 20 checks of $500K for 5% ownership. Obviously, I’m assuming a bunch of things for the sake of keeping the math simple. No fees, no recycling, no reserves, and so on. You need to return $50M to 5X your fund. Accounting for 80% dilution, you’ll own 1% on exit. So you need $5B in enterprise value. Given the power law, one of out of the 20 companies should get to at least $3-4B in exit value.
Then again, those who understand the game too well will never take the risk necessary for serendipity to stick.
There’s an interesting blogpost an LP shared with me for my blogpost on evergreen content that VCs and LPs consume. A piece written by the legendary Graham Duncan. “The Playing Field.” A piece I highly recommend reading, even if to shape your own thinking about how the game you play evolves over time. In it, a line worth underscoring.
“[I]t’s the way you learn to play the cards you’ve been dealt, rather than the hand itself, that determines the worth of your participation in the game.”
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.
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.
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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.
