Month: April 2020

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Asking for Mentorship

asking for mentorship

Don’t.

… would be my short answer.

The longer answer… I’ll start with a story.

My First Mentor

This is embarrassing to admit, but 6 years ago, I barely knew what a resume was. As a hint of my ignorance, my first ‘resume’ was 3 pages long, double-spaced, and included two lines explaining a babysitting license I got back in middle school. So, within 10 seconds of it going up, I signed up for the resume workshop. In my hurry, I signed up for the first spot with the first “critique-er” I saw.

When the fateful day arrived, he didn’t show up at our appointed time. After waiting 15 minutes and asking the workshop leads, it turned out he was stuck in the depths of traffic.

But hell, I wasn’t going to go home empty-handed. So, I went around the bustling room, catching each “critique-er” there whenever they had a break, to ask them to look over my sad excuse of a resume. By the end of the two-hour workshop, I had taken notes about the flaws of my resume from every alumni there – half of whom ran through various interview questions with me – except for one. The one I had initially signed up with.

After hearing gossip and rumors from the alumni of how brutally honest he was, I had to meet this mysterious fellow. Eventually, he arrived. And luckily, the alumni invited me to join them for a late dinner. And that night, he left me with one sentence: “If you want my advice, you better take it seriously.” Not in the sense that I need to follow exactly what he tells me, but that I won’t hear then forget it the next morning.

Over the years, I’ve truly appreciated the analytical mind he brought to temper my creative mind. His advice saved my neck saved my neck at multiple crossroads of my career. He was able see around the corner when I couldn’t – a tactical mentor. Though I didn’t use his advice every single time, I always came back to him with the post-mortem.

  • How did I use his advice?
  • If I did, what was its impact?
  • If I didn’t, what was my internal calculus for choosing so?

He never pressured me to use his advice, nor did he ask that I report back to him each time. But I did. Over the years, I’ve been there for his highs and lows, just like he has been there for mine. Before we became mentor and mentee, we realized we had become friends. Ironically, to this day, he still hasn’t seen my resume.

The Bigger Picture

You might call it availability bias, but over the 6 years since then, I’ve reached out to many people – punching above my weight class, inspired to seek mentorship. But out of all the 20+ people that I asked for mentorship on the get-go, not a single one was willing to take on the responsibility for a stranger. And rightly so. Like any other relationship, mentorship requires time and commitment. Without any precedence, it’s hard to make that decision with asymmetric information.

The Venture Parallel

Even as investors, who notoriously have to be willing to not only mentor others through “just a pitch”, but also commit dollars to where their mouth is at, each round of startup funding takes at least 60-90 days of diligence and working together, before we invest. Our goal is to be ‘the best dollar on your cap table‘.

In a literal sense, a dollar is a dollar. Whether you get it from your parents as an allowance when you were 7 years old or from your managerial salary at 27 years old, it’s the same. But, in venture, there’s ‘dumb money’ – money in its most literal sense. And there’s ‘smart money’ – money that comes with advice, resources, social and professional networks, and help.

In most cases, an early-stage founder wants ‘smart money’. In that frame of mind, you want the investor(s) that have the best networks, the best resources, the best expertise, and possibly, the best brand, at your stage of a business. So your pitch should be hyper-specific. As with any ask in the world, nothing is ever guaranteed. But, to increase your chances of a “yes”, the best founders build that relationship before they need to fundraise.

Circling Back

For any other person out there, whose day job isn’t to take measured capital risk, you’ll have to work even harder to convince someone to take that leap of faith with you.

When you ask for mentorship, or advice, in general, follow through with it. Make it known that it is valued. And, show your progress after having tried it out. No person speaks hoping to reach deaf ears. So, if you don’t think you’ll have the mental and physical bandwidth to turn advice into action, don’t ask for advice. And definitely, don’t ask for mentorship. It’s not worth your time or theirs.

As a footnote to myself and to others who may be seeking advice, even with this mindset, there’s no silver bullet. Be curious. Be mindful. And, be creative. My favorite creative ‘ask’ so far is “I will pay you to work for you”.

And to my first mentor, Happy Birthday!

Photo by Juan Pablo Rodriguez on Unsplash

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The Psychological Tortoise and Hare

the tortoise and the hare, mental health, therapy, race

We’re all privy to our emotions. It’s what makes us human. And I am no exception. Like many people that I know, there have been many moments in my life when I’ve been stressed. When I felt forced to make split decisions. When I’m not rational. Only to regret my actions and words down the road. Despite it all, though I have friends and colleagues who have, I’ve never dipped my feet into therapy. Instead, after years of diligence, I found solace in other solutions to navigate through my mental gymnastics:

  • Meditation and visualization,
  • Exercise/swimming,
  • Gratitude journaling,
  • And, dream journaling.

Last week, I caught up with a founder who found her initial sanctuary in therapy – a service I have only observed from the periphery. Historically, therapy seems to have carried a negative stigma. If I were to say, “I’m going to see a therapist.”

Many people’s naturally response would be: “What’s wrong?” Subsequently, many people have used therapy and its cousins as a reactive measure, rather than a proactive one. Luckily the conversations around mental health have finally reached the limelight, and people, more talented than I am, are working to change the biases associated with mental health. Although just a comparatively small step, I’m writing this post now to help shed light to an industry that for too long has remained behind stained glass.

The toolkit of skills

“Therapy, just like any other class out there, pairs you with a set of skills to tackle the world.”

So, I asked her, “What was the most impactful skill you learned in therapy that enabled you to better react to the world around you?”

“There’s this process I learned, when in the moment, where I first identify the initial ‘bad’ cause. Then I notice and name all the colors in the room. And after I do so, then I identify the next action I would have taken after the ‘bad’ cause.”

Seeing, my perplexed look over Zoom, she elaborated, “In the beginning, I would count a lot of colors in the room. But over time, I only needed to count less. The reason… so that I could take time to think and react appropriately to situations.”

Just like I was taught to take deep breaths when Joey steals my crayon. Just like meditation isn’t inherently bad or good, it’s merely an exercise you do to channel your thoughts. If you become obsessed with negative thoughts, you will heighten you respective emotions. If you focus on more positive thoughts, you will leave with a happier state of mind.

Counting colors was that for her. And practice makes perfect, as do all skills – be it mental or physical. Our brain is a muscle that’ll only get better the more we stretch, ‘tear’, and put it through the wringer. Although now she’s “graduated” from such exercises, she still practices her mental discipline through other means, like journaling.

In closing

Too often, we regress to our instinctual emotions. The purpose of such exercises is to give time for our mammalian brain to catch up to our reptilian brain. Or, more scientifically put, for our pre-frontal cortex (PFC) to catch up to our amygdala. And in giving them time to level out the playing field, we are able to make a decision where we can minimize our regrets in the post-mortem.

I’m not advocating to throw away your emotions. Personally, on multiple occasions, I have to thank my emotions for the results I was able to achieve – from channeling anger and frustration to keep myself going in the last leg of an open-water race to embracing contentment to inspire me when writing. Emotions can be your strength or your weakness. But hopefully, in honing in the toolkit available to you, you are able to make better judgments at the many crossroads of your life. One of such tools in the toolkit may just be letting the tortoise catch up to the hare, metaphorically-speaking. Or the hare catch up to the tortoise, physiologically-speaking.

Photo by Pietro Mattia on Unsplash

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Drawing Inspiration

drawing inspiration, ideas, eclipse, writer's block

On Tuesday, I had the great honor to jump on a call with someone who is both a brilliant composer and an acclaimed orchestral conductor. Though he was classically trained, he found fame in the world of video games. And I couldn’t help but ask where he draws his inspiration when composing musicality to pair with various mediums of entertainment, even outside of games. He answered simply:

“Everywhere.”

He followed up that to help him frame his ideas around the subject of his piece: “I watch a little bit, not too much to have the show or game dominate in his mind, but enough to start off.” Just a small spark to start the fire. What he said echoed in mind, reminding me of a conversation I had with another friend – entrepreneur, author, and podcaster – prior to self-quarantining ourselves. He told me: “There’s no such thing as writer’s block. It’s that desire for perfection that holds us back from putting our pen on paper. But once we let go of trying to be perfect, we can find inspiration from everything around us.”

In all honesty, when he first told me this, I thought he was being quite presumptive. Especially it was at a point in time I was struggling to find content to put out weekly. But he was right. And, as you may have guessed, that became the kindling for the #unfiltered series.

Similarly, a few weeks back, a college buddy asked me where I find my inspiration for pieces on this blog. Though I am echelons shy of the musical talent I spoke with two days ago, I offered him the path I took to get me here:

  • Practice ideating daily.
  • Talk to people.
  • Meditate and/or write in a gratitude journal.
  • Write an audience of one.

Practice ideating daily.

My brain, like your brain, is a muscle. The more I practice using it, the better it gets. The same is true for ideas. The more ideas I write, the better I’ll get. It can be one sentence. Or, it can be 5 pages. But make sure to dedicate at least a full page to each day, even if 95% of it may be blank. The point is to deliberately do so every day, with no cheat days. Personally, I spent the first 2 weeks, writing one sentence entries.

So, I invested in an idea journal. In fact, probably my best investment I made in the past 3 years. And, I didn’t bother buying a cheap one. It was a Moleskine art sketchbook. At the time, a $17 purchase plus tax. And for a broke college student, that was a sizable amount – two good meals worth. A good alternative and the one I use now is a Leuchtturm1917 sketchbook. Why? Because it forced me to use it. I realized for me, the better the notebook is, the more I’m inclined to not let it go to waste.

Although I wish this was my original idea, my professor at Cal taught me this simple, but effective strategy.

Talk to people.

When I found myself unable to grasp at any ideas (that I thought were good), I talked to people. The more obsessive they were about their passion, the better. The more (positive and negative) emotion they channel into their work, the more insight they’ll have. And, frankly, excitement is contagious.

Talk to at least one of them from this cohort a week. Take notes, follow up, and ask more questions. The last part usually more independently, depending on their bandwidth.

Meditate and/or write in a gratitude journal.

Be thankful. It’s a useful frame of mind to be in. Positive thinking helps with more expansive creativity. Negative thoughts and stress, depending on its severity, narrows down the scope of your creativity.

Write for an audience of one.

Many professional writers are taught to find a target audience and write for them. Focus on a specific segment, before broadening, if ever. My mentors taught me to take this one step further. Instead one specific segment, just one person. It’s much better to write for 1 person who I know will always love my content than to write for a hypothetical many who may or may not even like it. For me, it’s myself. When I’m writing here, I’m merely a hobbyist. I don’t have any grand goal of reaching one million subscribers (not that I’m opposed to it). I’m just here to immerse myself in the joy of writing. And if I am lucky to have affected someone else’s life in a meaningful way, that’s my cherry on top.

Photo by Jongsun Lee on Unsplash

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#unfiltered #9 Living to Eat – Supporting the Service Industry, Fine Dining Musings, Restaurant Selection Criteria, Tipping, and the Notebook

living to eat, fine dining

I had originally planned to write this post back in February, but when the coronavirus came crashing in 6th gear, I thought it would have been unwise to urge you, friends and family to venture beyond your doorstep. So this post fell into the depths of despair, hoping to find its way to center stage after we were on the road to recovery and when restaurants reopened.

But yesterday, over a Zoom call, in catching up with a fellow foodie and college buddy, he suggested that I still post this. Not to urge people to eat out. But as a voice to support the many struggling restaurants, caf̩s and bars out there Рmany of which include our personal favorites. Before I dive into this post, I want to explicitly note 2 disclaimers:

Disclaimer 1: As I mentioned above, this post is not written to incentivize you to go eat out now, but rather just illustrate my musings as someone who loves food. And as many other businesses are feeling the brunt of the impact in the status quo, the culinary industry is no exception. Your favorite restaurant yesterday may not exist tomorrow. And you won’t even be able to experiment with any of the below musings if we don’t put a hand out now and support them when they need us most.

Disclaimer 2: I am neither a professional chef/cook nor is my trade being a food critic. So take what I say with a grain of salt, as with anything I write. Below is merely my observations in one of my most expensive hobbies as a foodie.

Given the extravagant length of this post, here’s a TL;DR:

  • Why I don’t resort to Yelp/Google when picking a new dinner destination
    • And a couple of my favorite restaurants in the Bay Area
  • My calculus for tipping – and why there are times I choose to not tip
  • Why a notebook may be your best friend in your culinary adventures
Continue reading “#unfiltered #9 Living to Eat – Supporting the Service Industry, Fine Dining Musings, Restaurant Selection Criteria, Tipping, and the Notebook”
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#unfiltered #8 The Oasis – Fiction, Books I’ve Recommended/Gifted the Most, How I’ve Kept Myself Busy Outside of Work

book, fiction, reading

Lately, I’ve picked up a few fiction books – 2, to be specific – The Three Body Problem by Liu Cixin and Mistborn: The Final Empire by Brandon Sanderson, by recommendation of a friend and founder, respectively. And damn, they’ve rekindled my love for worldly escapes. Prior to high school, I used to be the biggest fanatic of fiction books. Although proportionally smaller, my fictional “library” at home still includes:

  • every single book in the Magic Tree House series by Mary Pope Osborne
  • the entire Redwall series by Brian Jacques,
  • every single one in the LEGO Bionicle series,
  • the Alex Rider series by Anthony Horowitz,
  • Dune by Frank Herbert,
  • The Steel Wave by Jeff Shaara,
  • and much more.

And to further how much I nerded out over fiction, I knew our local librarians by their first name and memorized by library card number by heart (to this day) – all for the sake of fiction. But as I grew older and entered my teens, I was told that I should have outgrown fiction. That it should stay as a remnant – a fond memory – of my “youth”. So, I slowly acquired the taste for non-fiction, biographies/autobiographies, business books and documentaries.

Yet, in some ways, in this serendipitous situation, when now I have more free time, and by fervent inspiration from the two aforementioned angels, I found sanctuary in other worlds. I saw with my imagination and heard with my eyes. For lack of better words, it was magical.

From non-fiction, I’ve been able to walk alongside the greats who have once or now inhabit the reality on this small blue pearl amidst a sea of unknown. From fiction, I’ve been able to walk alongside the greats who have never lived in this reality, maybe never will, but somewhere out there, they hold the keys to our dreams. Each hold a proud seat in my heart, but the latter has been dormant for over a decade.

Books I’ve Recommended/Gifted the Most

I should preface that I’m not the most voracious reader out there – although that’s been changing over the past 4-5 weeks. But here are my favorites which I’ve recommended/gifted the most:

  • 2018 fav – The Messy Middle by Scott Belsky
    • Short (1-3 pages, on average), but incredibly insightful chapters of product/design/leadership lessons from a founder/investor/product leader, especially during messy times post-honeymoon stage of being an entrepreneur. My favorite pages… 232-234. A set of three questions to create a lovable product.
  • 2019 fav – The Trillion Dollar Coach by Eric Schmidt, Jonathan Rosenberg, and Alan Eagle
    • A dedication to the most well-known least famous person in Silicon Valley. From the book title, you might be able to guess what he did – all of which he took zero compensation for. Having been suggested and subsequently read too many leadership books earlier in my career, when I first suggested this one, I was quite skeptical. I thought it was just another one of those, until I heard the name, Bill Campbell. A name which I’ve heard more than once from various people who attributed their success to him, since 2016. And I’m so glad I didn’t dismiss this one. I only wish I could have gotten to know the amazing person this book is dedicated to.
  • Startup fav – The Hard Thing About Hard Things by Ben Horowitz
    • A book that doesn’t sugarcoat the tough decisions in building a company – a set of decisions illustrating on how he dealt with situations when things just wasn’t going his way. Rather than being prescriptive, it gave me a framework for understanding the various struggles a founder will encounter – most of which I had yet to see when I was recommended to read this book. Quite pertinent in today’s landscape, ironically.
  • Most nostalgic/impactful on personal growth – The Art of War by Sun Tzu
    • I was first given this book when I graduated from elementary school, as the problem child, though not in the traditional sense. I had a knack for blaming others when problems arose, but this book helped me understand people better and where people were coming from. In all honesty, I don’t know why it clicked when I was only 10, but it did. Apart from my childhood bias, though specific to leadership in a military regime, you can draw several parallels between the art of war and business and life.
  • Fiction fav – Salamandastron by Brian Jacques
    • Brian Jacques throughout the entire Redwall series just has such a way to weave suspense and an emotional attachment to the various characters. Admittedly, it was the first fictional book I cried to while reading, so it holds a special place in my heart.

For the sake of not overwhelming you with too much, I’ve only included the ones I’ve statistically recommended/given the most, as well as gotten the most positive reactions from folks I’ve offered these to. If you’re interested in a more exhaustive list, feel free to DM me – either through this blog or social media.

Keeping Body and Mind Busy

For many of my other friends and colleagues, they have found similar solace in books. Many in the kitchen. Some with instruments and a camera. A handful with a mic and Twitch or Anchor.

Because I have saved 2-3 hours of travel time every day now, I’ve been:

  • Doodling at least thrice a week in my Leuchtturm notebook, specifically their medium sketchbook (180g/sqm, so on the thicker end of pages);
  • Jumping on game sessions with friends over the weekends, like on Skribbl.io or recently, Songversations (Discord is definitely my favorite medium of social interaction, especially with all the bots they have. My favorite of which is the Groovy music bot where I can tune into music alongside my friends);
  • Reaching out to 1 new person I’m insanely curious about every week;
  • Idea-journaling every day;
  • Trying new recipes and methods in the kitchen;
  • Trying new home workout routines;
  • Reading fiction and non-fiction;
  • Writing for this blog 😀 ;
  • And, a new social experiment between friends, family, and colleagues, in hopes of making this world feel a little smaller, just a little closer, and a whole lot more interesting.

So, if you have the time and privilege to, explore new/’new’ genres and mediums of storytelling, creativity, and activity. Some may very well surprise you!

Photo by Ksenia Makagonova on Unsplash

#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.

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#unfiltered #7 Words are Food – Having Empathy, Job Resources Now, Letting Staff Go, and Perspective Shifts

words are food, empathy

I jumped on a call with my good buddy, incredible founder and one of the most magnanimous people that I know, Mike, not too long ago. And no, he did not pay me to say that. As always, we nerded about everything on the face of this planet, but one thing in particular stood out to me. And inevitably manifested into the foundation of this #unfiltered post. He said, just 3 words:

“Words are food.”

The more we delved into this rabbit hole, the more robust the metaphor began. But for the sake of not running your ear off, I’ll cover just one facet of our parallel.

Compliments are sweets. They’re great in moderation, but too many give you cavities. They wrap up a great meal, but you cannot live your life only indulging in compliments. On the other hand, constructive criticism are your vegetables. They may not taste the best, but they’re healthy for you. And a healthy diet should consist of mostly fruits and veggies. Yes, brussel sprouts and eggplants too. Of course, it’s important to note that blatant criticism, like “You suck” or “You’re dumb” is garbage. They neither taste good nor are they healthy for you. You can smell it from miles away. So just steer clear.

After all, you are what you eat. 😀

Empathy in Words

In the past 4 months, we are all going through a transitory stage in our lives – some more drastic than others. Some of us have experienced the deaths of loved ones. Some, a test of relationship integrity. Others, career shifts and a change in household income. For those of you who have been affected by the job market, my friend passed me this resource which I hope you’ll find use in honing your job search. Anecdotally, it seems pretty accurate.

And almost everyone, a dietary change and restriction, due to the market’s supply and demand. And it’s more important a time than any (not that you shouldn’t when the curve flattens and the markets recover), be empathetic.

Be kind – with your actions and your words. In these times, it’s so easy to be caught up in what’s not going right in your life, but you’re not alone. You never are.

Empathy in Business Now

Although this applies to so many different aspects of our lives, I’ve found its pertinence on the business front recently. When the focus of businesses now is on cash preservation rather than growth, which I’ve alluded to in previous posts (1. cash in private markets, 2. heeding advice , 3. brand as a moat), aggressive decisions can be tough. As the saying goes, measure twice, cut once.

Here are some examples of said (preemptive) decisions I’ve seen from founders so far:

  • Reallocating 30% of the company budget to the core business from expansion and venture bets (70-20-10 rule of thumb to 100-0-0)
  • 50% cut to CEO salary, 10% cut to management, 5% from everyone else, to try to minimize layoffs
  • 100% cut to founder(s)’ salary, 35% cut to management, everyone else keeps theirs the same, while offering healthcare benefits for temporary workers/contractors

The conclusion for some founders may reach the point of laying off people who followed you believing in your dream. You can check out Mark Suster‘s, Managing Partner at Upfront Ventures, rubric for questions you need to consider in empathetic moments of business decisiveness.

Empathy won’t change decisions. The tough, but true remarks are your vegetables. People will still have to eat them, but be understanding of where the people eating the food you cooked up are coming from. Rather than boil your brussel sprouts, offer crispy ones with a soy glaze, a little heat, and a layer of bonito flakes.

Perspectives Forward

Recently, I had the fortune of connecting with a founder whose parents were refugee who found sanctuary in the states. She put things wonderfully into perspective, when comparing the current situation to the one she was familiar with as a child.

“There are 2 camps of refugees: (1) those who want things to go back to the way they were before, and (2) those who move forward knowing that life will never return to the ‘normal’ they once knew.

“And those who progress forward are those who believe in the latter.”

When the dust settles after all of this, life won’t ever be the same as it was 4 months ago. The hospitality, transportation, travel, and service industries, just to name a few, will irrevocably change. You friends and family may have lost dear ones.

Alas, I’m an optimist. And I know that we’re going to come out stronger than we were when we went in. We’re going to have to get used to a new diet. I dare say, even a new vernacular.

#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.

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Cold Emails – Addressing Elephants and Rock Hyraxes

cold email, elephant

Amidst this unpredictable pandemic, where people are sheltering in place and social distancing themselves. We’ve reached a new inflection point in the curve of virtualizing our worlds. And it just so happens that this is one of the best times to reach out via cold email.

I want to preface by saying this practice has largely worked for me when I reach out. But is neither representative of the population nor guarantees a reply.

The Lesser-known Rock Hyrax in the Room

When reaching out via cold email, the first thing I do is to address the elephant in the room. Outside of the “why are you reaching out to me” question that everyone has, the second most pertinent question, consciously or subconsciously, often is “how long will this take?” – the rock hyrax in the room.

Fun fact: Apparently, the rock hyrax is the elephant’s closest cousin. Frankly, I didn’t know that until I began writing this piece.

Most people who’ve spent some time honing their skills for cold emailing can answer the first question rather well. But, many miss the second.

Close cousins include:

  1. What does the time commitment look like to respond to the email? To address the ask meaningfully? What is my opportunity cost?
  2. How long will this relationship like?
  3. Can I get along with this person?
  4. Will this be an extension of work?

The most important frame of mind is to be honest. If it’s a sales call, it’s a sales call, not “expanding my network.” If you think it’s going to take half an hour to chat, say it. Don’t be nebulous. Set expectations and be forthcoming and candid from the get-go.

“So… why are you reaching out to me?”

And, I’ll leave no stone unturned. If you know the receiving end is busy, also address why they are the best candidate to answer your ask. Be specific. Whether you’re trying to close the first few clients in your pipeline or reaching out to learn, consider the answers to these questions:

  1. How did you find them?
  2. What about them makes you insatiably curious to reach out?
  3. Why they’re the best fit? What’s in it for them? What’s in it for you? (Note I ask “What’s in it for them” before I ask “What’s in it for you”)
  4. Have you spent time doing diligence? On the person? Industry? Topic?
  5. (Optional) Are there inflection points in their life/career/public presence that are unrelated to your ask, but you find oddly fascinating? Pick 1-2.
    1. Note: You should be approaching this question from a point of admiration, fascination, and/or genuine curiosity. If you have any malicious intent, don’t bother.

It just so happens that the same holds for rekindling old flames. Although it’s, by no means, a replacement for social interaction, hopefully it’ll keep the pan hot, when you do sautée after we start mingling at dinner parties again.

Photo by Geran de Klerk on Unsplash

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Mega vs Micro Funds – Where is the money going in the private markets?

markets, mega vs microfunds
Photo by William Felker on Unsplash

One of my buddies and his team recently successfully raised their Fund I, luckily before this recent downturn. Moreover, their fund is geared towards investments into frontier tech. And the Curious George in me couldn’t help but ask about his findings and learnings. In the scope of mega versus micro-funds, our conversation also spiraled into:

  • the current state of private markets,
  • VC-LP dynamics,
  • and, operators-turned VCs.

Here’s a snapshot of our conversation, which could act as a cognitive passport for newly-minted and aspiring VCs. For the purpose of this blog, I’ll call him Noah.

The Snapshot

David: How do you think the private markets will change in this pandemic?

Noah: In a way starting a fund is a lot like starting a company. It’s definitely a humbling process to be on the ‘other side’ of the table and feel what it’s like to be an ‘entrepreneur’ and fundraise.

Yeah the impact on the private market side is something i’m trying to figure out yet. I think it’s still a little early to denote the true extent of the impact. But nonetheless, in the short term, funding activity is bound to go down, people are speculating the duration of this event and waiting for prices to come down. We’re lucky to have closed some money before this happened but it’ll be extremely tricky for the next wave of new fund managers to raise their funds.

It’ll be an especially rough time for founders especially if it goes on for long enough, most VCs will probably try to cut losses by dedicating their attention to portfolios that have the highest chance of survival. This crisis is also different in the sense that it’s a virus which prevents people from regrouping quickly if it carries on.

David: And it’s partly due to a recent function of LPs under-allocating towards the VC asset class as a whole, with longer fund cycles (10 years [6-7 years now] + 2-year extensions). Before all this, the market had been performing rather well in the past few years (a solid 17-18% return YoY on the public markets, or these self-imposed liquidity events, versus venture where only the top quartile of VCs make better than market return). I believe the 2018 number for the top quartile annual IRR was 24.98%, which is, what, 3x in 5 years, but even then, its not enough to convince many LPs.

Although you have the rise in a new sort of private investor in both the secondary markets, as well as VC-LP functions, where firms LPs either invest directly, or VCs are now investing in other micro-funds, like Sapphire. With VCs writing more discovery checks, and so many recent exits in tech, syndicates, via SPVs (special purpose vehicles), has helped them develop relationships with founders early on and relatively no strings attached.

Noah: I think one metric that really stands out that everyone is thinking about is in terms of liquidity. Not only are companies staying private for longer, more and more new alternative asset classes are rising. Interestingly enough, a lot of the endowments or larger institutions we’ve talked to are over allocated in venture. For example, Duke has nearly 1/3 of their money allocated to VCs. One obvious way that VCs are tackling this is in the secondaries market, selling off equity earlier and earlier, so lower potential return profile but LPs generally love early indications of a good DPI.

And yep, microfunds is definitely a big trend as well. It’s simply not sustainable for half a bill/billion dollar early stage funds to exist. Some of the returns of these mega funds have been made public and they’re not looking too great, even if it’s still early for them. On the flip side, smaller funds are a lot easier to return and generally where the best performing vehicles can be found. Moreover, the traditional endowments and institutions have locked in to the Sequoias and Andreessens already, so new FoFs (fund of funds) and relatively newer endowments are always looking for who are the next best alternatives. It just so happened that we’re also seeing a wave of ex-operators coming into the world of VCs and starting new funds. They might not have the acumen to build a long-standing mega fund yet, but their technical expertise makes them a good candidate for more verticalized funds.

David: I totally agree with your sentiment that operators should go do specialized funds, that could be vertically aligned, or could be functionally aligned (i.e. marketing, growth, dev, design, etc.). I’ve had this long standing belief, and let me know what you think. If you’re a great VC, run a mega fund. But if you’re a good-to-okay VC, run a micro fund or an alternative funding vehicle.

As someone who’s good-to-okay, it’s more important to (1) hedge your bets, aka diversify your portfolio, and (2) collect data. Most newly-minted VCs don’t have the experience, like you said, on the other side of the table. Just because you’ve been a good student doesn’t mean you’ll be a good teacher. As someone starting off or just don’t have a stable track record for doing well (aka one shot wonders or the lagging 75% if not more, of the industry), you gotta collect data, to do better cohort/portfolio/deal flow analysis.

Whereas if you’re a great VC, you need the capital to commit to the best investments of your portfolio. So megafunds, plus growth funds, make sense. Although, admittedly great VCs are far and few between.

Noah: My two cents is that the trend of larger and larger fund sizes is ultimately the result of VCs becoming too competitive. It’s no longer enough that VCs have a platform team to help support portfolio companies because more and more other VCs are amassing large support teams too. Therefore as you mentioned, the true way for them to stand out is to have a multi-billion dollar fund that spans across multiple stages. So unlike an early stage fund that can only guarantee committing maybe up to, let’s say, $10MM in capital during their seed and series A, these new beasts can support you in the growth rounds as well, all the way to IPO, and more and more VCs are doing so.

The problem is that this is a recent trend that happened within the past decade, and it’s still quite early to judge the capabilities of some of these new mega funds and whether they’re qualified to manage such a large fund. Nonetheless, you do still see that some of the best funds out there are very disciplined in keeping a consistent fund size (e.g. USV, Benchmark, First round, etc.) simply because it’s so much harder to return a billion dollar fund versus a $250MM vehicle. Microfunds is another interesting trend. On one hand a lot of these newly-minted VCs simply don’t have the capability to raise a >$100MM+ fund in the first place. But there are also cases where the GPs are more than capable but still choose to keep it at a <$100MM vehicle. I’m guessing a lot has to do with the competitive environment we’re in nowadays. When you don’t have as high ownership targets because of your smaller fund, you’re more flexible with minority stakes and can thus co-invest and get into better deals.

What does this mean for founders?

In these trying times, the public discourse around venture financing has been that there’s still quite a bit of capital that has yet to be deployed and that investors are still looking to invest. Yet it is neither entirely true nor entirely false. There are still financings going on today. Admittedly, most of these started their conversations 2-3 months ago.

The goal is cash preservation over growth for many verticals and companies, and it’s no less true for private companies. In that theme, most investors’ first foremost focus is the wellbeing of their portfolio. And because of that priority, many investors are slowing their investing schedule for now. This is especially true for megafunds, where, as ‘Noah’ mentioned, requires much more to return the fund, much less make a profit.

On the flip side, I’ve seen smaller funds and angel syndicates still actively deploying in this climate. I’ve also heard concerns where this pandemic and downturn is going to affect their fundraising schedule for Fund II and Fund III, so they’re pressured with making bets now from their LPs.

Anecdotally, it shouldn’t be harder to raise funding now than before. Some of the greatest companies came out of the past few downturns (2000 and ’08). A caveat would be if you overvalued in a previous round and are still looking to maintain the valuation trajectory (up round over down round).

So keep hacking! Measure well! And stay safe!

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Self-Assessment (VC Scout) circa April 2020

vc scout reflection
Photo by Marc-Olivier Jodoin on Unsplash

This year in my resolution, I aim to be more vulnerable by “opening up about the potholes ahead, not just the ones in the rearview mirror”, to quote Jeff Wald. So I’m going to take a step closer to doing so.

Yesterday, my buddy asked me a question that didn’t sit well with me. Not because he was rude, nor because he meant to offend me. In fact, for all intensive purposes, it was entirely innocuous. But it was a question that got me to really question my beliefs and do an impromptu performance review of myself. He asked:

“Out of all the startups you’ve met with and had the chance to source, how many do you regret passing on? Which one or two stands out to you the most?”

I paused for a second. But when words arose to my mouth, my reply was simple. “I don’t think I have any regrets.” As soon as I said that, I immediately felt this gnawing feeling that something was wrong. I’ve always chosen to live life without regrets. And though this may seem to run parallel to my mantra, I knew deep down it wasn’t meant to be.

Luckily, I have had more time to introspect than otherwise during this pandemic. There are 3 possibilities as to why I have no regrets:

  1. It’s too early to tell which ones will be home runs.
  2. I’m not being selective enough, aka I have a flawed investment thesis.
  3. I don’t have the kind of quality deal flow I would like.

While optimistically, I hope it’s the first possibility. After all, it’s only been 3 years since I embarked on this journey. And there probably is a small proportion of startups that will go on to prove me wrong. Realistically, it’s a permutation of the latter two.

Currently, I pick about 40-50% of my inbound (referrals/intros, cold pitch emails/messages, various networking apps) and 100% of my outbound (assuming they get back to me) to have a conversation with. Of those, I usually find 1 out of every 10-15 that I continue the conversation with from an investment standpoint. And out that pool of founders, I usually end up referring 50% of them. Meanwhile, I still try to be helpful in some capacity to everyone else, but only spend about 20% of my time to do so. From a high level, I couldn’t see anything wrong with this funnel. At least, not until my buddy asked me that question.

Sourcing is one of those things that’s easy to pick up, but difficult to master. And now, I feel, not just conceptualize, how steep this learning curve is. There’s a saying in the industry that “luck only gets better with success.” But I have yet to pay the admission fee for my luck to start compounding. So there’s 3 things I have to do:

  1. Reevaluate my current deal flow by analyzing inbound sources and the empirical quality from each (# of startup I’ve introed/total # of startups received from X source).
  2. Hit up the investors I know to help me create a more robust thesis.
  3. Double down on helping my existing deal flow reach their aggressive milestones, until hopefully, the first can hit the ground running.

On the brighter side, it’s great that I’m iterating on this now before I become a checkwriter.

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