Month: March 2025

Posted on

Investors Should Never Read a Deck From Beginning to End

sing, voice, singer, song

Four judges. Four chairs.

Backs turned against the stage. And facing the audience, suspended in anticipation of who’ll walk out on stage.

A lone individual slowly walks out and as she does, the melody starts.

1… 2… 3… in a bellowing, deep yet clear vocal, “OHHHHHHHHHHH~”

Boom. Boom! Boom!! Boom!!!

All four chairs turn. And the crowd goes wild.

As a kid, The Voice was one of those guilty pleasures I had. The centerpiece in a Venn diagram of music, showmanship, and raw talent. Each contestant was judged on nothing more than the raw horsepower their vocals carried. Quite literally, sometimes. For the judges, the call-to-action was quite simple. You had to cast your vote before the song ended. In other words, you must show you wanted to bring a contestant on your team, trusting instinct and years of experience before you saw what they looked like or how they presented themselves. And that… that was awesome!

A decade and a half later, now sitting in the world of private market investments, I find the same parallels in startup and GP pitch decks.

I’m specifically referring to decks you send investors before you have a chance to talk to them. Whether it’s via the cold outreach, a submission on their website, or attached in a warm intro.

A teaser deck is not meant to be finished.

‘Cause if they do, you’ve lost them before you had a chance to talk to them. There is no glory in an investor flipping through every page. There is no glory in finally seeing the call-to-action at the very end of the deck. Usually an email or a how much you’re raising.

While it’s in the title, let me re-underscore. Investors should never read a deck from beginning to end. Each slide should, in theory, give the investor the activation energy to book a call or meeting with you. The sooner in the slide deck you can convince someone to book a meeting, the better. The longer you take to convince an investor, be it VC or LP, the less likely they’ll take that first meeting. The purpose of a viewing deck is to get to the first meeting, not the investment decision. There is nothing a deck can single-handedly do to convince an investor to invest. If the brief can, the fiduciary is not doing their job.

Instead, what a deck should have, in my humble opinion… as early as possible:

  1. Your fund’s greatest highlight — It could be your 10X DPI across 8 years of investing. Could be the fact that you literally built the modern large language model infrastructure. Or that you took your last company public. Or that every. single. CISO. In the Fortune 50 list is an LP. It must deliver the wow factor. The surprise. Something people don’t expect. The primary reason an LP has to talk to you.
  2. Your biggest elephant in the room — In a world where 75% of funds say they’re top quartile, you need to stop being the salesperson, and start being the honest businessperson. There are, undeniably, risks of getting in business with you. To think otherwise is stupid. The question here with a capital Q, is are you self-aware enough to know your biggest flaw? Or can you not recognize your own blind side? Admittedly, this second one is a selfish desire to see more funds with this. Because 99.9% of funds don’t share this. And LPs are tired of overly-promotional decks.

Of course, there are other reasons an LP will take the first meeting.

  1. The person introducing you is a person the LP deeply trusts.
  2. Your outreach is highly personalized. I’d like to stress the word highly.
  3. The LP typically doesn’t receive that much deal flow.
  4. The LP is in learning mode / revamping the portfolio. Likely, but not always, a new CIO.
  5. You’re Taylor Swift.
  6. You’re lucky.

Obviously, never count on the last.

Photo by Forja2 Mx on Unsplash

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.

Posted on

Flaws, Restrictions and Limitations

One of my favorite equations that I’ve come across over the last few years is:

(track record) X (differentiation) / (complexity) = fund size

I’ve heard from friends in two organizations independently (Cendana Capital and General Catalyst), but I don’t know who the attribution traces back to. Just something about the simplicity of it. That said, ironically, for the purpose of this blogpost, I want to expand on the complexity portion of the equation. Arguably, for many LPs, the hardest part of venture capital as an asset class, much less emerging managers, to underwrite. Much of which is inspired by Brandon Sanderson’s latest series of creative writing lectures.

Separately, if you’re curious about the process I use to underwrite risks, here‘s the closest thing I have to a playbook.

To break down complexity:

f(complexity) = flaws + restrictions + limitations

A flaw is something a GP needs to overcome within the next 3-5 years to become more established, or “obvious” to an LP. These are often skillsets and/or traits that are desirable in a fund manager. For instance, they’re not a team player, bad at marketing, struggle to maintain relationships with others, inexperienced on exit strategies, have a limited network, or struggle to win >5% allocation on the cap table at the early stage.

Restrictions, on the other hand, are self-imposed. Something a GP needs to overcome but chooses not to. These are often elements of a fund manager LPs have to get to conviction on to independent of the quality of the GP. For example, the GP plans to forever stay a solo GP even with $300M+ AUM. Or the thesis is too niche. Or they only bet on certain demographics. Hell, they may not work on weekends. Or invest in a heavily diversified portfolio.

Limitations are imposed by others or by the macro environment, often against their own will. GPs don’t have to fix this, but must overcome the stigma. Often via returns. Limitations are not limited to, but include the GPs are too young or too old. They went to the “wrong” schools. There are no fancy logos on their resume. They’re co-GPs with their life partner or sibling or parent. As a founder, they never exited their company for at least 9-figures. Or they were never a founder in the first place.

To break down differentiation:

f(differentiation) = motivation + value + platform

Easy to remember too, f(differentiation) = MVP. In many ways, as you scale your firm and become more established, differentiation, while still important, matters less. More important when you’re the pirate than the navy.

Motivation is what many LPs call, GP-thesis fit. To expand on that…

  • Why are you starting this fund?
  • Why continue? Are you in it to win it? Are you in it for the long run?
  • What about your past makes this thesis painfully obvious for you? What past key decisions influence you today?
  • What makes your thesis special?
  • How much of the fund is you? And how much of it is an extension of you or originates with you but expands?
  • What do you want to have written on your epitaph?
  • What do you not want me or other people to know about you? How does that inform the decisions you make?
  • What failure will you never repeat?
  • In references, does this current chapter obvious to your previous employers?
  • And simply, does your vision for the world get me really excited? Do I come out of our conversations with more energy than what I went in with?

As you can probably guess, I spend a lot of time here. Sometimes you can find the answers in conversations with the GPs. Other times, via references or market research.

Value is the value-add and the support you bring to your portfolio companies. Why do people seek your help? Is your value proactive or reactive? Why do co-investors, LPs, and founders keep you in their orbit?

Platform is how your value scales over time and across multiple funds, companies, LPs, and people in the network. This piece matters more if you plan to build an institutional firm. Less so if you plan to stay boutique. What does your investment process look like? How do people keep you top of mind?

Of course, track record, to many of you reading this, is probably most obvious. Easiest to assess. While past performance isn’t an indicator of future results, one thing worth noting is something my friend Asher once told me, “TVPI hides good portfolio construction. When I do portfolio diligence, I don’t just look at the multiples, but I look at how well the portfolio companies are doing. I take the top performer and bottom performer out and look at how performance stacks up in the middle. How have they constructed their portfolio? Do the GPs know how to invest in good businesses?” Is the manager a one-hit wonder, or is there more substance behind the veil?

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.

Posted on

Winning Deals in 1968

boxing

As part of a new project I’m working on with a friend, I’ve spent the last few months doing a lot of research into the history of technology and Silicon Valley, and talking to a lot of primary and secondary sources. One of the rabbit holes I went down last week led me to a really interesting story on deal dynamics back in 1968.

For the historian reading this, you may already know that was the year of the Apollo 8 mission. The assassination of both Martin Luther King Jr. and Robert F Kennedy. The Tet Offensive in Vietnam is launched. Also, the year the Beatles’ Magical Mystery Tour album tops music charts and stays there for eight straight weeks. And their White Album goes to number one on December 28th that year too. 2001: A Space Odyssey premieres. Legendary skateboarder Tony Hawk is born.

For the tech historian, that’s the year Intel was founded.

“They came to me with no business plan.” — Arthur Rock

The last two of the Traitorous 8. Gordon Moore and Bob Noyce. Bob Noyce co-invented the integrated circuit. And Gordon Moore coined a term many technologists are familiar with. Moore’s Law. That the number of transistors on a chip double every two years. In 1968, the two last bastions finally left. Instead of promoting Bob to be CEO, the team at Fairchild chose to hire externally. And that was the straw that broke the camel’s back.

The first investor the two went to was Arthur Rock to start a new semiconductor company, with no business plan. Although, eventually, they wrote a single-paged, double-spaced business plan.

Around the same time, Pitch Johnson from Draper and Johnson (Draper comes from Bill Draper’s name) had just sold his portfolio at D&J to Sutter Hill, and Bill himself had joined Sutter Hill right after. Pitch was catching up with Bob, who he had known for a long time having been on the board of Coherent together. Their families had met each other several times. And planes have always been a fascination for both of them. After all, both of them were pilots.

Bob said, “I’m starting a company making integrated circuits, I hope you’ll be interested.”

Pitch responded with an offer of “a couple hundred K”, said that Bill may also be interested, and, “Well, anything you’re doing, Bob, of course I’d be interested.”

As Arthur Rock was putting together that deal, Bob asked Pitch to call Arthur. Pitch reaches out to Arthur, and Arthur tells him to “call [him] back next week.”

Next week comes by. Pitch calls again. And Arthur says, “I’ve done the deal, and you’re not in it.”

Dejected, Pitch picks up the phone to call Bob back, “Art doesn’t want me in the deal.”

Surprised, Bob calls Arthur and Arthur, in the tough, but honest Arthur way, responds, “Am I going to do the deal, or is Pitch going to do the deal?”

Inevitably, Pitch and Bill lost out on investing in Intel. Intel ended up raising $2.5M for 50% of the company.

At the end of last year, I was catching up with a senior partner at a large multi-stage fund. At one point in the conversation, he asked me, “Wanna see how lead investors work with each other?”

Before I could even reply, although I would have said “Yes” regardless, he pulls out his phone and shows me a text thread he has with another Series A lead investor.

The text starts: “Looking at [redacted company]. Any thoughts?”

The other guy responds back: “We are too.”

And the thread ends after one single exchange.

As much as VC has evolved and became a little more mainstream, deal dynamics with lead investors, or at least perceived-to-be lead investors, seem to hold. Of course, as a caveat, not every interaction is like this.

Photo by Johann Walter Bantz on Unsplash

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.

Posted on

DGQ 24: What predictions did you have in the past that didn’t play out as you expected?

tarot, prediction

References and getting beneath the surface have always been fascinating to me. Because of my job, my interests, and my content, I meet a lot of GPs and founders. And when they’re in pitch mode, they will almost always tell you about how amazing they are and how amazing their product is. Truth is, they probably are amazing. But in our world where everyone is, no one is. So what’s more interesting to me is their level of self-awareness. For the purpose of this piece, this is mainly about GPs. And hopefully, in service of GPs and LPs investing in GPs.

When someone is pitching you, especially if it’s the first time you’re meeting with them, they will tell you about all the sunshine and rainbows. That they knew there was going to be a pot of gold at the end of the rainbow. With a leprechaun there exclaiming, “I told you so.” I get the psychology behind it. Who wants to buy a new/used car with a dent behind the seat of the shotgun, just hidden from plain sight? Who wants to buy a home where the last owner passed away in it? Or an apartment where the family living above has rowdy kids?

For better or worse, usually for the worse, all of the above salespeople are looking for buyers, not customers. Customers are repeat purchasers; buyers are not. On the flip side, your LPs are more likely to be repeat purchasers. Customers. Specifically, the institutional LPs are looking for 20-year relationships. That’s 3-4 funds. Both Chris Douvos and Raida Daouk have independently shared with me that the average venture fund lasts twice as long as the average American marriage. So you need to know as much as you can get your hands on before you “marry” your LPs. And as such, LPs want to know both what worked and what didn’t. Or at least I do.

Usually, investors usually tell me all the predictions they had that worked out. “We were investing in AI back in 2019 before it became big.” To be fair, so were most other investors. “I knew cryptocurrency was going to be huge back in 2015.” And so on. As an LP, it’s hard to tell what is revisionist’s history and what isn’t. But what is helpful is to know if you had any predictions in the past that didn’t work out.

Why did you hold those beliefs so strongly? What were the factors that led you to that prediction? What did you learn after your prediction proved otherwise?

Venture is still very much a cottage industry. Why? No matter how big funds get. No matter how large deals become. And no matter how many rounds new names for the very first round of funding there are. Series A. Seed. Pre-seed. Angel round. You name it. The definition of venture is betting on the non-obvious before it becomes obvious. You will be wrong more often than you’re right. At the very end of the day, it is an art form. Not because it needs to be, but because very few have actually tried to break down the art form into a science.

Why? Science and strategy require games where the feedback loops are often AND where there are predictable, deterministic outcomes. If you input A in, you get B out. Venture is not that. You can do everything “by the book” and still fail. Although the book itself has yet to really be written.

Yet the most repeatedly successful firms (that have been able to transition leadership successfully to at least one other generation) are sommeliers of succession planning. How they transition this generation’s knowledge to the next. It requires not just being brilliant, but being brilliant enough to be able to break down instinct and intuition as if it were a math formula. If not classical physics, at least quantum.

All that to say, if I ask a GP to break down a prediction — whether it worked or didn’t — and they can’t answer it other than “I just knew,” I’m personally not sure if they’re ready to build a generational firm.

Photo by petr sidorov on Unsplash

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.

Proudly powered by WordPress