Category: Startup

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The Discipline of Ambition

vr, virtual reality

I’ve never met a founder or fund manager I deeply respected say, “Beggars can’t be choosers.” Or “It is what it is.”

While it wasn’t the first time I’ve heard of the phrase, I liked the way a fund-of-funds GP put it yesterday. “I invest in GPs who can run through walls.”

As an early-stage investor — be it in pre-seed/seed startups or in emerging managers — there is literally no metric, no number, no amount of traction that can truly convince us just by themselves to invest. If there are, you’re too late. The truth is it’s about people. And that failing to get conviction, most of the time is we haven’t find the right person yet to execute against the vision.

It’s about people who move fast.

It’s about people who learn fast.

It’s about people who wow you in ways you don’t expect.

It’s about people who are so smart and learn so quickly that outpace your ability to absorb said information.

It’s about people (at least in the early days) rarely, if ever, hedge.

It’s about people who make us question if our thesis really matters.

It’s about people who compel us to write an angel check for an off-thesis investment.

It’s about people who will succeed whether we back them or not.

It’s about people who are ambitious enough to take on the world, but humble enough to know they don’t know everything.

There’s this line I heard in a recent Tim Ferriss podcast with Martha Beck that I really like. “I don’t know where we’re going, but I know exactly how to get there.” If you have frequent flyer miles on this blog, you know one of my favorite heuristics is Mike Maples’ line. “90% of our exit profits have come from pivots.” The ideas we invest in don’t often look like the ideas that generate us there is literally no metric, no number, no amount of traction that can truly convince — pardon my French — shitloads of money.

In fact, “It is what it is” is a function of ambition. The greater one’s ambition, and the greater the recognition there is for the work it requires to get to that level, the less likely that statement and that mentality will come to fruition. Visionaries question the status quo and challenge it. And no matter what, they’ll figure out a way.

On the flip side, as James Stockdale once put it, “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they may be.”

The discipline of reality

I’ve never seen a great founder or a great investor not be able to intimately explain how amazing their direct and indirect competition is. How they wouldn’t be here if not for others paving the road. In either career and personal growth. Or changing the customer mindset. Or who validated the market for them. Or who created the business model before they did.

After all, it’s extremely easy to share in one’s reality distortion field how everyone else sucks, and that you are the only one who’s doing things right. Failure to recognize what got your competition to where they are today and why their customers and fans love them is a failure to understand and truly appreciate the market you’re serving.

In closing

I spend a lot of time thinking about a Jim Collins’ line, “It is not that beauty is hard to find, it’s that it is easy to overlook.”

It really is. For smart people with degrees in finance and business with C-something-A’s attached to their title, it’s really easy to see what can go wrong. Hell, most companies are default dead when they pitch to us, early-stage investors. As Roelof Botha and Pat Grady put it, “it’s not about figuring out what’s wrong, it’s about figuring out what’s right.”

Photo by Jezael Melgoza 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.

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The Phantom Testimonial Corollary

thumbs up, scenery, testimonial

I’ve always admired the way Mike Maples has thought about backcasting. In summary, he proposes that true innovators are visitors from the future. Or as he puts it: “Breakthrough builders are visitors from the future, telling us what’s coming.” Such that they “pull the present from the current reality to the future of their design.” In other words, start from the future, then work your way backwards to figure out what you need to do today to get there.

And I find it equally as empowering to do the same exercise as an emerging manager. Hell, for any aspiring institutional investor. Be it from an angel to a GP. Or an individual LP to a fund of funds.

Start from your ideal fund model. Your ideal LP base. Your ideal pitch deck. Then work backwards to figure out what you need to do today. For the purpose of this blogpost, I’ll focus on reference checks.

For everyone in the investing world, especially in the early-stage private markets, we all know that reference checks is a key component of making investment decisions. Yet too often, founders and emerging managers alike think about them retroactively. Post-mortem. Testimonials that are often not indicative of one’s strengths. And especially not indicative of how a GP won that investment, as well as how they can win such investments in the future.

An exercise I often recommend investors do is write your ideal reference you would like to get from a founder. Be as specific as you can. What would your portfolio founders say about you? How have you helped them in a way that no one else can? What do founders who you didn’t fund say about you?

Another way to think about it is if you were to own a word — something that would live rent free in people’s minds — what would you own? Hustle Fund owns “hilariously early.” Spacecadet Ventures owns “the marketing VC” and they live up to it. Cowboy’s Aileen Lee created the idea of “unicorns.” “Software is eating the world” is attributed to Marc Andreessen.

On the flip side of the token, what are testimonials that should never be written about you?

Hell, at this point, if you’re an aspiring institutional investor, and have yet to spell things out, create the whole deck. Fill in the numbers and the facts later, but for now, make up your ideal deck. When leading indicators become lagging, then update it and fill it in.

Then be that kind of investor for every founder you help. As Warren Buffett once said, “You should write your obituary and then try and figure out how to live up to it.”

Photo by Nghia Le 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.

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“Who Else is Investing?” Is a Good Question

who, who else

Ok, before y’all rise up in arms, hear me out. And if by the end of this blogpost, you still want to bring the pitchforks and torches, so be it.

Generally, I get it. Who else is investing isn’t usually a great question. Because for most investors who ask this question, it means they’re outsourcing their conviction.

Tweet I stumbled on reading Chris Neumann’s post yesterday

In fact, I wrote a quick LinkedIn (and tweet) post about it the day before yesterday. Which admittedly got a lot more attention than I expected. And if you have the time, it’s worth seeing the discussion on that post that ensued.

Source: Me on LinkedIn
Yes, I’m a dark mode user. 🙂

So, potentially hot take, I believe investors should ask the question. Who else is investing? It’s part of the diligence process. That said, when they ask that question is key. There’s a vast ocean between the shores of asking that question before you reach conviction and after.

If you pop the question before you reach conviction, well, we’ve seen the follies of that. Most evidenced by the manic rush of 2020 and 2021 into “hot deals” largely led by names that grew to popularity around the dinner table.

If you pop it after, it’s diligence. Where the availability of names shouldn’t convince you to bat or lack thereof to otherwise. But that you now have additional opportunities to reference check and cross-diligence the same opportunity. And it extends to the LP side as well. Jamie Rhode who’s now at Screendoor, said on a Superclusters episode that one of her greatest lessons as an LP was committing to a fund where there was a bunch of soft commits but far less in hard commits, and ended up overexposing Verdis (where she was at) to a single asset and taking a much higher ownership as an LP into a single fund.

Truth is, LPs pay GPs for their opinion. Not anyone else’s. And while given long feedback loops, no one really knows what’s right and what’s wrong except over a decade later and only in hindsight, you have to really believe it, and be able to back it up.

Photo by Patrick Perkins 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.

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When Trying Something New

new, apple, vision pro

The great Jim Collins has this line I really like where he says fire bullets then cannonballs. “The right big things are the things you’ve empirically validated. So, you fire bullets, you validate, then you go big — bullets, then cannonballs — it’s both.”

Too often — something I see in me as much as I see in founders — when trying something new, we bottle it up. We charge the entropy of our creativity. Waiting to release it all at one big moment. A cannonball. No one else should or needs to know know. Sometimes it’s a fear of someone else stealing your idea. Sometimes, well, speaking more for myself, I just like surprises. I love the mystique. And on the slim chance you’re right, albeit rare, then awesome. But 999 out of 1000 times, you’re likely not. At least not in the first try.

I’m forgetting and also can’t seem to find the attribution. But I read somewhere that the only difference between vision and a hallucination is that others can see it. You see… the greatest YouTubers test their ideas with test audiences several times. In fact, they even test their video titles with select audiences a number of times before launching. (Instagram even added the ability to do it at scale for creators too.) Reporters do too with their headlines. Legendary investor Mike Maples at Floodgate once said, “90% of our exit profits have come from pivots.” ONSET Ventures also found in its research1 that founded the institution back in 1984 (prescient, I know) that there is a 90% correlation between success and the company changing its original business model.

All to say, one’s first idea may not always be the best and final idea. So, test things. With small audiences. With trusted confidants.

And while I may not do this all the time, with my bigger blogposts (like this, this, and this), I always run it by co-conspirators, subject-matter experts, lawyers, writers, bloggers, and people who love reading fine print. And sometimes the final product may not look like the one I initially intended, which will be true for an upcoming bigger blogpost. For events, like one I recently worked with the team at Alchemist on — redefining what in-person Demo Days look like at accelerators, we tested the idea with 20 other investors and iterated on their feedback before launching on January 30th this year. And still is not even close to its final evolution.

As Reid Hoffman once said, “If you are not embarrassed by the first version of your product, you’ve launched too late.”

Now that it’s out there…

One of the greatest Joker lines in The Dark Knight is: “Trust no one, salt and sugar look the same.”

It’s true. Whether people like something or not, they’ll always tell you things were good. It’s the equivalent of when one goes to a restaurant, orders something that’s a bit saltier than one’s liking, but when the server comes by to ask, “How is everything?”, most people respond with “Everything’s fine.” Or “good.”

You’re not going to get the real answer out of people oftentimes. Unless people really do love or hate something you did passionately. So… you must hunt for them. You must lure out the answers. You need to force people to take sides. There can be and shouldn’t be middle ground. If there are, that means they don’t like it.

Maybe it’s in the form of the NPS question. On a scale of 1-10, how likely would you recommend this product to a friend? And you cannot pick 7.

In the event space, I’ve come to like a new question. If I invited you to this event the week of, would you cancel plans to make this event? And to add more nuance, what kinds of events would you cancel to be here? What kinds of events would you not cancel?

Sometimes it helps to seed examples on a spectrum (although I try not to lead the witness here). Would you cancel a honeymoon? Or would you cancel going to another investor/founder happy hour? What about an AGM (annual general meeting, annual conference in VC talk)? What about a vacation?

As Joker said, salt and sugar look the same. So you have to taste it. Looking from afar won’t help. And if you want to iterate and improve, you need what people really think. I’d rather have people hate or dislike something I’ve created than have a lukewarm or worse, a “good” reaction.

In a way, if you’re not getting enough of an auto-immune response from the crowd, and the antibodies don’t start kicking in (aka the naysayers), you’re not really doing something new.

Photo by Roméo A. on Unsplash

1 FYI, the research link redirects to its HBS case study, not the original research. Couldn’t find the latter unfortunately. But the point stands.

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.

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#unfiltered #86 Learning from Personal Mistakes, Excellence, and from Others

sand, filter

A few years ago, in one of my favorite coffee shops on 7th Street in San Francisco, over a vanilla cold brew, a then 25-year old founder told me that he had recently taken his then-first vacation in five years. Took a full week off. Didn’t touch work at all. And just enjoyed it with his fiancée. But contrary to what one would expect, his body language that seemed to indicate the exact opposite of having a good time. Two hands cupped over his face, as he slowly dragged them both downwards in exasperation. Followed by many sighs.

He shared that in the time he was gone, the website crashed and the team had trouble bringing it back online. And when they finally did bring it back online, they were waiting for his approval to move forward. As such, didn’t bring it back online until he came back. With another large sigh, he went on to say that he’d never take another vacation ever again.

Running your own business is tough. Really tough. I get it. If you’re the founder, it’s your baby. And sometimes, it’s really hard letting go on what may seem like key decisions. Eventually, that becomes a slippery slope where I see too many founders needing to control every decision that goes on in the company. And even if you hired extremely well, you’ve capped your team’s potential by not letting them execute to their fullest capacity.

In the above dilemma, as you might know, it’s not a to-vacation-or-not-to-vacation problem. It’s a you-need-to-give-your-teammates agency problem. And it might seem obvious to you and me, to any third party observer. But it wasn’t to him. He was so frustrated that he was focused on the one new thing he did and believed that one new thing had a causal effect to a problem that was looming over his team’s head for a long time.

It is true that we are products of our scar tissue, but quite often, in an attempt to not be in the same situation again, people overcorrect. They take then run with the seemingly most extreme “solution.”

And in the times scar tissue start to form, start from first principles. Is taking a vacation really the biggest offender? Do great CEOs just not take time off? Is there something else that I’m not willing to admit about how the results played out?

What am I assuming to be true that may not have to be true? What are the raw facts, stripped of opinions and speculation?

Why was my team incapable of making that decision? Was it something that I told them before or did before that has since prevented them from making calls? What do I spend most of my day doing? Can I outsource some of my tasks? Some of my decisions? How would I do that? And only then, can I ask myself and others: what can I do from now on so that history doesn’t repeat?

Seeking and redefining excellence

And once you’re at the root of the problem, find others you admire who run organizations you admire.

Excellence is an interesting concept. One of the few words out there where its definition changes over the course of your life.

It’s one of the few words where it is not only different for every person, but that even within each person, every time you see something excellent, it sets a new bar and stretches that definition. Defined by only the most excellent thing you’ve seen.

The truth is that most great lessons happen to err on the side of examples. So to have people who define that word for you again and again are the “Sensei-s” you want in your life.

So spend time with others. Notice how they approach problems. And stretch your definition of excellence.

For the 25-year old founder who hadn’t worked any other job in his life, and only his own, there’s immense value in learning from others and building expertise at high-growth institutions. Or with people who you deeply respect.

Asking for the lesson

Tim Ferriss, on a recent episode with Noah Kagan, said, “Life punishes the vague wish and rewards the specific ask.” And I frickin’ love that line.

Be specific. No picking brains. You’re not a zombie or a vulture or a crow.

Not 30-minute coffee chats. Those quickly become recipes of asking for too much time with an amorphous ask. To a busy person, that 30-minute ask sounds like a recipe for losing 50 minutes to an hour of your life you can never get back. Including travel to and from. Time, as the only unreplenishable commodity, is precious. As Howard Lindzon said on the Superclusters podcast, when we’re young, we’re time-millionaires, but over time, we get poorer and poorer. We then become time-thousand-aires as we age. And eventually, we run out of temporal capital.

It is in times of need and struggle, that we often have the most prescient and specific ask to make of potential mentors.

“When in X situation, and after having Y results, my gut seems to tell me to do Z, but given that you’ve experienced these situations before or have likely seen these situations unfold, am I directionally accurate?”

In closing

There’s a lot of this hustle porn in the Bay Area. Loud claims of not taking any vacations or sleeping only three hours per night. Moreover media perpetuates and lionizes this way of living.

It’s not true. Science shows we do much better with eight hours of sleep. It shows that every so often, we need to take time to unwind, so that we can come back to be more efficient and inspired than before. You can clock in the hours, but that doesn’t mean you are producing quality in a one-to-one capacity.

And I worry that like the founder that took his vacation for the first time, then overcorrected, we live in a society where we’ve forgotten that we’re human. That we need breaks. That we need sleep. And that we can’t do most things alone, including building ambitious ideas and maturing as professionals.

Photo by NEOM 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.

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.

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Do Founders Like You For Your Money?

club, party

Would the founders in your portfolio let you in on the cap table if you weren’t an investor? If you had no money? If they could only borrow your brain for two hours every three months, and that’s it?

The uncomfortable truth is that most founders won’t.

But to find the founder who will take that deal is the person you want to be focusing on. They’re the archetype of founder you want to win — that you put your whole heart into perfecting your craft for that founder.

Play to your strengths, not your weaknesses. Where do you have home field advantage?

Why does this matter?

All cards on the table, it won’t matter if you plan to stay a boutique VC firm or angel whose check size for an investment never goes past $250K. Even better if you don’t have any pro rata. But if you plan to institutionalize your firm — and I don’t mean to say this is the only way to institutionalize — you need to hire. To hire, you need enough management fees to support a team of that size. And to get enough management fees, most of the time, that requires you to scale your fund size.

Whereas in Fund I and maybe II, you played the participating investor. Squeezing in great deals. And everyone’s your friend. Founders love you. Your co-investors love you. With larger funds, you may end up scaling your check size. If you don’t, you start diversifying your portfolio more and more. And most large LPs prefer concentrated portfolios. Why?

They often do the diversification work in their own model. They pick their own verticals and stages they want exposure to. The product they want to buy is not to be their portfolio for them, but that it is just one asset in a larger portfolio. A lot of LPs also fear diversified portfolios in managers because at some point, managers will be investing in the same underlying asset. No LP wants to invest in 10 funds and have four of them all be investors in Stripe. If that’s the case, they might as well invest directly in Stripe via co-investment.

But at the end of the day, if your checks are bigger (along with ownership targets), it’s hard to always be 100% friendly with other investors since they have their own mandates. And at some point, the founder is forced to pick: you or any of those other interested investors.

And for you to win that deal, you must have something enduring that founders want outside of capital.

Examples

Of course, there are different ways to prove that you can win deals to your prospective LPs. The list below is by no means all-encompassing, but may help in giving you an idea of how people who have walked the path before you have done so.

  • Being chosen as the independent board member in other companies you didn’t invest in (Kudos to Ben Choi for sharing this one in our episode)
  • Having a platform to generate customers/leads for your portfolio companies. Like Packy McCormick‘s Not Boring or Harry Stebbings‘ 20VC.
  • Winning pro rata in past subsequent rounds
  • Even better if super pro rata (rarely happens though, especially after Series A)
  • (Co-)Leading rounds (met an emerging GP last year who syndicated the whole $2M round)
  • Repeat founders (with previous exits >$100M) let you invest in oversubscribed rounds with a check larger than $250K
  • Founders letting you invest on previous round’s terms (or highly preferential treatment)
  • Incubating the company
  • Evidence or repeatable ability for you to pre-empt rounds before founders go out to fundraise
  • Some combination of the above

In closing

Unintentionally, this blogpost is the unofficial part two of my first one on the topic of sourcing, picking, and winning. Part one was on sourcing. This one is on winning. No guarantees on picking, but who knows? I may end up writing something.

For the uninitiated, this was said by both Ben Choi and Samir Kaji on the Superclusters podcast. That to be a great investor, you need to be great in at least two of three things: sourcing, picking, and/or winning. If you only have great deal flow, but don’t know how to pick the right companies that come your way or have the best founders pick you, then you don’t have an advantage. If you’re really good at winning deals, but no one comes to you or you pick the wrong deals to win, then you also don’t have anything. You need at least two. Of course, ideally three.

But as you institutionalize, the third may come in the form of another team member or as you build out the platform.

Photo by Long Truong 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.

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A Case Study on Why LPs Pass on Great Funds | Jeff Rinvelt & Martin Tobias | Superclusters | S1 Post Season E1

Jeff is a partner at Renaissance Venture Capital an innovative venture capital fund of funds. Jeff’s diverse background in venture capital and technology and his experience working in various start-up ventures uniquely position him to advise startups. In addition, Jeff is quite active in the Michigan start-up community, volunteering his time to mentor young entrepreneurs, judge pitch competitions, and guest lecture student classes and organizations. Through Jeff’s work on the Fund, his volunteer efforts, and his role as the chair of the Michigan Venture Capital Association’s board of directors, his passion for fostering a productive environment for venture capital investment in the State of Michigan is evident.

You can find Jeff on his socials here:
Twitter: https://twitter.com/rinvelt
LinkedIn: https://www.linkedin.com/in/rinvelt/

Martin Tobias is the Managing Partner and Founder of Incisive Ventures, an early-stage venture capital firm focused on investing in the first institutional round of technology companies that reduce friction at scale.

Martin was previously at Accenture and Microsoft and is a former Venture Partner at Ignition Partners. Martin is a 3X venture-funded CEO rising over $500M as CEO with two IPOs who has also invested in hundreds of companies and is a limited partner in over a dozen VC funds. Martin was an early investor in Google, Docusign, OpenSea, and over a dozen Unicorns.

Martin is the father of 3 daughters, a cyclist, surfer, poker player, and life hacker. Martin tinkers with motorcycles on the weekends. He writes about Venture Capital on Incisive Ventures blog and Twitter.

You can find Martin on his socials here:
Twitter: https://twitter.com/MartinGTobias
LinkedIn: https://www.linkedin.com/in/martintobias/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Introducing Jeff Rinvelt and Martin Tobias
[04:14] What was Jeff’s pitch to their LPs for Renaissance Capital?
[06:30] Why did Jeff pivot from being a founder to an LP?
[08:10] Renaissance Capital’s portfolio construction model
[13:00] Jeff’s involvement in non-profits
[15:56] How did Martin become an angel investor?
[18:03] The big lesson from being an LP in SV Angel’s Fund I and II
[20:10] Why is Martin starting a fund now?
[26:07] A lesson on variable check sizes
[28:53] What is Martin’s value add to founders?
[33:29] What stood out about Martin’s deck and email when it arrived in Jeff’s inbox?
[35:43] The 2 biggest worries Martin had in sharing his deck with Jeff
[36:47] What does Jeff think about generalists?
[40:49] What held Jeff back from making an investment in Incisive Ventures?
[42:37] What kinds of conversations does Martin usually have with LPs?
[47:05] One of the greatest professional lessons Jeff picked up as a manager
[49:07] Martin’s greatest lesson from his days as a CEO
[51:57] Thank you to Alchemist Accelerator for sponsoring!
[54:33] Like, comment and share if you enjoyed the episode

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“One of the things a lot of investors don’t do is go back and be honest about where they got fucking lucky and where they had a thesis that they could potentially replicate in future investments.”

– Martin Tobias

Follow David Zhou for more Superclusters content:
For podcast show notes: https://cupofzhou.com/superclusters
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The Job Description of a Great Founder

night, sky, search

As people were coming back from the holidays, I had the chance to catch up with two friends earlier this week on two different occasions. One who built a company hundreds strong. The other is someone who’s seen the rise and fall of civilization again and again.

The former told me, “The greatest litmus test of a leader is their ability to train another leader.”

The latter told me something they had learned from a successful founder. “I lift as I climb.”

Both equally as profound. But to take it one at a time…

To train another

I’ve mentioned on this blog before that A-players hire A-players. And that B-players hire C-players. C’s hire D-players. And so on. A-players can tolerate working with B’s, but not C’s and D’s. So at the end of the day, the A’s leave, and all you’re left with are B’s and below.

While that statement makes sense in broad strokes, the truth is from an investor’s perspective — hell, just an outsider’s perspective — no one knows if you’re an A-player or not at first glance. Or at least it’s really hard to tell. Maybe there are people who are smarter than me out there who can tell at a glance. At the end of the day, seeing others execute is a great way to tell, but that takes more than one meeting usually.

And sometimes the easiest way to see is in doing reference checks. Seeing who else is on the team that they hired and trained. Seeing who they hired in previous roles. And if those other folks they’ve trained have gone to do amazing things, that’s usually a good sign that the person in question knows what an A-player looks like. And if it’s consistent enough, knows how to mint stellar leaders.

I lift as I climb

One of the greatest red flags I often see are founders hiring experienced (often expensive and brand-name) executives, sales reps, and product managers super-early in the startup lifecycle. Especially before product market fit. And often the biggest expectation for these early hires is to do:

  1. What they themselves couldn’t do
  2. And/or what they themselves don’t want to do

Both happen to be cardinal sins at the early stage. Why does the above matter?

Because if you’ve never done the job yourself, specifically building/managing the product and getting to your first customers:

  1. You don’t know how to set realistic targets and benchmarks for that role
  2. Given how crucial early customer feedback is to the product and the company, you’ll miss out on key customer insights if you’re not in the trenches yourself.

The goal of the afore-mentioned early hires is to refine your playbook, not build the playbook from scratch. And if that doesn’t appeal to you as the founder, then you might not be ready to be one.

And this is the exact reason I love the line “I lift as I climb.” For every time you figure something out, an inflection point for the company, a key customer discovery/insight, a sales script that closes twice as well as the last one, your rising tide raises all boats. But you cannot lift if you don’t climb first.

In closing

For those of you tuning in from the video and audio universes, you know I’ve been thinking a lot about succession planning as of late. Largely motivated by my conversations with Ben from Next Legacy.

And Courtney from Recast.

So naturally, when I was catching up with both of my friends, their words found refuge in the questions I was seeking answers to.

And when all’s said and done, what I look for in a founder who’ll create a multi-generational company is the same in what I look for in an emerging manager who’s planning to build a multi-fund firm. And in a way, what a young professional might look at when betting their career on a startup.

Photo by Vincent Chin 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.

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Big If True

baby

I wrote a blogpost last year, where I went a level deeper into my NTY thesis. In short, in what situations and in front of what kind of ideas do I ask founders: Why now? Why this? And why you?

Plausible IdeaWhy this?
Possible IdeaWhy now?
Preposterous IdeaWhy you?
For the deeper dive, check out this blogpost.

But let’s go a step deeper. As I’m writing another blogpost slated to come out next year, I’ve had the chance to sit down with some amazing multi-cycle investors. And a common thread across all those conversations has been that they chose to be the first check in companies that would be big, if true.

Which got me thinking…

If ‘big if true’ is for the preposterous ideas out there, then possible ideas would be ‘big when true.’ And plausible ideas would be ‘big AND true.’

Let’s break it down.

Big AND true

Not too long ago, the amazing Chris Douvos shared with me that the prerequisite to being “right and alone”, where fortune and glory lie, is to be “wrong and alone.”

Imagine a two-by-two matrix. On one axis, right and wrong. On the other axis, alone and in the crowd. You obviously don’t want to be wrong and in the crowd. But you do want to be in the right and alone quadrant. Because that’s where fortune and glory are at. Most people think that to get there, you must first start in the right and in the crowd quadrant. But it’s important to note, that once you’re in the crowd, and you get the dopamine hits of validation, it’s really hard to stray away from the crowd. So really, the only way to get to fortune and glory is to be wrong and alone. To be willing to go against the grain.

Unfortunately, for big AND true, you’re in the crowd. And while you can usually make money on the margins, it’s hard to be world-defining. ‘Cause you’re too late.

The thing to be wary of here if it is any investor’s strategy to deploy capital here is to not be the last money in. Hype and compounding are dangerous. And for many companies that exist here, they have a short half life. If you’re the last one holding the bag, that’s it.

Big WHEN true

You know that saying, “It’s a matter of when, not if…” it’s just as true in the innovation space. There are some things in life that are bound to happen. Recessions. Hype cycles. Rain. First snowfall. Summer heat. Progress. Maturity. When one’s baby teeth fall out. Wrinkles. Gray hair. Some with more predictability than others.

These ideas are defined as those with early commercial traction, likely with a niche audience or only your 1000 true fans. And that’s okay. Usually happens to be some of the toughest pre-seed and seed rounds to raise. There’s clearly traction, but no clear sense of rocket ship growth.

Timing matters. Is the larger market ready to adopt the beliefs and culture and habits of the few?

For some investors, it’s why they target quality of life improvements to the wealthy made ready for the masses. Living a wealthy lifestyle is, after all, aspirational for many. On the flip side, if you have a niche audience and are looking to expand, are there underlying beliefs and traits that the broader market has but has instead applied those beliefs and habits in other parts of their life?

Big IF true

Sam Altman put out a blogpost just yesterday, titled “What I Wish Someone Had Told Me.” And out of the 17 lessons he shares, one in particular resonated the most with me:

“It is easier for a team to do a hard thing that really matters than to do an easy thing that doesn’t really matter; audacious ideas motivate people.”

While the stories of Airbnb or Coinbase or Canva seem to suggest that these are nigh impossible ideas to raise on, anecdotally, I seem to find that the most transcendent companies with CEOs who are able to acquire world-class talent to their companies have less trouble fundraising than the ‘big when true’ ideas. But more difficulty raising than the ‘big and true’ ideas.

That said, instead of many smaller checks, you just need to find one big believer. In other words, the Garry Tan for your Coinbase or the Fred Wilson for your Twitter. One way to look at it, though not the only way, is what Paul Graham puts as the “reasonable domain expert proposing something that sounds wrong.” Crazy, but reasonable. Simply, why you?

Photo by Jill Sauve 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.

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Paying Attention Vs Paying Proper Attention

magnifying glass, pay attention

Earlier this week, I was listening to a fascinatingly thoughtful conversation between Tim Ferriss and Kindred’s Steve Jang, where Tim said one line that stood out in particular: “I’ve been paying a lot of attention, but I’ll be honest, I don’t know how to pay proper attention.”

And well, it got me thinking. About the difference between knowing what to look at and knowing how to look at it.

One of my favorite TED talks is by Will Guidara (quite honestly I think it deserves more views on YouTube than it has). Will is probably best known for co-founding one of New York’s hottest fine dining restaurants, Eleven Madison Park, and for writing the book, Unreasonable Hospitality. And in it, he talks about how just listening to the conversations that are happening at the tables and delivering these small, unexpected pockets of joy can create experiences that transcend money and time.

In the afore-mentioned talk, he talks about how there are four diners at Eleven Madison Park. That they went to all the top restaurants in NYC. Le Bernardin. Per se. And so on. And Eleven Madison Park was the last on their to-do list. But the only regret they had was that they never got to try a New York hot dog. Of course, upon hearing that, Will storms out the door to buy a $2 dog, brings it back to the kitchen and convinces the chef to serve it over the aged duck that took years to perfect. And when he finally delivered the next course on the menu as the hot dog he just bought, the four guests went bonkers. That despite on the multiple courses and the brilliant food, that their favorite dish was the NYC hot dog.

That it was because Will paid proper attention to his guests that he was able to deliver a truly unforgettable experience.

The truth is how to pay proper attention to anything that deserves our attention is the million-dollar question.

Paying proper attention

There’s the famous selective attention test, where viewers are asked to count the number of times the ball is being passed between the players, only to fail to realize that there is gorilla that walks across the screen. We’re told to pay attention to the ball passes, but only by paying proper attention to the purpose of why the test is being administered, do we catch what is hiding in plain sight.

Similarly, Raymond Joseph Teller (or better known for being half of the dynamic magic duo Penn & Teller) did a fascinating talk a decade and a half ago about the illusion of expectation. That magic in all of its novel facets feeds off of the expectations of its onlookers. When one tries to pay attention to the coins that are “magically” jumping from one hand to the next, you might fail to catch the sleight of hand in between. But only after he reveals his secrets is the simple magic act all the more impressive. In other words, in the second half, he teaches you how to pay proper attention.

If you have eight minutes in your day, would highly recommend watching the below video.

I can’t speak for every topic, industry, relationship, and so on out there, but at least for the cottage industry of venture capital, why I choose to write an angel or an LP check is similar. I don’t really look for what will change. ‘Cause damn, it’s so hard to predict what will change and how things will change. If I knew, and if one day, I know, please invest in my public markets fund, which will be the best performing fund of all time. But I don’t. We, as pundits sitting around the table, might draw predictions. But even the smartest of us (not sure why I say us, ’cause not sure if I can put myself in that category yet) would be lying if we knew what would happen in foresight.

Instead, I look at what doesn’t change.

What doesn’t change?

The great Charlie Munger passed away last week at the age of 99. And without question, a great loss to the world we live in today. Just half a year prior, he and Warren Buffett were hosting their 2023 annual meeting. And just two weeks prior, he was still doing CNBC interviews. And one of my favorite lines from that May annual meeting was:

“Well, it’s so simple to spend less than you earn, and invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life, et cetera, et cetera, and do a lot of deferred gratification because you prefer life that way. And if you do all those things, you are almost certain to succeed. If you don’t, you’re going to need a lot of luck. And you don’t want to need a lot of luck. You want to go into a game where you’re very likely to win without having any unusual luck.”

In reducing the requirement to need luck, one of the most effective ways to find what is constant in life. That despite changing times and technologies, these stay true. Or as Morgan Housel and Naval Ravikant put it, If you lived your life 1000 times, what would be true in 999 of them? In investing jargon, pattern recognition. Across my investments and more, where have I seen outperformance? What characteristics do they all share? What about human nature won’t change?

In fairness, pattern recognition gets a bad rap. And for a lot of investors, that’s because they choose to only invest in their comfort zone, and what they know best. Their former colleagues. Their Stanford GSB classmates. People who look like them, think like them, act like them. But recognizing thematic threads stretch across all facets of our life. We learn that not brushing our teeth well can lead to cavities. We learn that after stubbing our toe on the kitchen counter numerous times, we take a wider turn before turning into the kitchen. And we learn that eating piping hot foods kills your tastebuds for the next few days.

The venture corollary

In venture, we’re always taught to look at the team, product, and market. And that all are important. But if you tell a new grad or an ex-founder or an emerging angel to do just that. To them, that means nothing. They wouldn’t know how to judge. They have no benchmarks, nor do they know what’s right versus wrong. Now I don’t want to sound like a broken record, but I do believe previous blogposts like this and this are quite comprehensive for how I pay proper attention as an investor.

Emerging LPs are not immune to the lack of perspective as well. My hope and my goal is for how to be just as important if not more than the what. And for the why to be just as or more important than the how. It’s because of that, I write essays like this and this. And of course, it’s why I started Superclusters because I, too, am looking for how to pay proper attention to the next generation of venture investors. (Stay tuned for the coming Monday for episode four where we unpack the bull and bear case of early distributions in a fund!)

Photo by Shane Aldendorff 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.

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