But I’m so glad I did. In it, Harry shared a question he likes asking “If we were hiring someone underneath me to support him, what skills would they have?” In many ways, it’s the same as another question Doug Leone shared on his podcast as well. What three adjectives would you use to describe your sibling?
It comes down to simple purpose of trying to ask about someone’s weakness without asking them “what’s your weakness?” Why does it matter? When you’re too forward with your question, say the weakness one, recipients always end up finding ways to explain their “weakness” as a byproduct of their strength, or not really sharing a true weakness. “I’m too honest.” “I work too hard.” And so on.
While the above set of questions may not work for everyone, and probably even less so now that Harry and Doug shared it in a public arena, I can’t help but appreciate the linguistic gymnastics to find the right combination of words that gets one the answer they want. Nevertheless, I’m sure there are many more on this planet who still have yet to be exposed to those questions.
Similarly, I find it to be a damn good question to ask when doing references on potential investments. The truth is every founder or GP one invests in will have weaknesses. And that’s okay. Everyone’s a human. But in reference calls, there are two hurdles that one most overcome in their diligence:
Getting the reference to share an honest assessment of the person they know. This is especially hard when these are on-list references. In other words, references that the person being diligenced is providing themselves. Naturally, this list is full of people who are almost guaranteed to say positive things about said individual. Besides, there is absolutely no incentive to badmouth another person. Neither do most people aim to do so.
How high on the priority list is this person’s weakness? Can I get conviction on this deal even if I were to accept this weakness? Does it matter as much in a Fund I? Fund II? Fund III? If they need to hire someone to fundraise for them, is that a question of ability or network? And how crucial is it not only to the firm’s survival, but also their outperformance? If they need to hire someone to manage their calendar, that may be lower on the priority list of risks for most LPs.
Nevertheless, I find Harry’s question a great one to ask former colleagues, occasionally portfolio or anti-portfolio founders.
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.
Recently I’ve been hearing a lot of power law this, power law that. And you guessed right, that’s VC and LP talk. Definitely not founder vocabulary. Simply, that 20% of inputs lead to 80% of outputs. For instance, 20% of investments yield 80% of the returns.
Along a similar vein… what about questions? What 20% of questions lead to 80% of answers you need to make a decision? Or help you get 80% of the way to conviction in a deal?
‘Cause really, every question after those delivers only marginal and diminishing returns. And too much so, then you end up just wasting the founder’s or GP’s time. As the late Don Valentineonce said, “[VC] is all about figuring out which questions are the right questions to ask, and since we don’t have a clue what the right answer is, we’re very interested in the process by which the entrepreneur get to the conclusion that he offers.”
While I can’t speak for everyone, here are the questions that help me get to 80% conviction. For emerging GPs.
I’m going to exclude “What is your fund strategy?” Because you should have either asked this at the beginning or found out before the meeting. This question informs if you should even take the meeting in the first place. Is it a fit for what you’re looking for or not? There, as one would expect, you’d be looking into fund size, vertical, portfolio size, and stage largely. Simple, but necessary. At least to not waste anyone’s time from the get go.
Where are you at as a GP by Fund III? What does Fund I and II look like by Fund III?
Discipline. In the first 4 years of a fund, you’re evaluated on nothing else except for the discipline and the prepared mind that you have going in. All the small and early DPI and TVPI mean close to nothing. And it’s far too early for a GP to fall into their respective quartile. In other words, Fund I is selling that promise. The prepared mind. Fund II is selling Fund I’s strategy and discipline. Fund III, you’re selling the returns on Fund I.
Vision. Is this GP thinking about institutionalizing a firm versus just a fund? How are they thinking about creating processes and repeatability into their model? How do they think about succession and talent? And sometimes I go a few steps further. What does Fund V look like? And what does the steady state of your fund strategy look like?
What value do you bring to your portfolio companies?
This is going to help with reference calls and for you to fact check if an investor actually brings that kind of value to their portfolio companies. So, in effect, the question to portfolio companies would be: How has X investor helped you in your journey?
On the flip side, even during those reference calls, I like asking: Would you take their check if they doubled their ownership? And for me to figure out how high can they take their ownership in a company before the check is no longer worth it. There are some investors who are phenomenal $250K pre-seed/seed checks for 2.5-5% ownership (other times less), but not worth their value for $2-3M checks for the same stages. To me, that’s indicative of where the market thinks GP-market fit is at.
I also love the line of questioning that Eric Bahn once taught me. “How would you rate this GP on a scale of 1 to 10?” Oftentimes, founders will give them a rating of 6, 7, 8, or if you’re lucky 9. And the follow up question then becomes, “What would get this investor to a 10?” And that’s where meaty parts are.
Of course, it’s important to do this exercise a few times, especially with the top performers in their portfolio to truly have a decent benchmark. And the ones that didn’t do so well. After all, our brand is made by our winners. And our reputation is made by those that didn’t.
In the trifecta of sourcing, picking, and winning, this is how GPs win deals.
How do you resolve conflict or disagreement in the partnership?
This is really prescient in a partnership. Same as a co-foundership. If someone says, we never disagree, I’m running fast in the other direction. Everyone disagrees and has conflicts. Even twins and best friends do. If you don’t, you either have been sweeping things under the rug or one (or both or all) of you doesn’t care enough to give a shit. Because if you give a damn, you’re gonna have opinions. And not all humans have the same opinions. If everyone does, realistically, we only need one of you.
Hell, Jaclyn Freeman Hester even goes a step further and asks, How would you fire your partner?
Jaclyn on firing partners and team risk
Personally I think that last question yields interesting results and thought exercises, but lower on my totem pole (or higher if you want to be culturally accurate) of questions I need answers to in the initial meetings.
How are you finding companies? How are you building your pipeline?
This is always a question I get to, but especially valuable, when I ask it to spinouts. Building a repeatable and scalable sourcing pipeline is one of the cruxes of being a great fund manager. But in the age when a lot of LPs are shifting their focus to spinouts from top-tier funds, it’s an important reminder that (a) not all spinouts are created equal, and (b) most often, I find spinouts who rely largely on their existing “brand” and “network” without being able to quantify the pillars of it and how it’s repeatable.
For (a), a GP spinning out is evaluated differently than a partner or a junior investment member. A GP is one who manages the LP relationships, and knows intimately the value of what goes in an LPA, on top of her/his investing prowess. And the further you go down the food chain, the less visibility one gets of the end to end process. In many ways, the associates and analysts spinning out need the most help, but are also most willing to hustle.
Which brings me to (b). Most spinouts rely on the infrastructure and brand of their previous firm, and once they’ve left, they lose that brand within a year’s time. Meaning if they don’t find a way or have an existing way to continue to build deal flow, oftentimes, they’ll be left with the leftovers on the venture table. This question, for me, gives me a sense of whether an investor is a lean-in investor or a lean-back investor. The devil’s in the details.
What are the top 3 reasons I shouldn’t invest?
This is a test to see how much self-awareness a founder/GP has. The most dangerous answer is saying “There are no reasons not to invest.” There are always reasons not to. The question is, are you aware of them? And can you prioritize which risks to de-risk first?
In many ways, I think pitching a Fund I as illustrating the minimum viable assumption you need to get to the minimum viable product. And Fund II is getting to the minimum lovable strategy (by founders and other investors in the ecosystem). And with anything that is minimally viable, there are a bunch of holes in it.
Another way to say the above is also, “If halfway through the fund we realize the fund isn’t working, what is the most likely reason why?”
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.
This may very much be the hill I end up dying on as an angel. I also realize that the title of the blogpost itself is ionically charged. But it’s something I feel strongly about.
Two caveats.
One, this is going to be one of my more strongly worded blogposts. I don’t write many of these. It doesn’t give me joy to “call” people out. If you’re a reader to this blog for the more mild-mannered Cup of Zhou, I’ll see you next week. 🙂
Let’s just say I’m writing this out of frustration after chatting with a founder who hit all the below red flags. But more importantly, frustration at myself for not recognizing the below a mile away when I took the meeting. And the opening 2 questions for that meeting was can you share what you do? and what do you invest in? Both of which are quite evident on my LinkedIn. Moreover the cold outreach came via LinkedIn.
Two, I’m a small check angel. And this may not apply if you write north of a $100K angel check or a $250K LP check. You’re likely also excluded from this hill I’ll die on if you don’t have the network that would alert you on deals on a regular basis.
That said, if you’re a small check investor like me AND you have a decent network, any founder who doesn’t know exactly why they want you on the cap table outside of money is probably not a founder worth your time.
Why?
To them, you’re just another check, and not THE check. Whatever wrapper they put on things, you’re dumb money to them. Now, it’s not about feeling self-important. In fact, don’t delude yourself on your importance. It’s about being valuable, outside of the money. The early stages of company-building are so crucial that you really need all hands rowing in the same direction. Any hands that are idle, or worse, rowing in the opposite direction, is a waste of time, attention and resources.
They don’t know what they want. They don’t know the critical needs of the business. Is it talent? Is it getting to $1M ARR and developing a sales strategy? Is it scaling past product-market fit? Is it finding product-market fit? And because they don’t, they don’t know what they need help in. And any non-surgical answer, including terms relative to broad strokes, is a dud.
And in many ways, because of the above reasons, you’re wasting your dollar. The best founders are surgical and intentional to a fault. They’re also some of the best salespeople in the world. And they will make you feel like you’re the most important person in the world (whether actually true or not, but sometimes, even that doesn’t really matter). Because if they can win you over, they have a great batting average of winning key customers over.
FYI, also probably not worth your time if they:
Say you specialize in XX industry is not enough. Anyone can guess that at a glance at your LinkedIn. Even more so, if you’ve made it explicit.
Spend more time pitching to you than asking you questions to understand your values and what you’re interested in. They’re more interested in what comes out of their mouth than by how much reaches your ears.
Say you’re valuable for intros you can make. LinkedIn doesn’t tell people the strength of your first degree connections. For better or worse, I’m connected with a lot of people. Product of me being a bit too liberal with inbound connections early on. But it doesn’t mean I know them all equally as well. In fact, intros for a founder as an investor are table stakes. You must either be best friends with key decision makers/customers or downstream investors, or it’s really not as useful. And that only comes out if the founder spends time getting to know you, as listed in the second point above.
Ever since I added “Angel investor” to my LinkedIn profile, I’ve received a lot of noise. Quantity of deal flow went up by maybe 10-20 per week (and some weeks where I post something or get tagged in something that gets 5K+ impressions, that inbound deal flow from LinkedIn doubles if not more). But I’d say 95% of that are deals I would never invest in. Either since it’s out of scope, stage, check size, or just type of founder. Which at some point, when I remember to and I’m not typing this on my little 6×3 inch screen, I’ll have to redact that title, “Angel investor.”
Deal flow has become easy. But easy doesn’t mean good. The truth is, I’d rather mean a lot to a few than a little to a lot people.
And by the way, the same is true, if you’re a small check LP.
At the end of the day, as a founder (or emerging GP), it’s about finding your early believers. Those who choose to stand by you not just because everything’s going up and to the right. But those who will stand by you when shit hits the fan.
I was watching the latest episode of Hot Ones (yes, this is my guilty pleasure), where Sean is interviewing Will Smith, and Will shares that there are three kinds of friends in your life that you call at 3AM.
One kind of friend looks at the phone and pretends to be asleep.
A second kind of friend that picks up the phone that makes you feel bad for being in trouble.
And the third kind is putting their pants on while they’re answering the phone.
You want the third kind.
It also harkens back to the same conversationAakar, Ho, Vignesh, and I had two weeks ago. Believing comes from faith. And faith comes not just from where you are today, but where you will go. And that is established on Day 1.
To get early believers, you have to show you care. You have to give (even if it means your time, attention, and/or enthusiasm/interest), before you get. That is as true for investors as it is for customers.
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.
Last week, I was chatting with Maya from Spice Capital. And in part of our conversation, she said that the advice she gives to folks looking to break into VC is that they should study late-stage founders, so that they know what excellence and quality looks like.
And I wholeheartedly agree. To get a bit more surgical, for anyone looking to break into VC, study founders who’ve gotten to at least a Series C round. And not only that, if you can, reach out to founders who’ve hit at least Series C, with 8- to 9-figure ARR from EACH set of vintage years. From the bull run of 2020-2021 to the growth periods of 2012-2019 to the GFC to the dot com boom and crash.
If you were to only take one vintage, you have a skewed view of what “great” looks like. But to sample across the eras allows you to pattern match with a greater and less-biased sample size. And instead of focusing on what changed in each era, focus on what hasn’t changed.
To the average person who’s looking to break into VC without a network, aka 99.9% of the world, myself and Maya included when we first did, cold emails and coffee chat asks will only get you so far. In fact, more often than not, you’ll either be ghosted or rejected. So, get creative.
If it helps, here are some ideas that may kindle the fire:
Start a podcast. I don’t care if you only have an audience of one. Start it. At some point it’ll grow. But giving people a platform to share their advice is better than having one isolated conversation. After all, that’s how Harry Stebbings started.
Or a newsletter or a blog. Vis a vis, Lenny Rachitsky or Packy McCormick. Hell, even a book, like Paige Doherty did. Although the last of which is a lot more work, but tends to be have more evergreen content.
Get into investment banking or tech/management consulting. This isn’t new. But if you get the chance to work with pre-IPO companies and take them public, there is immense value in seeing excellence in play.
Host events. While I personally like intimate dinners, there is also value from hosting large networking events, fireside chats, and panels. Like Maya, or Jonathan Chang, or David Ongchoco.
I reread PG’s blogpost on the cities and ambition recently thanks to a good friend of mine down in San Diego. And in it, there’s a specific phrase that caught my eye, “the quality of eavesdropping.” A phrase that has since worked its way into my own rotation. If I were to tie the above examples thematically together, it’s that the quality of eavesdropping is really high. At events, and in consulting, you’re around the buzz of talent. And the jazz of inspiration. When tuning into a podcast, one is often multitasking. Driving, exercising, walking, cooking, you name it. And one might say it is one of the best forms of passive learning out there.
Meriam Webster defines eavesdropping as the act of secretly listening to something private. George Loewenstein says one of the triggers to curiosity is access to information known to others. Private information, in other words, information with an element of exclusivity, fits just that. And as such, while doing the above is useful and helpful to you, it is just as helpful to everyone else. To a busy individual, that just might make her attendance worth it.
All that said, know that if you forever look to lagging indicators of success, you will always be one step behind. If not more. As long as you are tracking successful founders, their companies and their key talent (early employees or key executives), there will be others who will out-execute you. Their networks are larger. And stronger. Especially in that regard.
As someone young, or someone new to an industry, your best bet is to take market risk, not execution risk. Another perspective that both Maya and I share. Betting on new markets mean you are starting off at the same start line as everyone else is. If you can’t get home field advantage, play in a field no one’s played in before.
So after doing the above, and learning from the best, draw your conclusions. And graduate to a new market. But also, beware of the potholes pattern recognition creates.
If it may help, at least for me, it’s useful to remember that excellence is everywhere. And someone who is both ambitious and has a track record for fulfilling promises, is bound to go far. For the latter, it’s especially important to fulfill promises to oneself. The more impossible it is to that individual at that point in time, the better. Whether it was to be an Olympian, or asking their high school crush to prom. Or as Aram Verdiyan calls it “distance travelled.“
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.
This one was inspired by Harry Stebbings’ episode with Dan Siroker that I tuned into earlier this week. In it, Dan describes his most memorable VC meeting, which happened to be with Peter Fenton at Benchmark. Where Peter asks Dan, “Dan, what’s gonna get you excited to be at this business in five years?”
In sum, what are your future motivations going to look like? Nine out of ten times, it’s likely not going to be exactly the same as the one today. And given that it will look differently, can you still stay true to the North Star of this business as you do today? What’s gonna change? What’s gonna stay the same?
For the most part, the people and the problem space are likely to stay the same. The product may look quite different though. And it’s highly likely that in five years, you would have found product-market fit. So, that’s Act I. Is it the advent of the next chapter of what your company could look like that gets you excited? Hell it might be. You can then tackle a bigger problem. A larger market. An adjacent market. Or what Bangaly Kaba calls the adjacent users. For some founders, it’s the market they always wanted to tackle, but couldn’t when they realized their beachhead market must be something else.
While I can’t speak for everyone, here are some of the answers I’ve personally come to like over the years. From either founders or fund managers:
There is no other industry that offers the same velocity of learning that this one provides.
I want my company’s legacy to outlive my own. And I want to empower the next generation of builders with the resources and the power to solve the greatest needs of our generation.
I want to go home and tell my my wife/husband/kids that I lived my fullest life today. And this is what gives me endless joy.
Act I was solving a problem I faced. Act II is solving a problem others face in our space.
Getting on the phone with a customer and hearing how much our product changed their lives makes me really happy.
If I’m not regularly putting the firm’s reputation on the line, we’re not trying hard enough. And I live for that challenge.
I want to build a world where people don’t settle for “It is what it is.”
No one else is solving the problem I want to solve in the way that I believe it should be solved.
I want to continue to be a superhero, a role model, for my daughter/son.
In many ways, it’s quite similar to the question I ask first-time GPs or aspiring GPs about their motivation.
Things in venture exist on long time horizons. For founders, it’s at least 7-9 years before an exit. For fund managers, it’s 10-15 years per fund. And that’s just a single fund. Anything more is longer. So in order to compete against the very best, you need to have long time horizons. You must have the resolve to stay the course. As Kevin Kelly says, “The main thing is to keep the main thing the main thing.”
Along the same vein, there’s also a Jeff Bezos quote I really like: “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people… Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”
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.
First off, my lizard brain that optimizes for immediate gratification thought “A Jerk’s Guide to Being Kind” would be a fun title. Clickbait-y (kinda). Great for SEO. So I used that as my prompt for this public journal entry. 🙂
So, if you didn’t come for a public apology and how I say no, I’ll see you in next week’s blogpost.
Secondly, I was reading Chris Neumann’s blogpost this week, aptly named “The Beginner VC’s Guide to Not Being a Jerk.” And realized, holy frick, I’m a jerk. In it, he describes five things that VCs do that come off as jerkish.
Don’t Use Possessive Adjectives
Don’t Multitask When a Founder is Pitching
Don’t Badmouth Founders
Don’t Mansplain
Don’t Ghost Founders
And of the five above, I know I’m an offender of three of the above. Using possessive adjectives. Multitasking. Ghosting. Probably in that order from most frequent to least frequent. (Sorry, Chris. Sorry to founders I’ve done this to.) The first two I don’t do intentionally, nor do I do the either of them often.
Not sure if it makes too much of a difference, but rather than say “my company” or “our companies,” I do say “our portfolio companies.” Just with one extra word in there. Occasionally, will let it slip when I’m trying to shorten the sentence I’m saying.
I know I’m more prone to multi-task when I’m not the only investor in the room, and definitely when I’m not the primary investor. Again, don’t do it often, but it happens. And I never do so when I’m the only other person in that conversation. 99% of the time I do let the founders and GPs I talk to know that I’m just taking notes of our conversation. Personally don’t use the AI notetakers, but that’s a discussion for another day.
And ghosting. My goal is to get to inbox zero every day. And I really do my best not to ghost. But three things will always happen:
Some email or text always ends up slipping through my inbox. Either it goes in spam, or during certain days, I’m bombarded with hundreds of emails and it slips through the cracks. And I do give every founder and GP who pitch me the right to re-surface past emails if it does slip through.
If the email or message seems like it came out of an automation or mail merge AND I’m not interested, I do let it drop. I read EVERY email for sure. But if that email looks like the same one that you send to every investor, those have been going straight into the archives more and more. That also means that some emails just read like it’s an automated email even if it doesn’t, and it slips through.
There’s a shortlist of people who have abused my old personal policy of responding to every email I get. And so for those people, I’m not sorry if I do ghost you. That said, it’s a pretty short list of people (probably 30-40 people as of now).
And lastly, well, I’ve made founders pitching me cry. Not something to brag about. But in sharing what I thought was honest feedback, I made tears flow.
So, in summary, I’m probably a jerk.
In my mind, a jerk is someone who prioritizes their own beliefs and priorities to the point that they either intentionally ignore or severely de-prioritize others’. Although I try my best not to ignore what other might want or need, but I do often prioritize my own. So to add on to all the above, I’m sharing some situations where my jerkiness comes out and what I say in those moments.
When having tough conversations
I actually learned this while listening to Lenny’s podcast with Matt Mochary. When I need to let someone go. When I need to call a friend out on their bad behavior. Or when my partner and I get into a fight. “Preface hard conversations with: This is going to be a difficult conversation. Are you ready?”
In addition, I also preface with how long I think the discussion will take. “May I have thirty minutes of your undivided attention?” And what the topic will be on. No point in blindsiding the other person.
It helps set the stage. And if the other person needs more time, they have the option to back out. Moreover, all tough conversations are 1:1 conversations. At least for me, even if it relates to many, I start notifying them all on a 1:1 basis.
When trying to leave a conversation at an event
This one also isn’t original. I learnt from a friend of mine who is far more eloquent than I am. Not all conversations at events are created equal. And sometimes, at an event, especially a networking event, my goal is to say hi to the event host or to talk to someone else on the floor. And in between, I may find myself in another serendipitous. Case in point, yesterday, I ended up meeting a founder who sold his last company for $500M exit to a large Fortune 50 company in the parking lot and who was figuring out his next thing. Serendipitous. And super fun, but I was going to be royally late for another event if I stayed chatting in the parking lot.
So, when I need to leave a conversation, instead of excusing myself to go to the bathroom or get more food, I’ve learned to say, “I’d love to ask you one last thing that I’d beat myself up tonight if I didn’t ask before I need to go say hi to XXX.”
One, it timeboxes the next few minutes of the conversation. Two, I’m still interested in the individual and I want them to get the last word before I head out.
For 1:1 conversations
I usually let people know at the very beginning of the conversation that I have a “hard stop” at a specific time. Which 90% of the time is true. Usually another meeting. Or I have just way too much work on my plate that I need to get to.
When turning down a meeting (for now)
I wish I had more time in a day to talk to awesome people. I also wish I had more energy in a day to talk to awesome people. But unfortunately, I only have 24 hours in a day. And well, I’m an introvert. As in, I enjoy writing this blogpost you’re reading right now since 5AM in the morning than telling someone in a live conversation what I will end up writing here.
As such, if I’m interested in meeting at some point, I usually say something to the tune of: “I would love to meet, but if I do so within the next XXX weeks / months, I would have failed in my promise to the people I care about. So if you’ll allow me to be a good friend / family member / supporter of my existing projects and investments, could we revisit this in YYY weeks / months?”
Other times to save everyone’s time, since I won’t find my interest levels gravitating towards said topic, I let people know it just isn’t of interest to me in the foreseeable future, and that their luck may be better elsewhere.
When turning down an investment opportunity
This is actually something that was inspired by one of Jason Calacanis’ podcast episodes. And while there are many things I may not agree with him on, I really like the phrasing he uses to turn down founders who push back against his investment decision. And I’ve added some lines that best fit the way I talk. Which I also included this in my 99 series for investors.
“I always have to accept the possibility that I’m making a mistake. The venture business keeps me humble, but these are the benchmarks that the team and I all believe in.”
In closing
Sometimes I think it’s inevitable to appear as a jerk to some people out there. While one can try to reduce the splash damage, the truth is sometimes what you have to say may not be what the other person wants to hear or see. But as long as you hold yourself to a high degree of integrity and do so in as kind of a way as you can, I think that’s all that really matters.
Often times, I do believe it’s more important to be kind than nice. I hope the above helps.
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.
Jaclyn Freeman Hester is a Partner at Foundry. She joined in 2016 with a passion for supporting the next generation of entrepreneurs and investors. Jaclyn leads direct investments in early-stage companies, often collaborating with Foundry’s partner funds. She loves working closely with founders to solve hard problems and think about the human elements of business. She invests across B2B and consumer companies that exhibit strong end-user empathy and use technology to empower individuals, unlock potential, and improve experiences.
Jaclyn helped launch Foundry’s partner fund strategy, building the portfolio to nearly 50 managers. Bringing her unique GP + LP perspective, Jaclyn has become a go-to sounding board for emerging VCs.
Jaclyn first fell in love with entrepreneurship while earning her JD/MBA at CU Boulder (Go Buffs!). There, she served as Executive Director of Startup Colorado, where she got to know Foundry and the incredible Boulder/Denver startup community the firm helped catalyze. In her brief stint as a practicing attorney, Jaclyn advised clients in M&A transactions and early-stage financings. She also witnessed the founder journey first-hand, working closely with her husband and his family as they built a B2B SaaS company, FareHarbor (acquired by BKNG).
Jaclyn loves the Boulder lifestyle, but her heart will always be on the East Coast, having grown up a New England “beach kid.” She is the proud mother of three humans and three dogs and is a blue-groomer-on-a-sunny-day skier and 9-hole golfer. In her glimpses of free time, you can find Jaclyn enjoying live music, especially at Red Rocks and in Telluride, two of the most magical places in the world.
[00:00] Intro [03:24] The significance of Kara Nortman in Jaclyn’s life [13:59] Lesson on recognizing effort from Dan Scheinman, Board Member at Zoom [18:27] The question to disarm GPs learned from Jonathon Triest at Ludlow Ventures [23:37] The differences between being a board member and an LPAC member [32:04] Turnover within institutional LPs [33:58] The telltale signs of team risk in a partnership [41:25] How to answer “How do you fire your partner?” [44:05] Foundry’s portfolio construction [53:22] What makes Lan Xuezhao at Basis Set so special? [59:59] What does Shark Tank get right about venture? [1:03:37] Jaclyn’s Gorilla Glue story [1:05:51] What keeps Jaclyn humble today? [1:12:11] What will Jaclyn do after Foundry’s last fund? [1:16:28] Jaclyn’s closing thought for LPs [1:18:10] Thank you to Alchemist Accelerator for sponsoring! [1:20:46] If you enjoyed this episode, a like, a comment, a share will go a long way!
I’ve been doing some thinking as of late in and out of the shower. In conversations. In reexamining my own investment thesis. And changing it as a function of scar tissue and tears of joy. As such, sharing a few shower thoughts below that for the below, might be better described as a tweet than in a long-form blogpost.
About founders
A community or 1000 true fans built without big brands and logos is far more impressive than a community built by leveraging someone else’s brands.
20 years of experience is more impressive than 20 one-year experiences for deeply technical problems.
20 one-year experiences is more impressive than 20 years of experience for cultural (consumer) problems.
Great founders don’t delegate understanding. Senior execs aren’t hired until founders themselves prove out the playbook.
In the age of AI, new information is more valuable than remixes of old. Standing out is more important than fitting in. The latter of which will be replaced with by AI given the wealth of data out there. (Ironically, this line is inspired by old conversations plus Sriram Krishnan’s blogpost)
Revenue matters more than traffic for consumer products since AI bots can now mimic simple digital human behavior.
Silicon Valley / SF Bay Area is strong because of the high quality of eavesdropping. There are so many ideas being thrown around in coffee shops. It’s quite easy to stumble across a world-class lesson without paying $2000 for a conference ticket. Things sure have changed since ’08.
About investors
In early stage venture, debates on price is a lagging indicator of conviction, or more so, lack thereof.
Price also matters a lot more for big funds than small funds.
Price also matters more for Series B+ funds.
Will caveat that there’s an ocean of difference between $10M and $25M valuation. But it’s semantics between $10M and $12M valuation. How big your slice of the pie is doesn’t matter if the pie doesn’t grow.
Not saying that it’s correlated, but it does remind me of a Kissinger quote: “The reason that university politics is so vicious is because stakes are so small.”
The reasons Fund I’s and II’s outperform are likely:
Chips on shoulders mean they hustle more to find the best deals. They have to search where big funds aren’t or come in sooner than big funds do.
Small fund size is easier to return than a larger fund size.
Rarely do they have ownership targets (nor do they need significant ownership to return the fund). Meaning they’re collaborative and friendly on the cap table, aka with most other investors, especially big lead investors.
Price matters less. Big funds really have to play the price game a little bit more since (1) likely to be investing in multiple stages with reserves, and price matters more past the Series A than before, and (2) they’re constrained by check size, ownership targets, and therefore price in order to still have a fund returner.
“Judge me on how good my good ideas are, not how bad my bad ideas are.” — Ben Affleck when writing Good Will Hunting. A lot of being a VC is like that. Hell, a lot of being a founder is like that.
We like to cite the power law a lot. Where 20% of our investments account for 80% of our returns. But if we were to apply that line of thinking two more times. Aka 4% (20 x 20%) of our investments account for 64% of our returns. Then 0.8% account for 51.2% of our returns. If you really think about it, if you invest in 100 companies, we see in a lot of great portfolios where a single investment return more than 50% of the historical returns.
#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.
Ertan Can is the Founder of Multiple Capital, a fund of funds focused on investing in micro VC funds in Europe and has been a limited partner in top funds you’ve heard of including Entrepreneur First and Angular Ventures, just to name a few. He’s done his tour of duty in the asset management world at JP Morgan to covering investor relations topics at Thomson Reuters to investing in startups at a family office. Ertan is also a founding member of 2hearts, a community dedicated to building tomorrow’s tech society with cultural diversity.
He is also a proud MBA graduate from the ESCP Business School and a long time student of finance and law catalyzed by his time at Frankfurt and London.
[00:00] Intro [02:21] Ertan’s childhood [05:36] Why Luxembourg? [15:03] Which countries do European GPs set up their funds? [19:46] How did Ertan switch the family office strategy from direct to fund investing? [24:42] How has Ertan’s underwriting process evolved over time? [28:04] Do similar pitch deck formats make it easier or harder to make investment decisions? [30:34] Referrals and warm intros ranked by source [36:10] Geographies that Multiple Capital invests in [37:44] Red flags for Multiple Capital [43:48] How do solo GPs build sounding boards to check their blindside? [49:04] The (un)predictability of outlier investments [1:00:41] How does Ertan think about bringing on Venture Partners in a fund of funds? [1:08:25] The decision-making framework behind an “angel” LP investment and a FoF check [1:12:01] Where Ertan shares his unfiltered thoughts [1:20:14] Ertan’s experience around giving GPs feedback [1:27:05] Cockroaches and superheroes [1:34:08] Thank you to Alchemist Accelerator for sponsoring! [1:36:44] If you enjoyed this episode, it would mean the world to us if you gave us a like, comment, or share!
“Our work is to increase the probability of having some of the outliers as early as possible in as small as possible funds because like a fund, that will lead to a power law in our portfolio.” – Ertan Can
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.”
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.
