Category: Venture Capital

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Three Types of Mentors

Photo by Rohan Makhecha on Unsplash

Christmas 2019 has finally turned its page, and Santa has granted with us with either presents or coal. Then again, coal may not be so bad. In /r/ShowerThoughts (where I regrettably spend maybe a wee bit too much time in), a Redditor shared that with a little pressure, naughty kids can turn their coals into diamonds.

Possibly deserving coal myself, every year, between Christmas and the new year, I regress to a husk of myself and binge the eight Harry Potter movies. Inspired by the Triwizard tournament, Cedric Diggory’s valiant sacrifice, and in a beautiful Socratic debate with some of my friends on Harry’s most impactful mentor, an unlikely hero came up – Mad-Eye Moody.

The Three Types of Witches/Wizards

As a nerd about mentorship, I believe mentorship is equal parts art and science. Every mentor-mentee relationship is unique like the stripes of a zebra or the folds in a human fingerprint. Along your life journey,you’ll have the fortune of being with many different mentors and mentees. Some are fleeting; some are life-long. Yet, there are still general themes among these relationships. More specifically, I’ve observed three kinds of mentorships:

  • Peer,
  • Tactical,
  • And, Veteran.

Peer mentorship comes from someone who is facing a similar problem to you or has as much experience in a respective field as you do. A peer mentor will be down in the dirt with you, rolling in the mud. Together, you aim to learn how to navigate the complexity of the landscape.

Tactical mentorship comes from someone who has two to five years more experience than you in a field you want to grow in. He/she is someone who is able to able to see around the corner before you do. A tactical mentor can provide the nitty-gritty tactics to conquer many of your challenges. Most startup investors, who see a breadth of deals, but only experience some depth, tend to fall under this category.

Veteran mentorship comes from someone who has already attained the level of success that you hope to one day achieve in a given field. Veteran mentors can help you define your true north, providing both vision and scope. Unfortunately, because it’s been a few since they’ve tackled a similar scope of a problem, they won’t be able to provide the ABCs for you.

Magic and Mentorship

Like the Triwizard Maze, the world around us is always changing, posing new obstacles and surprising us with new challenges. Though not frequently, the variables and parameters for our success will always be changing. Our peer mentors, like Cedric Diggory, Fleur Delacour, and Viktor Krum, are our companions to conquer the seemingly impossible. Our tactical mentors, like those who have been chosen by the Goblet before, help us to make the right judgment at each crossroads. Our veteran mentors, like Mad-Eye and Dumbledore, are our lumos to see a bigger picture. All of them will help us find the signal in the noise. More importantly, are the supporting force that have, is, and will be pushing us forward towards our own Triwizard Cup.

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A Little Perspective on Intuition

I was chatting with an artistic buddy of mine about the parallels between craftsmanship and early-stage investing, and the more we dove into it, the more fascinating it became. Very similarly, Ash Fontana of Zetta Venture Partners provides a fresh perspective in an episode, specifically, at the 28:45 mark, on The Twenty Minute VC. But one thing, in our conversation, stood out to me in particular – where, somehow, I never put two and two together – intuition.

As you might’ve noticed on this blog already, I’m obsessed with intuition. I’ve asked many an investor to try to break down their intuition, or unconscious competence, hoping to learn from them in tandem with entrepreneurs I have met over these days. I’ve also asked experts from various fields – music, cinematography, culinary, sports, politics, and more – about their various forms of muscle memory. And my conversation with my buddy reminded me of a short journal entry I wrote over a decade ago, about the first person who described intuition to me:

It was late that summer night. The sun had already set, and the crickets had come out center stage in tonight’s feature performance. The slow chorus of whirring was accompanied by the occasional electrical spasms of the 20th century street lamps right outside the studio.

I was helping my teacher pack up the last of his art supplies and move it to the rusty, old shed in his backyard. As I put all the brushes and paints in their respective shelves, I couldn’t help, but notice an array of canvases lying in the left corner. As my curiosity ended up getting the better of me, it turned out to be a series of beautiful and complex surreal, abstract, and Chinese watercolors – quite the contrast to his usual realistic style.

“What do you think?”

“It’s beautiful,” I replied, as if on autopilot.

He paused for a second.

“David, do you know what the toughest thing to draw is?”

“Maybe this,” gesturing at the canvases I was flipping through like a Rolodex. “Oh! And monsters.”

“I don’t think so,” shaking his head, “it’s humans.”

I couldn’t help but pop my favorite question, as a 9-year old, “Why?”

” ‘Cause we see them every day – on the streets and at home, angry and calm, wrinkled and not, and from the day we’re born till the day we die. So, the smallest of deviations from what we’re familiar with is recognizable, not just to an artist, but any person. The average person may not always know why and how it doesn’t look like the people they’re used to seeing, but they will always be able to tell the difference, before you have a chance to blink.”

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The Pain of Entrepreneurship

Photo by jesse orrico on Unsplash

I was chatting with an founder-investor last Friday about the complexities of the founder-idea and the investor-founder discovery process. Eventually, our conversation arrived at the “idea maze“, coined by Balaji Srinivasan – which describes how one’s past life experiences position her/him best to tackle a new problem. And it bled into how great investors, or people who have a track record for backing entrepreneurs who change the world, differentiate good founders from great founders. And I turned the question many of my friends, who are interested in angel and early-stage investing, have asked me to her:

How can one, without necessarily having gone through the entire entrepreneurial experience, better understand and empathize with the founder journey?

It’s a question I have tried to resolve myself, since I’ve only experienced the two extremes of building a startup – at its conception till product-market fit and right before an acquisition – and at two different ventures. I’ve heard many answers over the years:

  • Read books or listen to podcasts about startups,
  • Chat with founders,
  • Shadow them for a month or more,
  • Advise them at their early stages,
  • Join an angel group to hold office hours for them,
  • And, start your own business…

…. each from at least ten different sources. But she said something that I have never thought of before. Live with an entrepreneur.

A simple answer, yes. But a spectacularly profound one, nonetheless. I’ve had the fortune of living with an aspiring e-sports athlete, an aspiring Korean pop star, and a property manager. In all three cases, I learned, even passively, about the lifestyle of each – their wins, their stressors, even how meticulous they think about their apparel for the day, but most importantly, how hard they each worked to realize their dream. It’s not something any interview, book, podcast, blog post, and even shadowing experience can teach you.

I’ve been taught since I was a kid in elementary school to work smart, not hard, or its better cousin: work smart and hard. But in both mantras, working hard is always overshadowed by working smart. In fact, over time, I learned it wasn’t just me. Media portrays society’s hardest workers in biased, unflattering light. I remember watching a bunch of movies and TV shows as a kid where the janitor or the bus driver, playing a side character, is either a 300-pound man or an old spindly soul with hollowed eyes. Mike Rowe, host of one of my favorite childhood TV shows, Dirty Jobs, is definitely more illustrious on this stigma than I am, which he explains in his 2009 TED talk. In Silicon Valley, the occupation of being an entrepreneur isn’t too different. Yes, there’s the supposed glamour of being the next Mark Zuckerberg or Steve Jobs. But whether it’s Shikhar Ghosh‘s study that 75% of startups fail, or the 90% or 95% many others reference, the truth is the numbers work against you. Moreover, unless you’re “venture-backed”, when people see “entrepreneur” on your resume, many think “unemployed”.

Yet, I’ve realized people with the entrepreneurial spirit are some of the hardest working individuals I’ve ever met, given that there are still many who seek the title over the commitment – what I’ve come to call “wantrapreneurs.” None of my apartment-mates ever called themselves an entrepreneur or a founder, but in every sense, each of them was and is the definition of a hard worker, a hustler, and an entrepreneur. They were scrappy. They were ambitious. Or like I mentioned in my post last week, they were obsessed. They’ve navigated their own idea mazes to set themselves up for success. For example, one of my suitemates saw the value of stacking chairs every week during work study and turned it into efficient inventory management and an opportunity to get in front of the music director without an official audition. Many of the entrepreneurs around me I respect the most never had the B-school education and weren’t classically trained in the Porter’s Five Forces or the SWOT analysis. A few even dropped out of school, but they all have the capacity to work hard, then synthesize the data around them. The commitment to work hard prefaces the facility to find a shortcut. One founder, to keep his business afloat, biked up and down the hills of San Francisco delivering Uber Eats, since he couldn’t afford a car and its insurance plan. Another went to his dream client’s headquarters every day at 9AM for two months straight to secure a meeting, and subsequently, a contract. A third flew back to meet with clients that were about to bail on his startup, despite still not having recovered from four fractures in his vertebrae, leaving him paralyzed below the chest.

I’m not saying my apartment-mates or the founders aren’t smart. In fact, they’re some of the smartest folks I know, but it’s their constant willingness to get their hands dirty that has my utmost respect. Though I’ve lived with my apartment-mates, I’ve never lived with any founders, but I can only imagine the depth of understanding and empathy one would have by being in such close proximity. And in doing so, how one can appreciate the founder journey beyond the facts, and experience the emotional pain points as well.

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Obsession is Human Error at its Finest

Photo by Ferenc Horvath on Unsplash

When I first entered venture, I asked a number of VCs:

How do you tell the difference between a good startup and a great startup?

The answer I received from multiple investors was: intuition, which, admittedly, confounded me to no ends. Maybe it is true, that it is intuition, especially after seeing such a large sample size of startups over their careers – that in a heartbeat, they can reasonably tell the difference between a good and a great one. But I didn’t have that sample size. In fact I had a very small, and very biased sample to extrapolate from. The best investors out there were, quite frankly, unconsciously competent, but I was very aware that I was and am consciously incompetent, seeking competency.

So I figured, with enough data points in my sample, as econometrics has taught me through the law of large numbers, eventually I’ll have a sample that’s more or less representative of the population. So, for the past three years, I met with 10-15 tech entrepreneurs every week – self-proclaimed, venture-backed, and anyone in between – in an effort to figure out what intuition as an investor meant. What I found, pre-product-market fit and even pre-unit economics, is that it all stems from what many VCs and angel investors call ‘passion’, or rather what I like to call: obsession.

Why obsession? While I do briefly explain it in my investment thesis, it is a proxy for grit and domain expertise of a founder or founding team, which is strongly correlated with the growth potential of a venture. Obsession keeps you up at night; passion keeps you active during the day. Obsession is a lifestyle; passion is a hobby. Through chatting and tracking various founders and startups at various points in their founding journey – from idea to scale to exit, here are the three telltale signs I found of obsession:

  • Honesty,
  • Details,
  • And a personal vendetta.

Honesty

What do you know? What don’t you know?

The founder(s) are radically honest. They’re readily willing to admit what they know and what they don’t, as well as how they plan to figure out what they don’t. The more obsessed you are, the more you realize there are more questions than answers. What kind of questions do the founders ask themselves? How are they prioritizing and allocating their time?

Entrepreneurship has never been a solo sport, and every founding team could always use as much help as they can get. The only way investors, advisors, and a company board can help is if they know what part needs help. Unfortunately, in the Bay Area, there’s a heavy aura of “fake it till you make it” that’s not only true for founders and investors, myself included at one point in time, but professionals across the board, like a duck swimming across a lake, furiously paddling beneath the surface of the water, but appearing calm and collected above. This facade led to stress, anxiety, and eventually a cycle of depression for many brilliant folks out there, which has only recently gained some awareness in the public eye. Mental health, especially founders’ mental health, is one of the areas I’m tracking pretty closely, in diligence, scouting, and when hosting peer mentorship circles. I don’t require founders to know everything about starting a business or tackling a market risk, nor do I expect them to know everything. All I require is the conviction to solve the seemingly unsolvable, and the honesty to admit it and work together to solve it.

Details

What are your customers telling you?

Just as important as the questions founders ask themselves are the answers they’ve found so far. What have they tested? What are they testing? What will they do if they get X result? Y result? And the customers feel it all. What is resonating with their customers – explicitly and implicitly? What isn’t? And how granular can the founders go?

Each action taken is purposeful and holds some kind of predicted value. These founders are obsessed with details – even the ones that aren’t sexy or won’t wow at face value, yet crucial to the survival and growth of their business. For example, Rahul Vohra, CEO of Superhuman, the world’s fastest email client, takes his feedback surveys extremely seriously. While he goes more in depth in this brilliant podcast episode on 20-Minute VC, he’s able to dissect four questions to be able to assess product-market fit and strategic offerings of features to his product. From a simple question, “How would you feel if you could no longer use Superhuman?”, if 40% or more say ‘Very Disappointed” (out of three options: Very Disappointed, Somewhat Disappointed, and Not Disappointed), then he would have achieved initial product-market fit. Whereas most companies track lagging indicators of interest, like NPS scores, where customers would have made their decision by the time they take the survey, Rahul is obsessed with leading indicators, before customers make their “decision”.

Personal Vendetta

What was your “Eureka!” moment?

Building a business starts with the self, and ends with others. Is it their personal problem? Are they taking revenge on the scar tissue they’ve grown from being bogged down by this problem? Or maybe it’s a problem that means a great deal to someone who means a great deal to them?

I’m always incredibly curious as to why someone would want to be an entrepreneur. It seems to go against the very psychological grain of being a human. Founders are risking the food on the dinner table, sleep, a social life, money, years worth of opportunity costs, sanity, and much much more. Effectively, they’re taking Maslow’s Hierarchy of Needs and flipping it on its head. So I’m always dying to know what compels them to push forward. As one of my mentors back in college once asked me: “What is your selfish motivation?”

Behind all of the fancy-shmancy market maps and industry/trend analysis, where markets start with B as in billion (and one day, we’ll see more markets that start with T as in trillion), or, in 2017, it was crypto-this or blockchain-that, what drives these founders? Don’t get me wrong. All the afore-mentioned analysis is on the forefront of my mind when I look into a startup. What underlying infrastructure or social trend makes this product/service inevitable? How antiquated and/or fragmented is the knowledge or resource acquisition process in this targeted industry? But the truth is, more often than not, I see multiple ventures tackling the same space with almost the same solution. So who’s the winner? In my opinion, the one who’s more obsessed. From the lens of essentialism, instead of “How much do you value this opportunity?”, I’m more interested in “How much would you sacrifice to obtain this opportunity?” Though I’m not looking for a blood ritual, nor do I want to ever get involved in one, I’m looking for founders’ willingness to pursue this full-time over part-time and their resourcefulness (on a limited budget) to get shit done, like when Brian and the team at Airbnb took to photographing their first few living spaces or packing each box of Obama O’s themselves.

And you know you have a winning story to my initial “Eureka!” question when you have the full, undivided attention longer than the first minute of people who are notorious for having low attention spans. A story about a personal vendetta is compelling, inspiring, and most importantly, contagious. And I’ll know this when my eyes start sparkling just like the founders. I may not drop everything in my life and tackle this new dilemma full-time, but I’d be damned if I don’t make sure that founder’s dream becomes a reality.

Final Thoughts

At the end of the day, obsession is inefficient – a human element artificial intelligence has yet to be able to replicate. It’s scrappy. It’s doubling down on things that may not succeed. As the saying goes, you’re wrong until you’re right. But damn, it is magnetic. After all, obsession is human error, at its finest.

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Investing in Mentorship

In theory, there’s nothing wrong with seeking mentorship to gain experience or offering mentorship to give experience. In fact, advice is still something I seek, as I’m still on the green side in the larger landscape. In reality, every person only has 24 hours in a day and limited bandwidth, which inhibit the quantity and quality of mentorship even if the mentor wants to. Providing mentorship, after all, requires mentors to accept the opportunity cost to do something else they could be doing, and prioritize the learning exchange. I characterize mentorship into two categories: passive and active. Passive mentorship is where one purely obtains advice from a mentor, whereas active mentorship is where advice is coupled with hands-on learning experience.

Mentorship is often seen as a huge time commitment, which is why when asked to provide mentorship, many potential mentors, who have yet to commit a large chunk of their schedule to advisorship, turn it down, as soon as they get the request. Having led three mentorship programs across two organizations, as well as hosting founder brunches and brunches with strangers for peer mentorship, here’s why most prospecting mentees are turned down: ensuring value and capping the mentor’s own downside.

Ensuring Value

When mentors are approached, the two most frequent asks are: “Can you be my mentor?” and “What can I help you with?“

The former, “Can you be my mentor?“, often scares many mentors away. Just the word ‘mentor’ or ‘mentorship’ incites the connotation that the mentee is setting a high bar of attention expectation, which in undefined with no clear asymptote or time horizon, in sight. Something I learned over the years, unless I am the one hosting a mentorship program, is that the best mentor-mentee relationships, never mention the word ‘mentorship’, at least not in the first few exchanges. The question itself is nebulous in nature. The nebulosity leaves the mentor needing to expend their creativity to guess what mentees would like to learn. A better approach would be to have a targeted question detailing exactly what you want to learn, with evidence of putting in work to resolve the question beforehand.

Here’s a format I personally use when reaching out for advice, or for passive mentorship:

“I’ve been obsessed about X recently, and have tried out Y and Z, to produce Y’ and Z’ results (where I expected Y* and Z*). As someone I deeply respect in X industry and whose insights I have used in trying out Y and Z, what might I be misunderstanding or should have done differently? If I caught you at a bad time of the year, is there someone or some literature you can point me to, to help me achieve the desired result?”

The latter question, “What can I help with?“, unfortunately, is evidence that the prospecting mentee has not done their diligence. Take for example, helping a VC. There are really only five ways to help:

  • Deal flow – amazing startups that fit the partner/fund’s investment thesis
  • Sales/BD intros – firms that are buying, partnering, or co-investing into the fund’s portfolio
  • Portfolio support – helping the fund’s existing portfolio startups with their various impending dilemmas
  • Follow-ons – downstream investors for the fund’s portfolio
  • LP (limited partner) intros – high net-worth individuals or groups who may fund a VC’s next fund

In knowing one’s specific skill set and network, ideally, a prospecting mentee can help where his/her strengths lie. This is also true on a broader scale, when offering help to friends, acquaintances, and just people who need help, knowing what kind of help they need and when they need it means the world to those in need. After all, a friend in need is a friend indeed.

Capping the Downside

Most mentors, either explicitly or implicitly, want to ensure the experience is valuable and productive to the mentee, leaving the upside to be essentially limitless – for both the mentor and mentee. Having a set of clear measurable goals, one, defines the time horizon, and ,two, helps the mentor understand what is valuable to the mentee. A good reference point are how companies structure KPIs, or key performance indicators. At the same time, clear, measurable goals helps the mentor cap their maximum downside, so the relationship won’t end up becoming a slippery slope. Consider what the mentor has to risk to help the mentee: time, attention, money, reputation, opportunity cost, “knowledge IP”, and so on.

Per the format I use as I mentioned before, it caps the maximum time investment a passive mentor needs to provide to the length of time it takes to answer one question. Or if they’re short on time, I have recognized that they’re busy, and have given them an easier ‘out’ to the question.

In closing

This piece isn’t meant to disincentivize people from seeking help and mentorship, but rather to provide another perspective to those of us, including my younger self, who have yet to figure out their own approach to mentorship or are looking to explore other methods or just to peer into my mental calculus. Mentorship, at the end of the day is an investment – an attention investment. As with all investments, the goal is to lose little, win big – or how we like to say in VC, “de-risk the investment.” The upside, or if I’m continuing on this VC analogy, the return on investment, or ROI, knows no bounds. Even for the mentor, who at first glance, may seem to be losing more than winning, gains the satisfaction and pride of paying it forward, a new friend, and leadership skills, even before what the future may realize.

After all, some of the greatest figures in history and in our world today grew from mentorship: Socrates to Plato, Ralph Waldo Emerson to Henry David Thoreau, Ed Roberts to Bill Gates, Maya Angelou to Oprah Winfrey, Sire Freddie Laker to Richard Branson, Bill Campbell to Steve Jobs, Steve Jobs to Mark Zuckerberg, and the list goes on and on. As many studies have shown, and of course, with a few caveats, happiness can be achieved by spending money on others. In this case, that money is time and attention.

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The Secret Sauce

Photo by Aarón Blanco Tejedor on Unsplash

I was chatting with a founder yesterday about why she was getting so many “maybe’s”, a few “no’s”, but no “yes’s”, where a “yes” needs to come along with a term sheet, or else it’s as good as a “maybe.” Her product was hitting most of the check boxes for a startup ripe for the seed round, but she just wasn’t getting any traction from investors. There were a few KPIs she was missing here and there, but most startups don’t fit in the cookie cutter rubric anyway. So why?

It was and is the secret sauce. Others might call it the X-factor. It’s what uniquely sets you, as a founder, and your team and product apart from the rest of the competition. Like I mentioned in my thesis, what did you catch that makes money, which everyone else underestimating or missing entirely? It could be an insight; it could be a business model; it could be a specific money-generating collective customer insight. And how will this secret sauce continue to help you gain traction, at the minimum, for next few years. Moreover, at an early stage, pre-product-market fit (pre-PMF), it really only has to be one thing. It doesn’t have to be a list of the five ‘unfair advantages,’ like they teach in B-school. It’s not the chart with you having all the check boxes checked and everyone else having less checks than you do. It’s more often than not, not the up and to the right graph that you have in your slide deck. Because let’s be honest, every startup’s graph is up and to the right. Left side – antiquated. Right side – revolutionary. Bottom side – slow. Top side – fast. Or some cousin of that. Not that any of these advantages, charts and graphs are wrong, but what they represent most likely isn’t as unique as a founder might think. VCs see thousands of pitches in their inbox, pitches at events, and pitches in person. What you think is unique may be the 50th time a VC sees the exact same value proposition. As one of my 6th grade teachers once put it into perspective for me, “Think of a hundred really, really creative ideas. Throw them all away because all of them are unoriginal. Now think of your next hundred, and you are finally entering where no one has tread before.”

Just one thing. One thing I, as a scout, or another as partner, can bring to a partner meeting and say: This one thing is why we should invest. The more intuitive, yet exclusive to you, the better. Investors only have so much bandwidth to entertain ideas. There is a huge sum of okay ideas. Many good ideas. A few crazy ideas. And an even smaller handful of crazy good ideas. And the secret sauce is to prove to anyone exactly why you are one of the crazy good ones.

Now the secret sauce gets more nuanced here. You and your startup not only need that secret sauce, but you need to make sure the investor that you’re talking to is the “best dollar on your cap table,” as Roy Bahat of Bloomberg Beta (yes, the link redirects to a Github link, and they might be the only investors out there that does that) puts it. Why is it the perfect fit for the investor you’re chatting with (or going to chat with)? And why is that investor, and no one else, uniquely suited to help your business flourish at this stage? For example, I can cook up the meanest mushroom dish ever, slather it with my widely-accepted secret sauce (which has white pepper in it), and give it to my brother. No matter how good it actually is, he will without a doubt throw it in the trash or flush it down the toilet. Because he’s just not into mushrooms. The same can be said with investors. If they can’t or don’t know how to appreciate, savor and help you build on that delicious mushroom recipe, you’d just be wasting time barking on the wrong tree.

All in all, the secret sauce is just when your unique recipe for success meets someone with the means and experience to love it.

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The Myth of the 30-Second Elevator Pitch

I’m not the biggest fan of the 30-second elevator pitch. Although I do believe it has its merits in the art of being concise – to be able to take a complex subject, be it a person or a project, and succinctly describe it for your respective audience, I trust the art of storytelling more.

The elevator pitch is designed to be the appetizer before the entrée, but what I find more valuable is the entrée itself, which, unless you’re at a 20-course Michelin-starred meal, aren’t short. I have rarely seen a deal close on an elevator pitch, much like I haven’t seen or heard of two people become best friends on a “Tell me about yourself.” Elevator pitches, like teaser trailers, are designed to have certain words or phrases click with the one(s) you’re pitching to, and, at some point, becomes too “templated” to connect on an emotional, more-human level. Earlier this month, I recall Robert McKee, one of the most respected screenwriting lecturers out there and a FullBright Scholar, writing about the dichotomy between film and TV in his newsletter, which is analogous to the differential between pitches and an in-depth coffee chat:

“Long-form writers have the power to reveal character complexity and depths of humanity no medium has ever delivered in history.”

Similarly, in my experience, through having a conversation about one’s inflection points in life, I can better understand someone’s depth of character and scars. For example, I love to ask founders: “How did this idea come to be?” Like I alluded to in my piece about my thesis, founders who are obsessed about the idea have a personal vendetta against the problem. They use “I’s” and “we’s”, whereas others who haven’t seen the blood, sweat and tears firsthand would often reference the numbers and speak in large, more abstract scopes. Outside of founders, especially those in fundraising mode, who have practiced knowingly or unwittingly the same responses over and over from meeting with investors, people, who have been in the trenches, often have a less well-rehearsed response to such questions – more scrappy, but much more detailed.

Just the other day, I read a brilliant response to a Quora question on “As a VC, how do you know an entrepreneur has ‘grit’?” that summarizes a quick calculus that differentiates the entrepreneurs from the “wantrapreneurs.” The answer in two words: specificity and compassion – two things which, unfortunately, most elevator pitches don’t cover.

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Why I jumped into VC

I’ve always had a life goal of meeting, learning, and helping the craziest, most creative, and most inspiring people in the world (and maybe one day, outside of it). So, half a decade ago, I made that dream-like goal my mission. Every week I reached out to one new person I was insanely excited about, which sounded great in theory, but scared the hell out of my introverted self. I would find the person of the week (POTW, as I would abbreviate it in my journal) from anything that would spark my interest: articles, podcasts, books, friends (and our online and offline conversations), memes, or YouTube videos. I then forced myself to find every way possible, and over time, figure out the best way possible, to meet these brilliant folks. It was a trial-and-error game of email, call, warm intro, Instagram or LinkedIn DMs, hand-written letters, and even attempting to show up at their office and ask for a meeting unannounced. Most were in vain, but those that I did succeed in, always had me jumping with joy, which was quickly followed by nervous adrenaline, as if I had overloaded on caffeine.

But that’s what made every single week fun. Every week I had something to look forward to – a mission that I would jump out of the bed every morning to accomplish.

That’s exactly why I didn’t give myself time to blink when I got the chance to jump into venture capital. Venture capitalists have a great track record of finding and investing in brilliant and passionate dreamers. And when I had yet to find my own systematic calculus for finding fascinating humans of the world, the mysterious land of venture capital would help me gain insight and a means to create my own. At the same time, I just couldn’t ignore my former professor’s description of the VC industry:

“A career where you get to see the future from one person’s perspective. And if you piece enough of them together, you’ll be able to help build the future you want you and your children to live in.”

Though I’m still only a meager three years in, and many miles short of having children, I’ve learned VC is a much more complex beast than I initially thought, but it doesn’t change my mission: to meet, learn, and help the craziest, most creative, and most inspiring people in this world. As someone who’s on the more junior side of life, there has been no better industry for me to learn, in breadth and in depth:

  1. How to start and grow a business,
  2. The frontiers of technology,
  3. And the fundamentals of human relationships.
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My Thesis (2019)

I jumped into the fascinating world of venture capital about three years ago. It’s not like I planned it out or had a life-long dream of being in VC. Maybe it was a result of too many bedtime stories from my dad or maybe it was my admiration of Remy from Pixar’s Ratatouille. Either way, I just knew I was enamored innovators and their stories.

Three years in, I don’t claim to know everything, or even anything. After all, a brilliant veteran investor once told me:

“You won’t know if you’re good at it until you’re ten years in.”

And it just so happens that ten years is the average lifetime of a fund. As of now, I’ve accrued quite a bit of unrealized IRR – less so monetarily, but more so in terms of pattern recognition. In this cycle (as I believe, rather than psychology’s four linear stages of competence) of incompetence and competence, I know what I don’t know – my conscious incompetence. But here is what I do know – my (hypo)thesis after reading thousands of pitch decks, meeting 700+ founders and learning from 100+ investors. Granted, a mix of pre-seed, seed, and Series A folks.

Why this?

The first leg of my thesis happens to be the most explicit, and often times, the easiest for founders to answer. Why are you pursuing this problem? What makes your solution appealing to people currently facing this dilemma? And, how are you different from your direct and indirect competitors?

‘Why this?’ is, simultaneously, a question about product and market. How does this product fit in the larger picture of the market? Is the market well-defined, growing, or nascent? How saturated is the market? What is everyone else missing entirely or underestimating?

Why now?

What market forces, technological advancements, and/or social dynamics have made this problem ripe for the taking? Timing is crucial for startups. Too early, the stage has yet to be set. Had Uber or Lyft been founded prior to the smartphone, it would have folded in the blink of an eye against the looming giant of taxis. Same if coding bootcamps came before demand exceeded supply of software engineer roles in technology. Too late, and you’re feeding on scraps, if at all.

Often times, there’s more than one team that realizes the intersection of social, technological, political, and economic trends at the same time. But each might have a unique perspective on why the intersection came to be. The question I ask myself when looking at each potential investment is: What did you catch that makes money, which everyone else underestimating or missing entirely? Of course, it does make it easier when the founder(s) help spell that out for me.

Why you?

Early-stage investing is mostly about the founders, especially when there’s so little numeric evidence the earlier the stage is. Their obsession (similar, but not the same as passion), their grit, their domain expertise, their chemistry, and their ambition.

Obsession. Passion is what keeps you going during the day and when you have free time. It’s what you love. For example, there are many things in this world that I love: swimming, art, travelling, and eating, among many others, but I would never throw away my life to pursue these. After meeting with hundreds of founders, I learned it’s easy to mistake eagerness for passion, especially during the first 30-minute coffee chat. Obsession, on the other hand, is what keeps you going during the night, while burning the midnight oil. It’s what you hate. It’s a personal vendetta, which is catalyzed by a problem that you face first-hand, rather than through market diligence. As one of my good founder buddies, Mike, prompts it:

“How you sleeping?”

On the same token, obsession is contagious and inspiring. It is a key quality I look for, which can reasonably help predict how proficient an entrepreneur is and will be in hiring early team members, as well as onboarding future stakeholders.

Grit is a function of obsession. The more obsessed you are, the easier it is to weather through obstacles during the founding journey. It’s a trait I learned to recognize as a former competitive swimmer. The more obsessed I became with a achieving a certain time, the easier it was for me to overlook the short-term pain for the long-term gain. I could put in 40-hour swim weeks and still be as eager and excited coming out of them. Similarly, I’ve seen obsessed founders be able to pull off cup ramen meals, moving from comfortable houses to stuffy 2-room apartments, and taking rejection after rejection from investors, friends, and family. With limited resources, how much cognitive flexibility does the founding team have? I’m not saying that founders need to live in a garage and have cold pizza to be successful, but I do want to see founders’ ability to be scrappy and resourceful, like Brian Chesky and his team at Airbnb went to each of host’s house to take high-quality pictures for the site or when Michelin created the Michelin Guide for restaurants to help sell their tires.

Domain expertise. One of my favorite questions to ask founders is: “What is each of your competitors doing right?” It’s easy to get bogged down in the thought process of “I’m right, you’re wrong” and many founders that I’ve seen do end up living in a bubble of how “unique” (whether true or not) they are. What separates a good entrepreneur from a great entrepreneur is the ability is to ability to adapt and be open-minded about the changing landscape, which includes getting to know your market, and subsequently, competitors, like the back of your hand. Domain expertise isn’t just understanding the market, the product and the team, but also having accumulated deep, unique insights into all the above and being able to defend each insight. It is one of the few traits that I look for that cannot be static and should grow over time.

Chemistry. Rather than asking how long co-founders have known or worked with each other, I found it more insightful to ask how co-founders would resolve problems between themselves and their first impressions of each other. Both provided me with context on whether pressure and friction can create gems or mashed potatoes.

Ambition. When I first entered the world of venture capital, I thought ambition was a given. I mean, who would want to create a startup if they weren’t ambitious? Over time, I learned there were varying degrees of ambition. Some envisioned transforming an industry, some wanted to be acquired, and some just wanted to be their own boss. None are better or worse than the others, but not all are suited for VC financing. VCs bet big to win big. I’ve watched VCs turn down many great ventures, just because they couldn’t justify their potential ROI to their team, fund, and/or limited partners (LPs for short – the folks who invest in VC funds). Why? VCs take on big, but calculated risks. Because of that philosophy, they expect many misses, but for each investment, they’re hoping that that venture makes back a majority of their fund, if not more. Of course, there are a few other factors that determine VCs return on any investment, but at the very early stages, it’s the first check mark entrepreneurs have to check. You can only catch as much fish as how wide the net you cast.

Conclusion

The uncomfortable truth, especially in the San Francisco Bay Area, where people from around the world come to build a dream, is that not all ventures are meant for the venture capital model. VCs ask founders to tackle aggressive schedules and metrics, whether it’s the Rule of 40 for SaaS startups, or the minimum Month-over-Month growth of 30%, as I was first taught. There are many profitable startups and brilliant builders out there that are excluded from the VC model.

My friends and colleagues call it my NTY thesis – the millennial abbreviation for “No thank you”. When I first started scouting, it was all about finding the best ones out there. It was saying “yes” to each opportunity to each conversation – quantity. But when I reached critical mass, had started developing an investment thesis, in conjunction with learning how other theses came to be, it wasn’t about quantity anymore; it was about quality. It wasn’t about finding; it was about eliminating. The hardest part for me was turning my eager “yes’s” to reluctant, but necessary “no’s.” A good mentor of mine once said:

“If you can’t say no, don’t invest.”

Although I have yet to invest in these startups, the calculus is the same. I really boil it into one final question: Am I willing to risk my political or social capital with my connections for your venture? Is there something about the founder and/or startup I can nerd out about? It could be an extraordinary track record for getting shit done. It could be brilliant traction. It could be a unique insight. What really tips the scale is the secret sauce.

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