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Non-obvious Hiring Questions I’ve Fallen in Love with

read, book, child, question

Recently, I’ve been chatting with a number of GPs and LPs looking to make their first hires. Many of whom hadn’t built a team prior. Now I’m no expert, nor would I ever claim to be one. But I’ve been very lucky to hire and work with some stellar talent.

They asked me how I think about interviewing, selecting, as well as onboarding. I’ll save the last of which for a future blogpost, but for the purpose of this one, if you frequent this blog, you’ll know I love good questions. And well, I get really really nerdy about them. So, as I shared my four favorite, nonobvious interview questions as of late with them (some I’ve used more than others), I will also share them with you.

I won’t cover the table stakes. Why are you excited to be here? What skills are you a B+/A- at? And what are you A+++ in? Why you? Etc.

If you had to hire everyone based only on you knowing how good they are at a certain video game, what video game would you pick?

I recently heard Patrick O’Shaughnessy ask that question to a guest on his podcast, and I found it inextricably profound. While the question was directed at Palmer Luckey, who has a past in video games, the words “video game” can easily be replaced by any other activity or topic of choice and be equally as revealing. Be it sports. Or an art form. Or how they grasp a certain topic. Even, putting them in front of a Nobel Prize winner and see how quickly they realize they’re in front of one.

The last example may be stretching it a bit, but has its origin in one of my favorite fun facts about the CRT — the cognitive reflection test. Effectively, a test designed to ask the minimum number of questions in order to determine someone’s intelligence. But in a parodical interpretation of the test, two of the smartest minds in the world, Daniel Kahneman and Amos Tversky, decided to make an even shorter version of the test to measure one’s intelligence. The test would be to see that if one were to put you in front of Amos Tversky, one of the most humble human beings out there despite his intelligence, how long it would take you to realize that the person sitting across from you was smarter than you. The shorter it took you, the smarter you were. But I digress (although there’s your fun fact for the day).

The reality is that any activity that requires a great amount of detail, nuance, resilience, frustration and failure probably qualify to be mad-libbed into that question. Nevertheless, it’s quite interesting to see what someone would suggest, and a great way of:

  1. Assessing how deep a candidate can go deep on a particular subject,
  2. How well they can relay that depth of knowledge to a layperson, and
  3. How they build a framework around that.

I hate surprises. Can you tell me something that might go wrong now so that I’m not surprised when it happens?

Simon Sinek has always been one for great soundbites. And the above question is no exception. It’s a great way of asking what is one of your weaknesses. Without asking what is your weakness? Most, if not all hiring managers are probably accustomed to getting a rose-tinted “weakness” that turns out is a strength when asking the weakness question to candidates. It is, after all, in the candidate’s best interest to appear the most suitable for the job description as possible. And the JD doesn’t include anything about having weaknesses. Only strengths… and responsibilities.

At the same time, while the weakness question makes sense, when there is an honest answer, I’ve seen as many hiring managers use the associated answer to discount a candidate’s ability to succeed in the role, before given the chance. While this is still throwing caution to the wind, for one to be open-minded when asking this question, at the very least, you’re more likely to get an honest one. At least until this question becomes extremely popular.

Another version, thought a lot more subtle, is: What three adjectives would you use to describe your sibling?

I won’t get into the nuances here, but if you’re curious for a deeper dive, would recommend reading this blogpost. The TL;DR is that when we describe others (especially those we know well), we often use adjectives that juxtapose how we see ourselves in relation to them.

What did you do in your last role that no one else in that role has ever done?

This is one of my favorite professors, Janet Brady’s, favorite questions, and ever since I learned of it, it’s been mine as well. Your mileage may vary. Of particular note, I look for talent with entrepreneurial natures to them. Most of what I work on are usually pre-product-market fit in nature. In other times, and not mutually exclusive to the former, requires us to re-examine the status quo. What got us here — as a team, as a company, as an industry, or as a citizen of the world — may not get us there.

And there is bias here in that I enjoy working with people who push the boundaries rather than let the boundaries push them. And I love people who have asked the question “What if?” in the past and has successfully executed against that, even if it meant they had to try, try again.

What haven’t you achieved that you want to achieve?

Steven Rosenblatt has always been world-class at hiring. By far, one of the best minds when it comes to scaling teams. For a deeper dive, and some of his other go-to questions, I highly recommend checking out this blogpost.

When you’re building a world-class team, you need people to self-select themselves in and out of the culture in which you want to build. Whether it’s Pulley’s culture of move fast and ruthlessly prioritize to build a high-performance “sports team or orchestra” or On Deck’s non-values, it’s about making it clear that you’re in not because you’re peeking through rose-tinted glasses, but that you know full well, that you will be confronted by reality, yet you still remain optimistic. To do that, you need:

  1. A tight knit team who hold the same values
  2. And folks with a chip on their shoulder

The latter is the essence of what Steven gets at with the above question. And does one’s selfish motivation align with where the company wants to go and what the role will entail.

Photo by Aaron Burden 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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DGQ 18: If you lived your life 1000 times, what would be true in 999 of them?

luck, clover, serendipity

I first heard this question from Morgan Housel quoting a Navalism (for the uninitiated, that means has its source tracing back to the one and only Naval Ravikant). And it makes you think, that in the multiverse, where each version of you lives a different life and makes different choices, what would stay constant?

These are things that are not attributed to luck. And as Morgan mentioned, “those are the things you want to focus on in life.” When predicting the future, many try to predict what will change, but the best bets with long time horizons are on those that don’t change. Things that aren’t attributed to luck. Or chance. In this world we live in, you’d be quite surprised the number of small, accidental decisions we make that lead to life-changing events.

Like you being 10 minutes late to a party meant that you somehow just showed up at the same time as your future spouse. And it was because of that, that led you to have a two-hour long conversation with him/her. Otherwise, you’d have spent the entire party hanging with your college friends.

Or because you forgot to bring your umbrella on a day it rained, it made you run into a hotel for shelter, where you stumbled upon the investor who led your Series A round. Because he/she too forgot to bring an umbrella.

Of course, I could play hypotheticals forever. Although I find it’d be a fun exercise to really examine how much of your most life-changing moments were due to serendipity.

As someone who makes their living on attempting to predict the future, that means we have to go back to first principles. For instance, human nature. Reid Hoffman’s framework that all great consumer products tap into one of the seven deadly sins. Something that despite innovation is timeless. Anecdotally, I do find some of the greatest investors — LPs and GPs alike — to be avid students of history, philosophy or psychology.

In the same interview I alluded to above, Tim Ferriss mentions another line once written by Don Knuth when he was quitting the use of email:

“Email is a wonderful thing for people whose role in life is to be on top of things. But not for me; my role is to be on the bottom of things.”

In life, while catchy and interesting and the talk of the town for that brief moment, sometimes it’s better to get to the bottom of things than to stay on top of things. After all, you only have so many letters on your tombstone.

Photo by Yan Ming on Unsplash

The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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Emerging Market Funds Seem to Have Longer Deployment Periods

market

This past week, one particular graphic stood out. Endeavor shared some research they’ve been working on for a bit on the common themes in unicorn founders. And the below graphic is what came out of that.

Source: Endeavor

For any VC out there, the above may be interesting to compare to your own deal flow and portfolio. For any founders out there reading the piece, and while this is a loaded term that comes with a lot of baggage, the above is where you might see a lot of investors regress to pattern recognition. So if you don’t look like a founder that’s illustrated above, be sure to address the implicit elephant in the room early on in your pitch. The best way to do so is through metrics. The second best way is to share leading indicators of grit and market / problem obsession.

While the study itself is fascinating, and I highly recommend you taking a deeper dive into it, one particular portion is worth underscoring. “Another difference between the emerging market and US founders is how fast they grow their companies. Founders in emerging markets achieved unicorn status for their companies in an average of five and a half years, while US founders took more than six years.”

Why is that noteworthy?

So I will preface that this is completely anecdotal. I’ve seen about two dozen or so emerging market funds myself, and have chatted with about the same number of LPs who have invested in emerging market funds. And the statisticians out there may say that isn’t statistically significant. So take what I’m about to say next with a grain of salt.

In the decks I’ve seen and the conversations I’ve had, I’ve noticed something else. That funds investing in the US and Western European markets tend to have an expected deployment period of 3-4 years. I’ll caveat that this period in practice may differ from the pitch. But nevertheless the model holds. LPs in US-oriented funds often expect 6-8 years before any exits or liquidation events happen. Which is why so many LPs say it takes a fund an average of 6-8 years to settle into its quartile. (And, here’s another example.)

And it is because of that, GPs are incentivized to deploy their last net new check before year 4, and for others year 3. ‘Cause compounding takes time.

But on the flip side, I’ve seen emerging market funds err on the side of longer deployment periods. Usually 4-5 years. At least in the pitch. In my very, very basic diligence, aka asking lawyer friends who help funds set up in emerging markets, that seems to corroborate with their experience.

Reading the tea leaves

So I don’t know how much of this deployment period pitch is intentional by design, or accidental. The latter in the sense, that at least in Asian and SEA markets, professionals tend to be more conservative than in the US. So longer deployment periods help investors proceed with caution. In fairness, some investors are more intentional than others. But the logic seems to hold. If it takes less time for exits to materialize in emerging markets, for the same 10-year fund, one can afford to deploy their last net new check later.

All this to say, Endeavor’s piece was quite thought-provoking for an LP, just as much it’s been for a VC or founder.

Photo by Mark Pecar 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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Timing is Only Obvious in the Rearview Mirror

watch, time, clock

There’s this line I love in Jerry Colonna’s Reboot, and I’m loosely paraphrasing just because I’m travelling and I don’t have the book in front of me, “The saying is buy low, sell high; not buy lowest, sell highest.”

The reason I bring up that line is that I’ve been hearing a lot of investors talk about timing the market. At least that was the case before this wonderful trip I’ve been taking across the Pacific, as I sip my hojicha atop my hotel in the backdrop of the Kyoto evening metropolis. When’s a good time to sell? What price makes sense on the secondary market? Should I be investing now? When’s a good time to re-up? Is it a good idea to re-up? Should I be generating DPI for my investors now? Or should I hold? When should I start my fund? When should I begin fundraising?

Now, I don’t pose the above questions as if I have all the answers. In fact, I don’t. I try to. But I don’t. Although I’ve heard 50-60% is the discount secondary buyers have been able to get for great companies that became overvalued in the pandemic days. On the flip side, while Dave and I did published a blogpost not too long ago on early DPI, the truth is there are different ways to make money. Ed Zimmerman shared some of his investments’ data recently to illustrate that exact point.

Another obvious truth is that as investors for an alternative asset class — hell for any asset class, our job is to make our LPs money. Ideally, more money than we were given. For other asset classes, it’s measured in percentages. For venture, it’s multiples. And because of that raison d’être, it’s our job to think not only about the upside, but also the downside protection. Hence, why early DPI matters in some of your best outliers. It always matters.

But from what I’m seeing and hearing, it matters more in a bear market, like today. Than the bull we were in yesterday. Why?

  1. Liquidity is a differentiator.
  2. Because of the point 1, giving LPs some liquidity back makes it easier to get to conviction as you raise your next fund.
  3. Point 2 holds the most weight if you’re an emerging manager on Funds I through III, or have sub $100M AUM. Although Funds I and II, you have little to go off of. As such, sticking to your strategy may be more important to some LPs. In other words, consistency.
  4. Also seems to matter more if your LPs are investing off balance sheet. For instance, corporates.

While I was in Tokyo earlier this trip, I caught up with a colleague. We spent the evening chatting about fund managers and current deployment schedules. (In case you’re wondering, no, we didn’t spend the whole time talking the biz.) And we see a lot of folks slowing down their pace of deployment. Could be the case of deal flow contraction, as Chris Neumann recently wrote about. Could be the case of loss of conviction behind initial fund strategy. We’ve also seen examples of VCs stretching their deployment schedule as their fundraises have been extended to 2024. All in all, that means VCs’ bar for “quality” has gone up.

But let me explain in a bit why I put “quality” in quotation marks.

So, timing comes down to two things:

  1. Entry point
  2. Exit point

I’ve seen a plurality of investors consider exit options as a means to *crossing fingers* convince existing LPs to re-up to the next fund. Debatable on how effective it is. As many LPs I’ve chatted with are “graduating” a lot more of their GPs than years prior. In other words, fancy shmancy word for they’re not re-upping on certain existing managers. Some LPs say it’s an AUM problem (but I’ve also seen them make exceptions). Others say it’s strategy drift. But more so say that certain GPs haven’t been a good fiduciary of capital, which ends being a combination of:

  • High entry points
  • Faster than promised deployment schedules (i.e. 1-1.5 years instead of 2-4 years)
  • Investing in a company where the preference stack is greater than the valuation of the company (similar to the first bullet point)
  • Reactive communication of strategy drift, instead of preemptive and proactive
  • Logo shopping which led to strategy drift

All that to say, there are a good amount of LPs who, though appreciate the extra liquidity from partial exits, are not re-investing in existing managers. In addition, they’re holding off until on new ones till earliest Q1 next year to build the relationship earlier. Especially those $5M+ checks.

So, quality, for both GPs and LPs, is this new sugar coating of a term to account for time it takes to figure out where they want to put the next dollar. Investors on both sides are waiting to pull the trigger at 90% conviction, instead of the usual 70%. And realistically, for pre-product market fit companies and firms (i.e. pre-seed, seed startups and Funds I-III), 90% usually never comes until it’s too late. Meaning one misses their entry point.

I have no doubt (as well as many if not all my peers) that the greatest companies of the next generation are being built today. But only a small handful will make it out the gauntlet of fire. Even good companies won’t make it, unfortunately.

So, for the one building, the importance of communicating focus and discipline will be more powerful than ever. My buddy Martin also recently tweeted by an unrelenting focus on a niche audience may serve more useful than targeting a seemingly large TAM.

For the one investing, there is no good time. Our job is to buy low, sell high. Not buy lowest, sell highest. Waiting for the right moment will only have you miss the moment. In the surfing analogy, where the market is the wave, the product is the board, the team is the surfer, and you need all three to be a great surfer, you don’t want to be on the shore when the wave hits. It is better to be paddling in the water before the wave hits than on the shore when the wave does hit. Timing is only obvious in hindsight, never in foresight.

There’s also a great Chinese proverb that the best time to plant a tree was 20 years ago, the next best time is today.

So in this flight to quality, consider what quality actually means. Is it a function of you doubting your original thesis? Then re-examine what caused the doubt. Was your thesis founded on first principles? For consumer, which is where I know a little bit more about, is it founded on the basis and habits of the human condition? Is it secular from technological and hype trends?

Is quality waiting on numbers or external validation? That’s fine if you’re a growth or late stage investor. You’re never going to get it if you’re a true pre-seed and seed. If you’re waiting on a large amount of traction, you’re not an early-stage investor. Round-semantics aside.

You built a fund around a 10-15 year vision. Deploy against that. Or… although we don’t see this much these days, return any remaining capital back to your LPs.

Photo by Alex Perez 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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To Define or To Be Defined By

dictionary, definition, defined

One of my recent favorite soundbites is Rich Paul‘s. For the uninitiated, he’s the agent behind LeBron James and Draymond Green. And in his recent Tim Ferriss episode, he said: “Some people define the business card and some people are defined by their business card, and so I don’t carry a business card.”

Some of the most exciting conversations I’ve been having as of late have been in the world of family offices. There’s this shift in generational wealth transfer, but often times without sufficient knowledge transfer. At the same time, there are many next gens leaning more into risk and philanthropy. Many want to increase their exposure to venture and private equity as an asset class, but are still learning how to underwrite such risk.

My conversations echo a lot of what Citi’s been seeing as well. Two in five family offices wanted to increase their exposure to illiquid asset classes, namely the PE and VC asset classes. And while many bucket VC and PE in the same asset class, the truth is the assets operate very differently. Even within venture, underwriting the risk and performance of a sub-$40M fund versus a $40-100M fund versus a $100-500M fund versus a $500M+ VC fund are completely different. Some LPs may disagree on the exact benchmarks (for instance, sub-$100M funds and everything else), but the reality of assessing an emerging manager and an established manager are different. But I digress.

The rest are either rebalancing or figuring out their re-up strategy. Yet, as I’m sure GPs are seeing today, that shift in strategy, requires time, research, and confidence before family offices can pull the trigger. Many are waiting to Q1 next year, but engaging in conversation today.

I’ve also written before about one of my favorite lines from Engineering Capital’s Ashmeet Sidana, “A company’s success makes a VC’s reputation; a VC’s success does not make a company’s reputation. In other words to take a concrete example, Google is a great company. Google is not a great company because Sequoia invested in them. Sequoia is a great venture firm because they invested in Google.”

And I’m seeing a similar vein with family offices. The next gen don’t want to be defined by their predecessor’s goals and records. They want to define their own legacy.

There’s also the saying: If you know one family office, you only know one family office. So any broad-stroke generalizations are loosely correlated at best. That said, anecdotally, having talked with about a hundred or so family offices, here’s what I’ve come to notice.

My crudely drawn 1D scale of whether venture capital is an asset class or an access class

Smaller and/or emerging LPs see VC as an access class. Larger and more sophisticated and established LPs see VC as an asset class.

The Mendoza line — the line that separates the emerging LPs from the established ones —seems to be around 20-30 managers or over 6-7 years of venture data. For the latter, that means, you’ve seen Fund I’s and II’s graduate to Fund III’s and IV’s.

So the question for many of the next generation leading family offices has flipped from: Are you defined by your surname? To: Do you define your surname?

For those that pursue the latter, they’re a lot more proactive than previous generations. They participate in communities. Go to events. Seek education on the matter. Network with their existing managers to discover new ones. Some have also built covenants to co-invest in their manager’s breakout winners. Quite a few are building emerging manager programs or would like to. They’re hungry. Hungry to learn.

The problem I’m seeing with many managers is that they’re seeking transactional relationships. The urgency to get to their first or final close leads them to optimize for LPs who can close fast. And I get it, that’s been the game historically. But it’s leaving a massive opportunity in the market for those who have the time and are willing to educate their and prospective LPs. Who are willing to spend time building a relationship through giving first.

Photo by Edurne Tx 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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#unfiltered #85 Relationships are Built on Actions, Not Words

action

This past weekend, I ended rewatching a classic and one of my favorite Eddie Murphy movies, A Thousand Words. Eddie, who plays Jack McCall, a literary agent, is someone who will say anything to get what he wants. And the plot of the movie effectively revolves around him trying to sign his next author and the after effects of doing so.

At one point, Dr. Sinja, the author he’s trying to sign, tells Jack, after he exclaims that he tells his wife he loves her “all the time”, “Words? More words, Jack. You tell her, like meaningless leaves that fly off a dying tree?

“Words.

“Can’t you show her that you love her? Make peace. Show them that you love them. And be truthful.”

One of my favorite people in the world, my friend who I met by way of mutual friend introduction, also happens to be one of the more well-traveled people I know. While it’s not my intention to embarrass her by writing this blogpost, she’s someone I’m deeply grateful for — my pen pal.

Every time we text, we send these long passages to each other. Paragraphs long. It doesn’t happen super often, every 2-3 months or so. And at times, we go six months without texting each other. But what makes her awesome aren’t our virtual letters, while I do really enjoy writing and reading them. What makes her awesome is that every time we meet in-person, she brings me gifts from abroad.

And she did so, ever since the day we first met, and I, in a passing remark, mentioned I didn’t travel often. And because of my work, my school, the need for me to be close to take care of family, I’ve stayed in the cocoon of the Bay Area my whole life. As such, I really do enjoy when friends tell me in detail of their travels beyond the horizons. But she took it a step further, where she would:

  1. Buy gifts, snacks and souvenirs from abroad to bring back
  2. Mail me postcards from every trip, sharing the smells, sights, sounds, and feels of her surroundings as she writes them
  3. And of course, bring me back tales from her adventures when we meet in person.

They’re small things. But despite being small, they mean a lot to me.

I’m luckier now to be able to travel more. And just like my pen pal brings back treasures when she travels, I do so for her now too.

And of course, this extends beyond friendships. The fundamentals for any relationship (friendship, romantic, customer, investor, or some other business relationship) are fulfilling promises. Too often, I meet folks, who like Jack McCall say more than they can deliver. Most times unintentionally. A large part due to society’s expectations to be nice.

I’ll give an example. How often do we hear “How can I help?” at the end of a conversation? If you’re anyone who has something that others want — connections, capital, or advice — the ones on the receiving end probably wish to pay you back in some way. But most people ask that, and when they get an answer back, they take it in like the passing wind. Personally, I’d rather people who can’t deliver on that not ask that question than ask and not deliver (if there is something the other could use help on).

To go beyond just a normal relationship means you need to deliver the unexpected — beyond the initial promise. That requires you to actually spend time caring. And when you do, actions will naturally follow words or perform independent of words.

Brex won many of their first customers finding who just raised and mailing them a $50 bottle of Veuve Clicquot. In turn, they got to demo in front of 225 out of 300 leads, and 75% of those closed. Instacart’s Apoorva Mehta delivered a pack of beer to Garry Tan at YC to win admission into their famously competitive cohorts — after they applied late!

Both were pitches. But neither in the format one would traditionally imagine.

As the saying goes, actions speak a thousand words.

Photo by Kid Circus 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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#unfiltered #84 Some Things Aren’t Worth Measuring, Others Aren’t Worth Carrying

My friend told me recently, that in the hallowed halls of Zappos, there’s a line by the great Tony Hsieh:

“Just because you can’t measure the ROI of something doesn’t mean you shouldn’t do it. What’s the ROI of hugging your mom?”

Too often we measure by the business incentives and not our own intentions. Humans are social creatures. We enjoy the company of others. No matter how much or how little. No matter if you’re an extrovert or introvert. There’s a line in my buddy Lloyed‘s new book, From Grassroots to Greatness, that I absolutely adore — a lesson he picked up from surviving the Gulf War.

“Life’s not about the destination, nor the journey. It’s your companions who matter the most. The people traveling down the road with you.”

I hosted a 20-person dinner on Wednesday. The theme was simple. Good people, good vibes. The room was 100% investors — LPs and GPs. And at any other venue, with the concentration of minds we had, the conversation would also be 100% cerebral. Markets. Political dynamics. Investment opportunities. Tactics. And so on. Ok, maybe only 90-95% cerebral, but my point still stands.

So the question is how can I, as the host, diffuse the tension in the room, where people use their amygdala, more than their pre-frontal cortex. Or in less cerebral terms, how do I get people to just have fun?

And not to get too technical (unless it is of interest, then let me know), it was setting the stage and arming people with the ammunition to not regress to their normal habits. The former lent itself to explicit statements of good vibes. The latter was executed by an order of custom fortune cookies, with all the fortunes inside containing a fun fact from someone else who was present that day.

The result was a casual night of laughs and hugs underneath the canopy of the San Franciscan sunset.

A friend asked me the next day, “What did I get out of it?”

To which I simply replied, “There’s no ROI on a good time.”

Pennies and quarters

I came across this reel while doom-scrolling on Instagram. I’ll try to find it, but at the moment forgetting the attribution. But the influencer posed the question: What’s the difference between 100 pennies and 4 quarters?

Weight.

The sum of each set equates to a dollar. But if you were to put 100 pennies in your left pocket and 4 quarters in your right, you’ll feel the weight on your left side. And in this analogy, they’re worth the same, and that there are some people who have value but are not worth the weight. Not everyone who has weight is worth carrying.

So, what?

In the age of social media (which in fairness has very much gone off thesis from its original intentions), the number of friends one has or followers or subscribers seem to matter a lot more than the quality of those relationships. Similarly, in the metropolitan world, the number of cards your Rolodex can unfurl seem to take priority over true friendship. In fact, there’s a whole phenomenon called the strength of weak ties.

I don’t think that’s right. Is there ‘value’ in knowing a lot of people? Sure. But life isn’t about numbers and stats — how much you make, or how big the deal you just struck was. In fact, the only numbers that’ll be on your gravestone will be the day you were born and the day you died. That’s it.

The sad truth is more and more people in modern society feel lonelier and lonelier. Hell, there’s plenty of literature on how many of the world’s top celebrities — in other words, some of the most followed / subscribed-to people in the world — feel incredibly lonely. And frankly it’s on overoptimization of what can be measured, and forgetting about what makes us happy, joyful, content. And spoiler alert, for all the economists and statisticians, it’s not utility points.

In closing

And so when my friend shared his adventures at the Zappos office with me, which I’ve never been to, now I really want to.

So, until the next, be kind, stay awesome, go tell someone who’s made an impact on your life, thank you, and give that person a hug. You don’t have to wait till Thanksgiving to do so.

Photo by Diana Polekhina 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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Are You Fishing in a Pond? Or Excavating a Pond?

fishing

The other day, I had a super insightful conversation with one of my awesome teammates here at Alchemist Accelerator about access and exposure. The difference between accelerators and emerging early-stage managers.

I’ll preface that for investors, particularly emerging managers, the three things you need to win are sourcing, picking, winning. And to be a GP, you need at least two of the above three. But for the purpose of this blogpost, I’m only focusing on sourcing.

I’ll also preface with the fact that I may be biased. I started in venture at SkyDeck, an accelerator. Additionally, I advise at a bunch of studios, incubators and accelerators. Moreover, I worked at On Deck when we launched our accelerator. And now, I’m here at Alchemist Accelerator.

I truly love early-stage programs. The earlier the better.

Instacart’s recent IPO is a clear example of venture returns compared to the public market equivalent as a function of stage. The earlier you invest, the more alpha you generate to your most liquid comparable.

Source: Axios

It’s the difference between a market maker and a market taker. A price maker and a price taker.

Though admittedly, one day, this too may become saturated, just like how venture capital went from 50-60 funds in ’07 and ’08 to now over 4000 in 2023. Do fact check me on exact numbers, but I believe I’m directionally accurate.

Let me give a more concrete example. Harvard is a phenomenal institution. And there’s a Wikipedia page full of breakout Harvard alums. But as an LP, if 50% of your managers, despite having different theses, all have half their portfolio as Harvard alums, then you as the LP are overexposed to the same underlying asset. The same is true for Stanford. Or seed or Series A funds investing in YC founders. All great institutions, but you’re not getting your buck’s worth of diversification.

The only caveat here is if you’re not looking for diversification. After all, the best performing fund would be the fund that invested a 100% of their fund in Google at the seed round. AND holding it till today. Realistically, they will have had to distribute on IPO.

The question is are you a fisher? Or are you a digger? One requires a fishing rod; the other a shovel. The latter requires more work, but you’re more likely to be the first to gold. Like Eniac was for mobile. Or Lux to deep tech.

So how do you know you’re fishing in someone else’s pond?

Easy. Your deal flow includes someone’s else’s brand. Whether that’s Sequoia or YC or SBIR. It’s not your own. You don’t own that pipeline. A lot of people have access to it. It’s no longer about proprietary deal flow, but about proprietary access to deals to borrow a framing from the amazing Beezer.

If your deal flow pipeline looks something like the graph below, you probably don’t have a sourcing advantage.

Source: Nodus Labs

Now that’s not to say there aren’t a lot of nonobvious companies coming out of YC or these startup accelerators. Airbnb, Sendbird, Twitch (the last of which Ravi who I work with here at Alchemist happened to be one of the first institutional investor for, so have heard some of these stories), and more were all non-obvious coming out of YC. And have also seen the same for companies coming out of Techstars, 500, and Alchemist, where I call home now. But that’s a picking advantage, not a sourcing one.

The flip side is, how do you know you’re excavating your own pond?

I’ll preface by saying having your own Slack or Discord “community” is not enough. Or having your own podcast.

I put community in quotes simply because having XXX members in a large group chat isn’t indicative that their presence is really there. Is their seat warm or cold?

I love using a stadium analogy. Imagine you sold a couple thousand season tickets to a team. You can name whatever sport it is. Football (yes, the rough American kind). Soccer. Basketball. Baseball. You name it. But despite all the tickets you sell, a solid percentage of your seats each game is empty. Can you really say that your team has fans? All you did was sell a couple of cold seats.

You can make the same analogy with likes or comments on Instagram. Which seems to be a problem these days, when an influencer with a couple thousand likes per post starts hosting their fan meetups, only to realize they rented out an empty hall. In case, you’re wondering for the IG example, it’s due to bots.

All that said, I like to think about excavation in the lens of competition for attention. Everyone only has 24 hours in a day. 7 days in a week. 365 days in a year. And as someone who is expecting any level of engagement from others, you are fighting for attention with every other product, person, and habit out there.

Perks of being a consumer investor, I think about this a lot. But in the same way, having an unfair sourcing advantage is the same.

Is the greatest source of your deals tuning into you at least four of the seven calendar days in a week? Or if you have a professional audience (i.e. only product people, or only execs), are they engaging at least 3 workdays per week or 8 workdays per month? Are they spending more time reading/listening/engaging with you than with their best friend?

If you have a community, do you have solid product-market fit? Is your daily active to monthly active over 50%? You don’t need a massive audience, but for the people who are primary sources of your deal flow, are you top of mind? As Andrew Chen says, at that point, “it’s part of a daily habit.”

Is it easy for them to share your content, what you’re doing, who you are with others? Does sharing you or your content generate dopamine and social capital for them? Do you embody something aspirational? Is your viral coefficient greater than 0.5? Even better if it’s 1, then you’re ready to go viral.

And do people stick around? Do the seats stay warm? Is your community self-propagating? Is your content evergreen? Or do you produce content at a voracious pace that it doesn’t have to be? Do you live rent free in people’s brain?

And once you do invest, are you the weapon in the arsenal of choice? For instance, 65% of Signalfire’s portfolio use their platform weekly to learn and get advice. But more on the winning side in a future essay.

In closing

To truly have a sourcing advantage, you need to be building your own platform that is impressionable and regularly take mind space from the founder audience. But if you don’t, that’s okay. You just need to be really good at picking and winning.

Photo by Popescu Andrei Alexandru 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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Are Conferences Worth It If You’re Fundraising?

audience, conference, event

Warning: This blogpost may be controversial.

Simple answer, no.

Longer answer, it depends.

So, what do I mean?

All cards on the table, I love conferences. It’s a great exchange of ideas. And every once in a while, you meet some really cool people. In fact, I’ve met quite a few of my now-great friends via large events. And hell, I love swag! Like, frickin’ love them! Arguably too much so.

I also love events, and have deep respect for not only the magnitude, the effort, but also the creativity that goes into making great events great. And if you’re a regular fan of this humble piece of internet real estate, you’ve seen me write about it. If not, would recommend searching up “social experiment”, “community”, or “events” in the righthand side bar. But I digress.

So, all of this transpired, when a founder asked me publicly in a Slack community, “Is TechCrunch Disrupt worth going to, to meet investors?”

I love TC, and all it stands for! But if you’re looking to raise and meet VCs who’ll be interested in listening to you pitch, your bang for buck is better elsewhere. Not saying it’s not possible, but if you’re not on stage, it’s just a lot of wasted effort. Why?

  1. VCs who are there are not looking there for deal flow, at least the good ones who have great pipelines.
  2. ‘Cause most people who are there are looking for investors as well. You’re not getting as much facetime with the right people as you would like. The ones you wanna get in front of are always the most popular ones.

On the flip side…

Why I think TC (or similar) is worth attending?

  1. Conversion. Conferences should not be top of funnel for you. ‘Cause if it is, you’re one step too late. Maybe two steps. Use it as a conversion tool. Set up Zooms with investors prior. Then use IRL time to convert them into fans or reinforce why you’re awesome. I mean, have you ever been to a networking event where strangers intro themselves to you and you forget their name within 5 seconds? The same is true for most investors unless you have a story that’ll make you go viral. If that’s the case, then you really don’t need conferences anyway. (Unless you’re on stage.)
  2. Hosting your own event/happy hour/fireside chat. Better to be a host of even a small intimate 6-8 person dinner than to be a participant. Participants are for the most part, forgettable. As a host, you’ll be able to live rent-free in someone’s mind for at least a few weeks.
  3. Or purely for fun. Then yes, go have fun. Everything else is a cherry on top. Did I mention conference swag is usually really awesome?

In closing

Do I personally go to conferences?

No. Usually. This doesn’t have any bearing to a conference’s quality. In fact, I think events like Saastr’s, Upfront’s, All-In, just to name a few are very well-organized.

  1. I’m just too busy.
  2. I enjoy intimate conversations more. I’m an introvert, what can I say.
  3. I like letting my creativity run wild by hosting my own.

So if you’re a founder fundraising, hopefully the above might be some helpful context when you are next at a crossroads in relation to event attendance. And yes, I find the above to be true if you’re an emerging manager fundraising as well.

Photo by Headway 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 Evolving Faces of Investor Relations

old, young, age, hands, faces

It’s fundraising season again. For founders. And for investors.

It may have been a product of the content I’ve been writing and the events I’ve been hosting. It could also be a product of my job title. But in the last few months, I’ve met a great deal of fund managers — from Fund I to Fund XIII. With a strong skew to the right. In other words, vastly Fund I through III.

And given the current market, there is the same pressing question from all: How should I pitch my fund?

And subsequent to that, who should I talk to? Or can you intro me to any LPs?

And in all these conversations, I’m reminded of a great piece Jason Lemkin once wrote on hiring the right VP of Marketing. I won’t go too much into depth since I’ve written about it here. But if you have a spare five minutes, I highly recommend the read. As such, the framework I share with fund managers is:

  1. Fund I and II, it’s all about lead generation.
  2. Fund III and IV, it’s about product marketing. The product is the fund. The product is the partners’ decision making.
  3. Fund V and onwards, it’s all about brand marketing.

I’ll elaborate.

Now I’ll preface with most emerging funds won’t have the capacity to bring on an investor relations person, so the onus lies with the founding partners themselves.

Lead generation

Barely anyone knows you exist. You need to be out there. You’re pre-product-market fit. And you need to sell why you are the best sub-$50 million fund to return three times your LPs’ money back. Five times if you’re pre-seed or seed. LPs are looking for GP-thesis fit. But more importantly for you, this looks very much like a sales game, not a marketing game.

Generating demand where there is none is key. How do you best tell a story no one’s heard of?

You have to break an arm and a leg to close LPs outside of your initial friends and family. You have to show you care. Or as Mark Suster recently said (quoting Zig Ziglar), “People don’t care how much you know until they know how much you care.”

You’re going to events. Trade-show equivalents. You’re hosting your own. Your asking co-investors to be your LPs. You’re asking for LP intros to largely high net-worth individuals, who’ll be your beachhead “customers” before you prove the promise you’re selling capital allocators. And just as much as they’re looking for the right people to marry for the next 10 years or 20 years (latter if you’re working together for at least three funds), you need to qualify them as well. And while yes, it’s important to keep your funnel wide, you need to have a strong idea of who’s a good fit and who isn’t from the very beginning. If it helps, here are some of my favorite pre-qualifying questions.

For a deeper dive of LP construction as an emerging manager, I’d highly recommend reading this deep dive on how other fund managers do it.

Product marketing

You’ve now gotten to a stage where your strategy is known. Founders and LPs self-select themselves into investing in you or not. For instance, if you know you can win on a diversified strategy betting with portfolio sizes north of 50, all the LPs that look for concentrated portfolios or strong reserve strategies will turn the cheek.

You’ve built a strategy off of the scare tissue from Fund I. Now you’re selling that strategy. Are you fishing in ponds that other GPs are not? In other words, is it differentiated? And how?

It’s an interesting exercise but it’s usually not the first thing you think of, but the third. When you really dig into your fund’s soul. Why do founders come for you? Why will they choose you over all the other 4000 VC fund options out there? Equally as helpful to do a “Why did you choose me” survey with your founders.

The big question for LPs now is: Is this repeatable?

Why? Your initial LPs for Fund I, maybe II, are smaller checkwriters, given the size of most Fund I’s and II’s. A lot of them know, even innately, that as you scale in assets under management, you will eventually graduate from their check size. But starting from Fund III, and maybe even Fund II, you’re targeting sophisticated and larger LPs, who are looking to build that 20+ year relationship. And for them repeatability and consistency is important.

Brand marketing

When you’ve finally settled into your quartile, which usually takes at least 6-7 years of track record, you’re now focused on largely selling the returns on your previous fund. Your product works. For some funds, they diversify into other product offerings, or bring on new partners to manage new verticals and initiatives.

Just like a Super Bowl ad needs to be played at least seven times or in the marketing world the 7-11-4 strategy (you need at least seven hours of interaction, 11 touchpoints, and in four separate locations) before one remembers and hopefully buys your product, you’re trying to help LPs keep you top of mind. Again not hard and fast rules, but a useful reference point of just how much work it takes to stay top of mind.

That could mean a focus on content — a newsletter, podcast, great/frequent LP updates, social media and so on. Or great AGMs (annual general meetings). And hosting events. Or being that awesome co-investor that pops up other emerging managers’ pitch decks. Strong communication is key — either directly or indirectly — so that when you raise your next fund, your LPs are ready and have pre-allocated to re-up in your fund.

In closing

Now the purpose of all this segmentation isn’t to just be snotty about it, but that the focus for pitching and closing LPs varies per the number of your fund. Don’t try to do everything at the same time. It’s not worth it, and neither do you have the resources, time or bandwidth. Stick to one strategy and get really good at it.

Photo by Rod Long 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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