#unfiltered #65 In Pursuit of Dreams

dreams

A friend asked me the other day, “If you meet a founder that you think isn’t going to make it, do you tell that founder?”

So I responded:

“Say you have a 7-year old daughter. And her biggest dream is to be an WNBA all-star. Or to be the president. Would you tell her ‘statistically speaking, you have almost no chance of succeeding?’ Or would you encourage her to keep pursuing her dream in spite of the odds? It’s the pursuit of a greater purpose that makes the person we are today and the person we will be tomorrow.

“Maybe your daughter doesn’t end up becoming a basketball star, but her pursuit of it lands her in Harvard where she meets incredible friends who end up growing together to be the next PayPal mafia. It’s the relentless pursuit of a dream that builds grit. And that grit will aid her well in whatever path she ends up choosing. Because the world is tough – no matter what you do. You will get beaten down again and again. And the difference between the ultra successful and everyone else is that the former continues to get back up.

“So when I meet a founder who’s championing an idea I don’t believe in, I neither have the guts nor the conviction to tell that person that it won’t work out, just that I won’t invest. ‘Cause if I know anything about the venture business, it’s that it keeps us humble. And every day I live in this industry, I have the privilege of being proven wrong. And even if I’m right, their pursuit makes them a more resilient person than before they began to do so.

“After all, there’s a big difference between impossible and really, really hard.”

Photo by Andreas Wagner 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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

How to Best Send Email Forwardables

flower, letter, email

Whether you’re a founder or investor or just friends of the afore-mentioned job titles, you’ve most likely been asked for warm intros. The sage advice in the world has always been, that it is better to ask for warm introductions than send cold outreach, leaving the latter to be severely underestimated. Anecdotally, some of my best friends and mentors today came and continue to come from cold outreach.

Most people in this world love to help others. They derive joy and fulfillment in doing so. It enriches their life just as much, if not more so than, it does yours. There are a number of academic studies, like this 2020 one, that show positive correlation between giving kindness and your own happiness. The Ben Franklin effect extrapolates that you are more likely to like someone by doing them a favor. In sum, people want to help others. Investors (and friends of investors) are no exception.

But… the world does not make it easy to do so.

I’m not here to preach kindness. Nor do I think I need to. There are plenty of more incredible individuals in the world who are more capable of relaying that message than I am. But as the title of this blogpost alludes to, what tactical advice is there to:

  1. Help friends of investors/investors help you
  2. Get investors excited to meet you

Why even bother with a forwardable

Founders often ask me: Do you know any investors you can introduce me to? Which, in fairness, is an understandable question when you don’t know who you don’t know. In a world where I’m only helping 10 or less founders total, it’s a great question.

The problem is I, like many other people in the venture ecosystem, am often trying to help more than 10 founders. For me, I’m helping founders I’m actively advising, On Deck founders, Techstars founders, Alchemist founders, founders who are intro-ed to me, founders who cold email me, and founders who come to my weekly office hours. The number varies, but in any given week, I’m sending between 20-40 founder intros. And given that, I face a few obstacles:

  1. The colder the connection and the longer the time since we last spoke, the more likely I am to forget what you’re building. I’m sorry; I wish I had photographic memory.
  2. As much as I would like, I physically don’t have time to write a curated intro to every person who asks me.
  3. I don’t want to ping the same investor/advisor multiple times in a week without clear reasons why. The investors who have more social clout get more intros than others. And they only have so much time and attention they can give in their inbox/socials to new people.

Rather, I flip the question on founders. Build a preliminary list of people you would like to chat with. See who you know that’s connected with these individuals. Do note I did not say firms. Long term marriages begin with each human not their last name. If I’m a 1st degree connection to them, then reach out to me and ask:

I’m currently raising for [startup], [context]. I saw you’re connected to [name], [name] and [name]. Would you be comfortable reaching out to them for a double opt-in intro? And if so, happy to send you forwardable to make your life easier.”

To which I respond…

What goes into a forwardable

While everyone has their own preference, I prefer all the forwardables I send to have three things – nothing more, nothing less. Nothing more, since busy individuals don’t have time to read essays. Nothing less, well, it is what I call the minimum viable forwardable. And yes, I just made that term up.

  1. The one metric you think you’re doing better than 95% (99th percentile is ideal) of the industry. On the off chance that the afore-mentioned metric isn’t obvious as to why it’s crucial to the business, spend another sentence explaining why. For example, if you’re a marketplace, the metric you’re slaying at might be the percent of your demand who organically converts to supply. While it may not be obvious to most, it is one of the earliest signs of network effects. Your customers love your product so much they want to pay it forward.
  2. 1-2 sentences as to what your startup does
  3. Why this recipient would be the best dollar on your cap table

The first two are things you, as a founder, should have readily on hand. The third is often the one I get the most questions on. What does “the best dollar on my cap table” mean? And how would I find that?

Why the best dollar is important

Fundraising is often seen as a numbers game. Analogously, so is networking. Both of which I agree and disagree with. I agree with the fact that you have to engineer serendipity. You have to increase the surface area for luck to stick. And to do that, you need to talk to a s**t ton of people. I get it. The part I disagree with is that a game optimized for quantity is often conflated with templated conversations. Or worse, purely transactional ones. Relationships don’t scale if you approach it from scale.

… which is why I need the third point in every forwardable. If you are unable to provide why an investor would be the best dollar on your cap table, then:

  1. You don’t need a warm intro. And that’s fine. Some investors’ inboxes are less saturated than others. If it might help, here is also my cold email “template.”
  2. I’m not your person. I, like any other person facilitating an intro, am putting my social capital on the line to get you in front of the person you want. And if you don’t think it’s worth the time to tailor your email to one that I would be comfortable sending, then I just can’t be your champion.

Examples of the best dollar

Predictably and unpredictably so, there are many ways to make someone feel special. While I will list some of my favorite that I’ve seen over the years, the list is, by no means, all-inclusive. In fact, I’m sure some of the best and most timeless ways to showcase an investor’s value add is still out there waiting to be discovered. And for that, I leave it to you, my reader, to surprise me and the world. The below, hopefully, serves as inspiration for you to be tenaciously and idiosyncratically creative.

I’ll break it down into two parts: (1) what do you need help on, and (2) what help can they provide.

  1. What is the 3 biggest risks of your business? The biggest one should be solved by you or someone on the team slide. The biggest risk should be the minimum viable assumption you need to prove that people want your product. At the early stages, sometimes that’s showing you have a waitlist of folks begging for your product. Sometimes, it’s just proving you can build the product (i.e. a deep tech product or AI startup). The next two risks, which aren’t as great in magnitude, but still prescient, requires you to be scrappy and at times, bring in external help.
  2. What are your potential investors’ value adds? Where does their tactical expertise lie in? There’s no one-stop shop for every investor for this… yet (hit me up if you’re building something here). But nevertheless, I find it useful to search “databases” of value adds on:
    1. Polywork
    2. Lunchclub profiles under “Ask [name] about…”
      Note: I forget if Polywork and Lunchclub are still invite-only, but if they are, feel free to use my invite codes here for Polywork and Lunchclub. For those curious, this is not a sponsored post.
    3. Doom-scrolling to the bottom of their LinkedIn profile and reading their references
    4. Looking through their portfolio and “ex”-portfolio and reaching out to said founders and asking:
      • Who, of their existing investors, if they were to build a new business tomorrow in a similar sector, is the one person who would be a “no brainer” to bring back on their cap table? And why?
      • Who did they pitch to that turned them down for investment, but still was very helpful?
      • Subsequently, referencing (with the founders’ permission) those founders when reaching out/getting introed to those VCs.
        Note: Generally, Crunchbase and Pitchbook has more exhaustive lists of portfolio companies oftentimes than their website of “selected investments.”
    5. Any publication/press release (i.e. Techcrunch, Forbes, etc.) where founders share how helpful their investors were. This may require a bit of digging.

As a general rule of thumb, the more specific you are, the better.

On the flip side, some examples of lackluster “best dollars” include:

  • Just stating which industry they invest in
  • Stating that they’re ideal because they work at X firm. You’re drafting individual team members for your all-star team, not brands.
  • Stating that they’re ideal because they USED to work at X firm
  • Using the recipient as a means to an ends. In other words, you want to get in touch with someone they know rather than they themselves. No one feels special when you like them only because they know someone else you like more. Either find a warmer connection to the “end” person or cold email.
  • Being generic

In closing

As my friend “James” says, “Do all of the leg work. Help them help you as much as possible. Everyone wants to be the hero that helps someone else, but people have lives – and if you’re the one that is getting the value, bring the value as much as possible.”

If you were the recipient of said email, what would make you say: “Absolutely?”

Photo by Kelly Sikkema on Unsplash


May 9th, 2022 Update: Added the “Why even both with a forwardable” section


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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

Why Should Sky High Valuations Matter to Employees

Earlier this week, I came across a curious quote while reading Sammy Abdullah’s notes on the book eBoys by Randall Stross, chronicling the founding and early days of Benchmark. In it, the quote read: “What’s it like recruiting when the stock price is so high? Really hard. The options offered to new employees were certain to be valueless, as they would depend on the stock ascending still higher. I mean, it’s at such a ridiculous level, there’s going to be a big fall here. The question is sort of when and how.”

2022’s VC landscape

After an insane 1.5-year run, I’ve seen valuation multiples that were 100-200x a company’s revenue get funded. At the end of the day, venture capital is belief capital. And it is not my place to criticize someone else’s belief, but I know that same belief will falter in the coming months to year. We’ve already seen public market stocks fall and VC exit values plummet 90% in Q1 this year. Tiger Global fell 7% in 2021 – its first annual loss since 2016. $10,000 invested in the basket of IPOs for 2021 would be worth $5,500 today. We’re in a correction soon. Or as Martin who I’ve had the pleasure to meet via On Deck calls it, the “Great Asset Repricing.” When exactly? I don’t know.

That said, as a function of the great repricing, VCs are coming in with more aggressive terms to hedge their bets. Greater liquidation preferences. More aggressive anti-dilution provisions. For LPs into late-stage capital allocators, they’re expecting greater minimum hurdle rates. In other words, they expect investors to have an internal rate of return (IRR) of at least 20%. Every year, an investor’s assets need to be worth 20% more than the year before. This is up from 10-12% from back in 2021, which I cited in last week’s blogpost.

And as Martin surmises, we’ll see a lot more inside rounds (investors re-upping in their own portfolio) for two reasons:

  1. Insiders have more information.
  2. Insiders tend to be more conservative on valuation.

And “companies without significant traction to face a very tough fundraising environment in the near term.”

What the hell does all this esoteric jargon mean for employees?

The best private companies are still playing ball with the ball on their side of the court. They have leverage. But most companies that were funded in the past one and a half years won’t. As such, there are four things that will and have already started to happen:

  1. You don’t raise. Cut your burn rate. Stay close to the money. Extend your runway, but set clear expectations. That’s what Alinea did at the start of the pandemic. Your team is in it for the long run. Many may choose to leave, but that is the reality.
  2. You raise, but on a flat or down round. This is better for your employees that you plan to hire, since there is a better chance that their shares will appreciate in the next funding window. But you’re not getting any fancy press releases.
  3. You raise on an up round. That’s great. You make the headlines on TC or Forbes. But it increases the pressure for both your current team members and new hires. VCs add in more aggressive terms. No one’s getting paid until investors get 2-3x their money back via a liquidity event or exit. As a founder, you have more pressure to shoot for a bigger exit than you would have needed to shoot for otherwise. Or else, the team that bled for you for years will get little to no upside for their time and effort.
  4. Or, you go out. Monetarily, no one wins.

So what can you do as a startup employee? Or as a prospective startup employee?

Just like I recommend folks to think like an LP to get a job in VC, to get a job at a startup, think like a VC. Or as Nikhil Basu Trivedi puts it, find employee-VC alignment.

Ask questions on revenue drivers. What do growth metrics look like for the last three months? How does churn and net retention look like? When do they plan to raise their next round? And simply, how much revenue is the company generating? Does the price-to-sales multiple make sense? For example, is the latest valuation of the company 200x the company’s revenue or 50x. The former is likely to come with more insane expectations from their investors. In December last year, Retool wrote a great piece why they chose to raise at a lower valuation and why that makes sense for their team members, which I highly recommend checking out.

Of course, as a startup employee, you want your shares to increase in value, but too much too quickly can be detrimental. We’ve seen the recent example with Fast. They were last valued at $580M according to Pitchbook, but were only making $600K in revenue, but was burning $10M a month. Almost a 1000x multiple!

A growth-stage startup grounded on fundamentals (i.e. traction) will likely still be able to raise. A startup funded on promises that has yet to deliver may not be able to. As Samir Kaji tweeted yesterday:

In closing

Contrary to popular opinion, a company’s valuation is not how much a startup is worth, but rather it is a bet on the chance they will be as big as their incumbent competitor. Take Yuga Labs as an example. They recently raised $450M on a $4B valuation from a16z and a number of other incredible investors. With that capital injection, they are building Otherside, their take on the metaverse integrating their various NFT properties. Epic Games, on the other hand, is valued at $31.5B. $32 billion for ease of calculation. Yuga’s $4B valuation is a bet their investors are taking that Yuga has a 12.5% chance (4/32) to be as big as Epic, and by transitive property, Fortnite.

As an employee, the bet you make is not with capital, but with time – the world’s scarcest resource. We’re coming into a world soon where cash is king. Make your judgments accordingly.

To close, I had to cite Brian Rumao‘s tweet, early investor in Fast. He boiled it down beautifully in 280 characters.

Photo by Yiran Ding on Unsplash


Disclaimer: None of this is investment advice. This content is for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Please consult your own adviser before making any investments.


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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

99 Pieces of Unsolicited, (Possibly) Ungooglable Advice For Investors

cherry blossom

Back in mid-2020, I started writing a piece on 99 Pieces of Unsolicited, (Possibly) Ungooglable Startup Advice. There was no ETA on the piece. I had no idea when I would publish it, other than the fact, that I would only do so once I hit the number 99. Yet, just like how I was inspired to write how similar founders and funders are, it finally dawned on me to start writing a similar piece for investors around mid-2021. The funny thing, is though I started this essay half a year later, I finished writing it one and a half months sooner while I was still on advice #95 for the former.

Of course, you can bet your socks I’ve started my next list of unsolicited advice for investors already. Once again, with no ETA. As I learn more, the subsequent insight that leads to an “A-ha!” moment will need to go deeper and more granular. And who knows, the format is likely to change.

I often find myself wasting many a calorie in starting from a simple idea and extrapolating into something more nuanced. And while many ideas deserve more nuance, if not more, some of the most important lessons in life are simple in nature. The 99 soundbites for investors below cover everything, in no particular order other than categorical resonance, including:

  1. General advice
  2. Deal flow, theses, and diligence
  3. Pitching to LPs
  4. Fund strategy/management
  5. Advising founders/executives
  6. SPVs/syndicates
  7. Evergreen/Rolling funds
  8. Angel investing

Unfortunately, many of the below advice came from private conversations so I’m unable to share their names. Unless they’ve publicly talked about it. Nevertheless, I promise you won’t be disappointed.

As any Rolodex of advice goes, you will not resonate with every single one, nor should you. Every piece of advice is a product of someone’s anecdotal experience. While each may differ in their gravitas, I hope that each of the below will serve as a tool in your toolkit for and if the time comes when you need it most.

To preface again, none of this is legal investment advice. This content is for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Please consult your own adviser before making any investments.

General advice

1/ To be in venture capital, you fundamentally have to be an optimist. You have to believe in a better tomorrow than today.

2/ “Everyone has a plan until they get punched in the mouth.” – Mike Tyson. Told to me by an LP who invests in emerging and diverse managers.

3/ Have good fluidity of startup information. “No founder wants to meet a partner and have to answer the same questions again and again. Best partnerships sync and with every discussion, process the questioning.” – Harry Stebbings

4/ The lesson is to buy low, sell high. Not to buy lowest, sell highest.

5/ “The New York Times test. Don’t do anything you wouldn’t want to see on the front page of the NY Times.” – Peter Hebert

6/ “It takes 20 years to build a reputation and five minutes to ruin it.” – Warren Buffett

7/ When you’re starting off as an investor, bet on one non-obvious founder – a real underdog. Support them along their entire journey. Even if there’s no huge exit, the next one will be bigger. When their VPs go off and start their own businesses, they’ll think of you first as well.

8/ When planning for the next generation of your firm’s successors, hire and mentor a cohort of brilliant investors, instead of focusing on finding the best individual. Investing is often a lonely journey, and it’s much easier to grow into a role if they have people to grow together and commiserate with.

9/ “When exit prices are great, entry prices are lousy. When entry prices are great, exit prices are lousy.” – David Sacks

10/ Illiquidity is a feature, not a bug. – Samir Kaji

11/ Three left turns make a right turn. There is no one way to break into VC. Oftentimes, it’s the ones with the most colorful backgrounds that provide the most perspective forward.

12/ “Whenever you find yourself in the majority, it is time to pause and reflect.” As an early stage investor, I find Mark Twain’s quote to be quite insightful.

13/ “It’s not about figuring out what’s wrong; it’s about figuring out what is so right. The job of an investor is to figure out what is so overwhelmingly great, or so tantalizingly promising that it’s worth dealing with all the stuff that’s broken.” – Pat Grady retelling a story with Roelof Botha

Deal flow, theses, and diligence

14/ Notice your implicit cognitive biases. Investors tend to fund more founders where they ask promotion questions than those asked prevention questions.

15/ Track your deal flow. Here’s how I track mine. Another incredible syndicate lead with over 5x TVPI (total value to paid in capital) I met keeps it even simpler. A spreadsheet with just 4 columns.

  • Company
  • Valuation in
  • Valuation out
  • Co-investors – This is where you start sharing deal flow with each other here.

16/ One of your best sources of deal flow might not be from other investors, but those who are adjacent to the venture ecosystem, like startup lawyers and VC attorneys.

17/ A WhatsApp group with your portfolio is a great tool for diligencing investments, not as much for sourcing deals.

18/ “Decide once you have 70% conviction.” – Keith Rabois. Don’t make decisions with 40% conviction since that’s just gambling. Don’t wait till 90% conviction because you’ll miss the deal for being too slow.

19/ Ask questions to founders where they show grit over a repeated period of time. They need to show some form of excellence in their life, but it doesn’t have to be in their current field. From a pre-seed manager with 3 unicorns in a portfolio of 70.

20/ As an emerging manager, one of the best reasons for investing in emerging markets: Do you want to see the deals that the top 0.1% see? Or do you want to see the deals that the 0.1% passed on? From the same pre-seed manager with 3 unicorns in a portfolio of 70.

21/ Every day, open your calendar for just one hour (two 30-minute slots) to founders you wouldn’t have had otherwise. Your network will compound. From a manager who’s invested in multiple unicorns and does the above from 10-11PM every night.

22/ The bigger your check size, the harder you have to fight to get into the round.

23/ The best investors frontload their diligence so they can have smarter first conversations with founders.

24/ Perform immersion-based diligence. Become super consumers and super users of a category, as close as you can get to subject-matter experts. That way you know very quickly after meeting a founder if their product is differentiated or unique. While you’re at it, write 2-3 page bug report stress-testing the product. Founders really do appreciate it.

25/ “There is no greater compliment, as a VC, than when a founder you passed on — still sends you deal-flow and introductions.” – Blake Robbins quoting Brett deMarrais of Ludlow Ventures

26/ When a founder can’t take no for an answer and pushes back, “I always have to accept the possibility that I’m making a mistake.” The venture business keeps me humble, but these are the benchmarks that the team and I all believe in. Inspired by JCal and Molly Wood.

27/ Win deals by “sucking the oxygen out of the air.” In investing there are two ways to invest: picking or getting picked. Picking is naturally in a non-competitive space. Getting picked is the exact opposite. You have to eat competition for breakfast. And when you’re competing for a deal everyone wants to get into, you have to be top-of-mind. You need to increase the surface area in which founders remember you, not just to take their time, but to be really, really valuable in as much time as you can spend with them. Inspired by Pat Grady on an anecdote about Sarah Guo.

Pitching to LPs

28/ Surprises suck. On Samir Kaji’s podcastGuy Perelmuter of GRIDS Capital once said: “There’s only one thing that LPs hate more than losing money. It’s surprises.” More here.

29/ Fund I: You’re selling a promise.
Fund II: You’re selling a strategy.
And, Fund III: You’re selling the returns on Fund I.

30/ Steven Spielberg didn’t know what E.T. should look like, so he had everyone write down people they respected. And so E.T. looked a bit like everyone on that list, including Carl Sandburg, Albert Einstein and Ernest Hemingway. In a very similar way, come up with a list of your ideal LPs. And create a fund based on what they like to see and what you can bring to the table. Oftentimes, it’s easier to ask them for personal checks than checks out of their fund.

31/ Ask the founders you back for intros to their other investors as potential LPs in your fund.

32/ The return hurdles for LPs are different per fund type:
*subject to market motions. Timestamped in Sept 2021 by Samir Kaji

  • Nano-fund (<$20M): 5-7x+
  • Seed fund: 3-5x+
  • Series A: 3x+
  • Growth: 2-2.5x+
  • Crossover/late growth (driven by IRR, not multiples): 10-12%+

33/ “If you know one family office, you know one family office.” Said by one of the largest LPs in venture funds. Each family office situation is uniquely different.

34/ Family offices are surprisingly closed off to cold emails, but often share a lot of deal flow with each other. Have co-investors or founders introduce you to them.

35/ It takes on average 2 months for an institutional LP to do diligence and reference checks. Plan accordingly.

36/ LPs look for:

  • Track record (could be as an individual angel as well)
  • Value add
  • Operational excellence

37/ Data shows that first-time/emerging managers are more likely to deliver outperformance than their counterparts, but as one, you still need to show you have experience investing.

38/ People, including LPs, tend to remember stories, more than they do data. Teach your LPs something interesting.

39/ LPs have started looking more into two trends: private investments and impact/ESG initiatives. By nature of you reading this blogpost, you’re most likely the former already. The latter is worth considering as part of your thesis.

40/ Every coffee is worthwhile in some form.

41/ LP diligence into VCs break down into two types: investment and operational DD.

  • Investment DD includes team, incentive alignment, strategy, performance, current market, and terms/fees.
    • Team: What does leadership look like? How diverse are you?
    • Alignment: Do you have performance-based compensation?
    • Strategy: What sectors are you investing into? What does your underwriting discipline look like?
    • Performance: What do your exits look like? Are you exits repeatable?
    • Market: What are the current industry valuations? Economies of scale?
    • Terms/fees: Are they LP friendly? Are the fees based on alphas or betas? Are they aligned with your value add?
  • Operational DD includes business model, operational controls, tech platforms, service providers, compliance and risk.

42/ If you’re pitching to other venture funds to be LPs, say for $250K checks, larger funds (i.e. $1B fund) typically have fund allocations because check size is negligible. And a value add as deal flow for them at the A. Whereas, smaller funds don’t because it is a meaningful size of their fund. So, GPs write personal checks.

43/ If you’re planning to raise a fund, think of it like raising 10 Series A rounds. For most Series A rounds, a founder talks to about 50 investors. So for a Fund I, you’re likely to talk to 500 LPs to close one.

44/ Send potential LPs quarterly LP updates, especially institutions. Institutions will most likely not invest in your Fund I or II, but keep them up to date on the latest deals you’re getting into, so you’re primed for Fund III.

45/ Family offices want to get in top funds but most can’t because top funds have huge waitlists. Yet they still want access to the same deals as top funds get access to. They’re in learning mode. Your best sell to family offices is, therefore, to have:

  • Tier 1 investors as your fund’s LPs
  • Tier 1 investors as co-investors
  • Deals that they wanted to get into anyway

46/ Your Fund I LPs are going to be mostly individual angels. They believe in you and your promise, and are less worried about financial returns.

47/ Institutional LPs are looking for returns and consistency. If you say you’ll do 70% core checks and 30% discovery checks, they’re checking to see if you stick to it. Institutions aren’t in learning mode, instead you as a fund manager fit into a very specific category in their portfolio. Subsequently, you’re competing with other funds with similar foci/theses as you do.

48/ Be transparent with your IRRs. If you know you have inflated IRRs due to massive markups that are annualized, let your (potential) LPs know. For early stage, that’s probably 25-30%+. Especially when you’re in today’s frothy market (timestamped Jan 2022). Or as Jason Calacanis says it for his first scout fund that had crazy IRRs, “It’s only down from here.”

49/ Don’t waste a disproportionate amount of time convincing potential LPs about the viability of your thesis. Shoot for folks who can already see your vision. If you manage to convince an LP that didn’t previously agree, they may or may not end up micromanaging you if your thesis doesn’t work out as “expected.” Inspired by Elizabeth Yin.

50/ “The irony for us was LPs asking about portfolio construction was a sign that the meeting was going poorly.” – Jarrid Tingle.

51/ Institutional LPs prefer you to have a concentrated startup portfolio – less than 30 companies. They already have diversification across funds, so they’re maximizing the chance that their portfolio has fund returners. That said, you’re probably not raising institutional capital until Fund III. Inspired by Jarrid Tingle.

52/ If you’re an emerging manager with a fund is less than 4 years old, boasting high IRR (i.e. 50%+) is meaningless to sophisticated and institutional LPs. Focus on real comparative advantages instead. – Samir Kaji.

53/ When raising early checks from LPs, ask for double the minimum check size. Some LPs will negotiate down, and when they only have to commit half of what they thought they had to, they leave feeling like they won.

54/ When potential LPs aren’t responding to your follow ups/LP updates, send one more follow up saying: “I am assuming you are not interested in investing into our fund. If I am wrong, please let me know or else this will be your last update.” Told to me by a Fund III manager who used this as her conversion strategy.

55/ It’s easier to have larger checkwriters ($500K+) commit than smaller checkwriters (<$100K). $500K is a much smaller proportion of larger checkwriters’ net worth than checkwriters who write $100K checks. And as such, smaller checkwriters write less checks, have less “disposable income”, and push back/negotiate a lot more with fund managers before committing. Told to me by a Fund III manager.

Fund strategy/management

56/ As an investor, if you want to maintain your ownership, you have to continue requesting pro-rata rights at each round.

57/ Your fund size is your strategy. – Mike Maples Jr.

58/ “Opportunity funds are pre-established blind pool vehicles that eliminate the timing issues that come with deal-by-deal SPVs. Opportunity funds sometimes have reduced economics from traditional 2/20 structures, including management fees that are sometimes charged on deployed, not committed capital. Unlike individual SPVs, losses from one portfolio company in an opportunity fund offset gains from another when factoring in carried interest.” – Samir Kaji. See the full breakdown of pros and cons of opportunity funds here.

59/ There are two ways to generate alphas.

  1. Get in early.
  2. Go to where everyone else said it’ll rain, but it didn’t. Do the opposite of what people do. That said, being in the non-consensus means you’ll strike out a lot and it’ll be hard to find support.

60/ Sometimes being right is more important than being in the non-consensus. Inspired by Kanyi Maqubela.

61/ There are three kinds of risks a VC takes:

  1. Market risk as a function of ownership – What is the financial upside if exit happens? Is it meaningful enough to the fund size?
  2. Judgment risk – Are you picking the right companies?
  3. Win rate risk – How can you help your portfolio companies win? What is your value add?

62/ By Fund III, you should start having institutional capital in your investor base.

63/ The closer you get to investing in growth or startups post-product-market fit, the closer your capital is to optimization capital. Founders will likely succeed with or without you, but your name on the cap table will hopefully get them there faster and more efficiently.

64/ If you’re a traditional venture fund, you have to invest in venture-qualifying opportunities, like direct startup investments. But you can invest up to 20% of your fund’s capital in non-venture-qualifying opportunities, like tokens/SAFTs (simple agreement for future tokens), real estate, secondaries, and so on.

65/ If increased multiples coming out of various vintage funds, feel free to deviate from the normal 2-20. Many funds have 25 or 30% carry now, or accelerators where 20% scales with multiples (and often with a catch-up back to 1.0x at higher carry). – Samir Kaji

66/ Normally, fund managers take 2% management fees, usually over 10 years, totaling 20% over the lifetime of the fund. These days, I’m seeing a number of emerging managers take larger management fees over less years. For example, 10% as a one-off. Or 5% over 2-3 years.

67/ “The razor I apply to investing and startups is that every decision that increases your probability of wild outlier success should also increase your probability of total failure. If you want to be a shot at being a 10x returning fund? You’ll have to take on the higher likelihood of being a 1x. If you think you’re going to build the next Stripe? You’re going to have to run the risk of going nowhere.” – Finn Murphy

68/ “We typically seek to liquidate somewhere between 10% and 30% of our position in these pre-IPO liquidity transactions.” – Fred Wilson. Similarly, Benchmark sold 15%; First Round sold ~40%; Menlo Ventures sold ~50% of their Uber stakes pre-IPO. Investing is not only about holding capital till the end but thinking about how to return the fund, as well as how to position yourself well to raise your next fund.

69/ The longer you delay/deprioritize having diverse partners, the harder it’ll be to hire your first one.

Advising founders/executives

70/ A founder’s greatest weakness is his/her/their distraction. Don’t contribute to the noise.

71/ It’s far more powerful to ask good questions to founders than give “good answers”. The founders have a larger dataset about the business than you do. Let them connect the dots, but help them reframe problems through questions.

72/ You are not in the driver’s seat. The founder is.

73/ A great reason for not taking a board seat is that if you disagree with the founders, disagree privately. Heard from a prolific late-stage VC.

74/ Advice is cheap. Differentiate between being a mentor and an ally. Mentors give free advice when founders ask. Allies go out of their way to help you. Be an ally.

75/ The best way to be recognized for your value-add is to be consistent. What is one thing you can help with? And stick to it.

76/ Productize your answers. Every time a founder asks you a question, it’s likely others have the same one. Build an FAQ. Ideally publicly.

77/ If you have the choice, always opt to be kind rather than to be nice. You will help founders so much more by telling them the truth (i.e. why you’re not excited about their business) than defaulting on an excuse outside of their control (i.e. I need to talk with my partners or I’ve already deployed all the capital in this fund). While the latter may be true, if you’re truly excited about a founder and their product, you’ll make it happen.

78/ Help founders with their firsts. It doesn’t have to be their first check, but could also be their first hire, engineer, office space, sale, co-founder, team dispute, and so on.

79/ There are four big ways you can help founders: fundraising, hiring, sales pipeline, and strategy. Figure out what you’re good at and double down on that.

80/ Focus on your check-size to helpfulness ratio (CS:H). What is your unique value add to founders that’ll help them get to their destination faster? Optimize for 5x as a VC. 10x as an angel.

81/ “The job of a board is to hire and fire the CEO. If you think I’m doing a bad job, you should fire me. Otherwise, I’m gonna have to ask you to stay out of my way.” – Frank Slootman to Doug Leone after he was hired as CEO of ServiceNow.

SPVs and syndicates

82/ The top syndicates out there all have 3 traits:

  1. Great team
  2. Great traction
  3. Tier 1 VC
    • If your deal has all of the above, and if you raise on AngelList, your deal is shared with the Private Capital Network (PCN), which AngelList’s own community of LPs and investors, a lot of which are family offices, who allocate at lest $500K of capital per year.

83/ If you’re raising an AngelList syndicate, you need to raise a minimum of $80K or else the economics don’t really make sense. AL charges an $8K fee.

84/ If you want to include Canadian investors in your syndicate, for regulation purposes, you need to invest 2% of the allocation size or $10K.

85/ Investing a sizeable check as a syndicate lead (e.g. $10K+) is good signal for conviction in the deal, and often gets more attention.

86/ 99% of LPs in syndicates want to be passive capital because they’re investing in 50 other syndicates. You can build relationships individually with them over time, but don’t count on their strategic value.

87/ Historically, smaller checkwriters take up 99% of your time. Conversely, your biggest checkwriters will often take up almost no time. Even more true for syndicates.

88/ LPs don’t care for deals where syndicate leads have time commitment without cash commitment.

89/ Don’t give LPs time to take founders’ time. Most of the time LPs don’t ask good questions, so it’s not worth the effort to set up time for each to meet with founders individually. On the other hand, a good LP update would be to host a webinar or live Q&A session. One to many is better than one to one.

90/ There’s a lot of cannibalism in the syndicate market. The same LPs are in different syndicates.

91/ Choose whether you will or will not send LP updates. Set clear expectations on LP updates. And if you do, stick to that cadence. The people who write you the $1-5K checks are often the loudest and demand monthly updates. If you choose not to, one of my favorite syndicate leads says this to their LPs, “We won’t give any LP updates. I’ve done my diligence, and I won’t give information rights. I have a portfolio of hundreds of deals, and I can’t be expected to give deal-by-deal updates every month or every quarter. So if you are investing, just know you’re along for the ride.” Some LPs won’t like that and won’t invest, but mentioning that upfront will save you from a whole lot of headaches down the road.

92/ If you’re setting up an SPV to solely invest in a fund (or where more than 40% of the SPV is going into the fund), all your SPVs can’t against the 249 LPs cap on a fund <$10M and a 99 cap on a fund >$10. But you can invest in funds if you’re setting up an SPV to invest in more than one fund. Context from Samir Kaji and Mac Conwell.

Evergreen/Rolling funds

93/ Just like vintage years/funds are important for traditional funds, vintage quarters matter to your LPs. If they didn’t give you capital during, say Q2 of 2021, when you invested in the hottest startup on the market, your Q1 and your Q3 LPs don’t have access to those returns.

94/ Whereas GPs typically make capital calls to their LPs every 6 months, AngelList’s Rolling Funds just institutionalized the process by forcing GPs to make capital calls every 3 months.

Angel investing

95/ “The best way to get deal access isn’t to be great with founders—it’s to have other investors think you’re great with founders. Build a high NPS with investors, since they have meaningfully more reach than an operator. But of course, fight hard to be great with founders too or else this will all crash down.” – Aaron Schwartz

96/ Make most of your personal mistakes on your own money as an angel (before you raise a fund).

97/ When you’re starting off, be really good at one thing. Could be GTM, growth, product, sales hires, etc. Make sure the world knows the one thing you’re good at. From there, founders and investors will think of you when they think of that one thing. Unless you’re Sequoia or a16z, it’s far better to be a specialist than a generalist if you want to be top of mind for other investors sharing deal flow.

98/ “As an angel investor, it’s more important to be swimming in a pool of good potential investments than to be an exceptionally good picker. Obviously if you’re able to be both, it’s better 🙂 but if you had to choose between being in a position to see great deals and then picking randomly, or coming across average deals and picking expertly, choose the former.” – Jack Altman

99/ “Just like the only way to get good at wine is to drink a lot of wine. The only way to get good at investing is to see a lot of deals.” – Lo Toney.

Photo by Nature Uninterrupted Photography on Unsplash


Disclaimer: None of this is investment advice. This content is for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Please consult your own adviser before making any investments.


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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

How to Get Investors to Just Ask One Question: “How Can I Invest?”

After recently tuning into an incredible founder’s most recent investor update, I stumbled across a shoutout once again to Silicon Valley storytelling legend Siqi Chen. It wasn’t the first and surely won’t be the last time I find such kudos from a mutual friend. I’ve been a huge fan since his 2019 presentation on presentations, and there’ve been multiple times his name has surfaced in a conversation with friends. I’ve also publicly written about just how amazing he is. That day, I felt the cosmos telling me today was the day. Something just felt right. A swig of that Felix Felicis, if you know what I mean. In hindsight, I guess I could have asked for a warm intro. But my enthusiasm just couldn’t wait.

My question was simple:

“What do you think sets a top 0.1% story from a top 5%er? What sets a timeless story apart from a box office hit?”

“Hm, it’s a good question. Maybe two things: ‘proof of work’. In other words, founder-market fit. Authenticity can be faked so ‘proof of work’, in terms of background, experience, expertise for your authenticity, is valuable. The second thing is just sheer effort, finesse, and practice.”

He ended his answer with a quote you might find quite familiar from his storytelling presentation:

“Magic is just spending more time on a trick that anyone would ever expect to be worth it.” – Penn & Teller

And naturally, I had to follow up. “What are the top 1-2 questions you ask yourself to help you stress test if you’re telling epic stories? Or if it’s more applicable, questions you ask others to see if your story resonated with them?”

To which, he left me with a rather curious statement:

“The stress test for me is when, after the story, there are no questions other than ‘How can I invest?’ This is probably the biggest hack I have for a pitch, which is that contrary to popular belief that questions are an expression of interest, all questions are bad.”

I paused. All. Questions. Are. Bad. To a person who makes a living out of asking questions, you can damn well be sure that whatever I was thinking, whatever I was doing, whatever I was going to say disappeared in a moment’s grace, like a midsummer night’s dream. He already had my attention, but now, he had my curiosity.

He goes on: “The correct way to look at questions is that they are akin to a compiler error in your pitch: It is the tell tale sign of objections politely withheld until you were done talking. It should be your goal to adjust your pitch such that those questions never come up in the first place.”

Needless to say, as all contrarian sayings went, I found Siqi’s words quite provocative. I hadn’t yet come to terms with his permutation of punctuated words strung into sentences. His words, while in plain English, arrived at my ears in a manner that was quite foreign. But the more he elaborated, the more sense it made.

“You know how when a salesperson is trying to sell you something, whether it’s a SaaS product or a set of steak knives, and you don’t want to buy it, but you’re listening politely?” explains Siqi. “You already have an objection and you have already decided to not buy it. And that objection you’re just holding in your head until they’re done talking.

“The first question you ask after they’re done talking is basically that objection. Once you’ve thought about that objection as the listener, you’re no longer paying attention. That objection is all you’re thinking about.

“Here’s a concrete example. Let’s say the first question you think of is ‘it’s a competitive space, how do you think about competition?’

“That means they were thinking about competition for some unknown period of time while you were pitching, probably from the minute you started. And they already decided to not buy.”

His next few words are worth underscoring. If words carried weight, shine, and could be worn on your fourth finger after an elaborate ceremony, this was it. “The way you debug it is by preventing that question in the first place, for example, by inserting a slide at the beginning explaining: ‘This is a really competitive space, but here’s why we’re doing what we’re doing’. Then you defuse the question and it doesn’t come up in the first place.

“A good pitch removes those objects in your head so that you end up buying. One way to improve your pitch is to systematically remove questions until you’re left with just one: ‘How can I invest?’”

In the deck he shared back in 2019, on slide 19, he has another two lines that are equally as powerful and read: “We unconsciously try as hard as we can to fit new facts into existing opinions. Based on existing opinions we make decisions that make us feel good, or the least bad.”

Unfortunately, Siqi’s right.

How often have you brought up a new fact that contradicts with what your mom/dad/grandma/grandpa believes and they respond with “Don’t believe everything you read online?” And then, read a “fact” from an unconfirmed source that affirms their beliefs and they respond with “I told you so?”

Investors, like any other human, are no different. Questions, therefore, are implicit personal opinions reworded explicitly, with the expectation that the facts you bring up fit in their existing mental models. And if the facts don’t match up, “You’re too early for us”. Or as they tell themselves, “The founders have not given us the facts we look for to fit in the frameworks we have.”

Then again, as founders, you may not be looking to fall into a pre-ordained mold. In fact, the most world-shattering businesses never fit into the mold. So neither should you. Steve Jobs famously said:

“Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules… You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things… they push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.”

So, if you only have facts, stick with the facts that reaffirm an investor’s opinion of a great startup. Admittedly, that can only be true for the top 0.1% of businesses out there. The vast majority of startups don’t have numbers that fit such a high benchmark honed from years of pattern recognition. A benchmark investors have high conviction in. Certainty, one might say. The great writer Charlie Kaufman once said, “Because when you’re certain, you stop being curious. And here’s the one thing I know about the thing you’re certain about. You’re wrong.”

The best thing about this business – about being an investor – is that it keeps people humble. A fact, unfortunately, many investors forget. So stay curious. And tell us a story so compelling we can imagine no other.

Or as Siqi puts it, “The goal of a great presentation is to create emotions that persuade people to take action.” The founders don’t just share their passion. Their passion is contagious. It spreads like a virus. And whoever is infected shares it with the people around them, which if your story is compelling enough, those people share it with their friends. In a vast game of telephone, the more relatable and inspiring your story is, the longer the game of telephone. Facts become stories. Stories become tales. Tales become legends.

The best stories don’t just share facts. They inspire. They weave facts together in a way so compelling that there are no more questions. The world is filled with limitless amounts of data – most of which are seemingly disparate and meaningless. The best storytellers give the chaos of data meaning. They give data purpose.

In reality, you’re not going to get the pitch down in v1. Practice it, especially with people who have a critical eye with words. They don’t have to be investors. Probably not just with your co-founders and team members because they’re biased. They’ll make lapses in judgment because they already understand the problem space well enough. So well, they won’t have realized you skipped steps in your logic. Practice it with writers, lawyers, speechwriters, marketers, influencers, that Redditor that deconstructs every single presidential speech, and video editors, especially those who edit meme videos. Then when you pitch it to investors, the goal is that they don’t withhold objections because they simply don’t have any.

I can’t help but recall a great line by Robert McKee, “At story climax, you must deliver a scene beyond which the audience can imagine no other.” Equally so, by the end of your pitch, you must deliver a solution beyond which the audience can imagine no other.

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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

How Much Should You Bootstrap?

I had a founder ask me yesterday, “How much money does an investor expect you to bootstrap with?”

The short answer I gave him, “It depends.”

The longer answer… well, there is no one number or specific range that investors look at. It’s a case-by-case scenario. Of course that’s not the answer he, nor you my reader, were hoping to hear. If I left you on that alone, I’d imagine this essay would be the single greatest contributor to my unsubscribe rate.

The real answer is that capital is not the unit of measurement. It can be, and may seem to be in today’s ever-increasing pace of development. Rather, it starts from a question. What is your minimum viable assumption? Something I’ve also alluded to before.

What is the minimum viable assumption? The big assumption you must prove in order to catalyze your startup’s growth. Or as Gagan Biyani, founder of Maven, puts it in the frame of minimum viable tests – “a specific test of an assumption that must be true for the business to succeed.”

Oftentimes, that assumption is synonymous to your the biggest risks of your business. Or in other cases, your biggest barriers to entry.

One of the questions we investors try to answer when we meet with a founder is: What is the biggest risk of this business? And is the person who can solve this risk in the room (or on the team slide)? It is one of a handful of risks we must underwrite to move forward with an investment.

Your ability to raise capital is directly correlated with your ability to inspire confidence in your investors that you will need little to no help getting to your next milestone. An unfortunate, but true paradox.

Circling back to the question that catalyzed this essay, how much money does an investor expect you to bootstrap with? The answer, as much as you need to prove your minimum viable assumption. Can you conquer the biggest risk of your business on your own capital? If you can, you’re halfway there. That may take $50K. Or maybe $10K. Or $100. Airbnb had to go through three different launches, and selling Obama O’s and Cap’n McCains for $40 per box, before Paul Graham noticed their traction. On the other hand, you have Mailchimp that’s 100% bootstrapped till the day they exited. Each business is different and unique in its own way.

The only addendum I would add here is that this same calculus will most likely not apply if you’re building something in deep tech – be it biotech or general AI or otherwise.

Photo by Minh Tran 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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

Cerebral And Guttural Decisions

Earlier this week, Zach Coelius shared his path to running a fund with the On Deck Angels community. And near the end of the session, one of our fellows asked something along the lines of: How do you pick great founders? To which, Zach responded, and I’m paraphrasing: I look for really smart people I want to be around. And every person has something different that makes them smart.

I’ve heard many variations of Zach’s closing comment over the years. “I look for someone I want to work for.” “I look for someone who gets me excited about a space I didn’t I’d get excited about.” “A really sharp individual who teaches me something new almost every time we talk.” The common thread, in all these statements, is that the thing that drives early-stage investors to conviction is not quantitative, but qualitative in nature. Moreover, given that the next Steve Jobs or Elon Musk will look nothing like either of the afore-mentioned, it’s hard to build the search for outliers into a reliable mental model, other than the openness to be amazed.

Fred Wilson wrote a great piece at the beginning of this week about his rationale for investing in Coinbase, Twitter, and Dapper. His title, which sums it all up really well, is: Keeping It Simple. His lesson: “That’s keeping it simple. It doesn’t always work. We get more wrong than we get right. But when we get it right, amazing things can happen.”

Along a similar vein, I jumped on a call with a buddy of mine who’s raising his first fund after having an enviable track record as an angel. On this said call, we talked about how junior investors, the bottom 75% of investors, late-stage investors, and investors that have yet to find their own way to get to conviction, spend more time on the quantitative. A very analytical, repeatable, quantifiable approach. For better or for worse, cerebral. On the flip side, the best early-stage investors out there, by track record of consistent top-notch returns, don’t spend nearly as much time obsessing over the numbers. Or evidence. In fact, before you invest at the A, for most businesses, there really isn’t any hard metric that is going to get you from 50 to 90% conviction.

Even in my own personal journey, when I started off, I found myself sticking to the “tried and true” questions:

  • What are your unit economics?
  • How many customers do you have? How are they using your product?
  • What percent of your customers are coming back to use the product on the second day?
  • What do your retention curves look like?
  • Your monthly growth rate for the past three months?

All of which, you may notice, are quantitative in nature. In fact, this best part of this blog is that you can literally track my thinking over the past few years. I went from writing about metrics (more here, just to name a few) I look for in startups to writing about intuition. In fact, even my attempt to codify intuition is, by definition, using my frontal lobe.

All I need to worry about are moments when a founder teaches me something new that I didn’t know I would love. A simple, but surprisingly rare happenstance. I see a lot of good startup ideas and teams, even some great ones. But it’s rare I meet an “Oh sh*t!” one. Subsequently, that probably also means, at my current stage, I’d make a poor fund manager, since I don’t have enough consistently high-quality deal flow. Consistent, yes. High-quality, in my humble opinion, yes. But consistently high-quality, I’m still too early. At least in the scope of “Oh sh*t!”

One of the greatest sobering facts about venture is that it’s a business that’s designed to keep you humble. Like Fred mentioned, I am wrong way more often than I’m right. And the times I trusted my head over my gut are times I find most regretful. To better illustrate this, let me share an anecdote.

Back in 2018, one of my good friends introduced me to a set of co-founders. Scratch that. Even before they started working on the business idea. And I’m going to abstract the name of the startup. But if you’re a frequent reader of this blog, you’ve probably already seen the trail of cookie crumbs.

I met them for the first time at their beautiful, well-furnished SF apartment with Scandinavian furniture that definitely warranted a pretty price tag. Out of curiosity, I asked how much it cost to live there. And for four bedrooms and three baths, they shared a ridiculously low number. A third of the price I imagined they’d be paying. Then of course, I had to ask how much the furniture cost. “$100, just to ship them over. Otherwise, they’re all free.”

Apparently, they networked their way into a community of office managers. They learned that so many venture-backed startups in the Bay, upon receiving funding, want to look like Airbnb. Founders buy the most expensive furniture – modern layouts, quirky chairs, rustic-looking tables. They also bring the creme de la creme of interior designers to help them set it all up.

But as statistics show, most of these fold every year. When they do, the last thing they want to worry about is their reminder of frivolous spending. As such, office managers end up with so many pieces of high-end furniture they just need to get rid of. Those same pieces of artisanal furniture now sat in these three founders’ living room. And it’s even crazier to know that they weren’t from the Bay. They didn’t have connections coming here, nor jobs lined up initially.

The stories didn’t stop there. In subsequent catchups, I learned of their previous hustles. Each blew my mind more than the last.

When it finally came down to it, and I had the chance to invest, I fell into the comfort of the shackles of borrowed mental models, demand for traction, metrics, the whole nine yards of what made me sound like a really smart, possibly high-browed, VC. And I said no. Today, they’re worth over nine figures, with 8-figure revenue numbers at their last funding round.

I amassed a massive anti-portfolio in my early days trusting my brain over my gut. A brain, like most, was and continues to be incapable of fully understanding the effects of the power law.

To borrow a Pat Grady lesson, any person with a head above two shoulders – in other words, a recurring practitioner of logic and reasoning – is capable of figuring out what’s wrong. But as an early-stage investor, one of the biggest mental hurdles you have to overcome, is spending more time imagining what can go really, really right. And not its counterpart.

As an investor before product-market fit, you invest belief capital, not optimization capital. You’re not putting fuel on the fire. You’re putting faith in a person – in a team – and in an insight.

Photo by Daniel Mingook Kim 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!


Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

What Does Signal Mean For An Early-Stage Investor?

signal, lighthouse

When winds and waves a mutual contest wage,
These foaming anger, those impelling rage;
Thy blissful light can cheer the dismal gloom,
And foster hopes beyond a wat’ry doom.

John William Smith, “The Lighthouse,” 1814


Marc Andreessen answered a few weeks back to a question that has been ringing in many founders’ minds. What product do founders want to buy from investors? For the past few years, the natural answer rose as operational expertise. A notion that still holds true for the earliest stages of starting a business when you bring on strategic angels as small checks to help you find product-market fit. As you continue down the path and start raising institutional capital, the answer becomes more and more amorphous.

On a similar note, Bryce Roberts the exact same question last year:

To which, he responded:

Why do investors look for signal in the first place? A means to de-risk a very early, and very risky bet. A product of asymmetric information. Investors invest in lines not dots, but the truth is, most investors don’t have the time – luxury or ability – to see all lines. So what they must do instead is look for specific dots – be it traction, co-investors, or founding team “legitimacy” – that would help them trace out of a line of best fit. As Precursor’s Charles Hudson wrote earlier this week,

By definition, signal should be a leading indicator of long-term business value. Yet, for most investors in the world, what they look for are lagging indicators of conviction.

The signal paradox

In the investing world, there’s a paradoxical notion of signal. Through many conversations with syndicate leads, data teams of investing platforms, and LPs, I realized a common thread. For the majority of investors in the world, at the early stages, signal comes not from the founder, but from other funders.

In a syndicate, there are three things that make a deal move fast:

  1. Great co-investors
  2. Great traction
  3. And, great team

Arguably in that order. Synonymously, as an emerging fund manager, the best way to raise from family offices* (I’ll explain below why FO’s are my reference point here) who are notoriously closed off to cold emails, you need:

  1. Tier 1 VCs as your co-investors
  2. Tier 1 GPs as your fund’s LPs
  3. Or, deals that family offices wanted to get into anyway (which isn’t mutually exclusive from the above as well)

Quite noticeably, for many investors out there, signal comes in the form of people with a proven track record already. Or to break it down even more. Signal comes in the form of familiarity. Familiarity in the form of warm intros or college classmates or pattern recognition. The easiest pattern to follow for any investor without needing to do too much diligence or requiring too much personal conviction (I know, it’s funny), but to be able to write fast checks, is other top-tier investors. If you’re a founder who’ve fundraised before, you’re probably very familiar with this notion. Consciously or subconsciously. I’m gonna bet money that you’ve been asked, “Which other investors are you talking to? And how far along the process are you with them?” Or simply, “Do you have a lead investor?”

While there are some nuances to the last question, like the inability for smaller investors to pay for legal counsel fees, to have the resources to completely diligence a startup, or just that the check size required to lead/fill the round is just too large for them, generally speaking, my argument still stands. Put nicely, for many investors, they’re looking for external validation of the product. Put harshly, that question is a band-aid approach to their inability to get to conviction.

As a founder, you have to realize that capital has become a commodity. Investors are in the business of selling money. And subsequently, making $1 become $2. Or for a great early-stage investor, $1 becomes $5. There are many ways to underwrite risk. The one that requires the least amount of new thinking, or thought leadership, is following firms who have proven their investing acumen already and consistently.

*Additional context on family offices

I specifically mention family offices above since most LPs in Fund I’s are individuals and angels. Mostly small checks. And can quickly fill up the limit the SEC has set for how many accredited investors you can have investing in your fund. And their reason to invest is based on the founding GPs – very similar to why investors would back startups at the pre-seed stage.

While some GPs do pitch to institutional LPs (i.e. endowments, pension funds, fund of funds, etc.), very, very little institutional capital goes to Fund I’s and II’s – very similar to the fact that Tiger or Coatue very rarely invest before the A. You have yet to have a track record where they can fit into their financial model. They’re underwriting a very different type of risk. And so, if you’re a Fund I GP looking for larger checks, you’re looking to generational wealth in the form of family offices, who are surprisingly closed off to cold emails. But I digress.

The surplus of “signal” in 2021

In the last year, we’ve seen some record-breaking numbers. We’ve been in an exciting boom market. There have never been more venture dollars poured into the ecosystem. In fact, there were 1,148 concurrent unicorns in 2021. Half of which were new. In comparison, 2020 minted just 167 unicorns. Just looking at the two charts from Crunchbase below, we see just how crazy 2021 was.

Source: Crunchbase
Source: Crunchbase

And quite reflectively, there have never been as many “experts” in the market. To be fair, when everyone’s portfolio and/or startup is raising consecutive rounds of funding and mark ups are a dime a dozen, psychologically, I would also feel good about myself too. Everyone’s an “expert” in a boom market, especially if a16z or Tiger is leading the round. And a16z’s done double the number of deals they did in 2020. And Tiger’s invested 4 out of every 5 business days. In full disclosure, I did feel quite proud of myself as well. Nevertheless, I do my best to stay humble in this business.

Interestingly enough, while there were more seed, pre-seed and angel dollars going into startups, progressively, less startups were getting funded. Effectively, while the overall number of dollars invested look great, less founders come to bat. A smaller top of funnel means a more concentrated funnel in consecutive rounds.

Source: Crunchbase

The truth is fundraising will get harder over the next year and valuations won’t be as high. You can expect the current market correction in the public markets to soon be reflected in the private ones. So you may need to spend 12 months longer growing into your next round’s target valuation.

So where should investors look for signal?

In fairness, I am ill-equipped to answer this question for the masses. And most likely will never be fully equipped to make generalist statements. That said, I have and will continue to share what signal looks like for me. And if you’re a founder, here’s my template to conviction.

Two weeks ago, I broke down my sense of intuition around startup investing. I won’t go too deep in this essay, but I do share a more detailed internal calculus there. To put it simply, I look for different signals across the spectrum of idea plausibility and stages.

Signal by idea plausibility

Idea PlausibilityKey QuestionContext
PlausibleWhy this?Most people can see why this idea should exist. Because of the consensus, you’re competing in a saturated market of similar, if not the same ideas. Therefore, to stand out, you must show traction.
PossibleWhy now?It makes sense that this idea should exist, but it’s unclear whether there’s a market for this. To stand out, you have to convince investors on the market, and subsequently the market timing.
PreposterousWhy you?Hands down, this is just crazy. You’re clearly in the non-consensus. Now the only way you can redeem yourself is if you have incredible insight and foresight. What’s the future you see and why does that make sense given the information we have today? If an investor doesn’t walk out of that meeting having been mind-blown on your lesson from the future, you’ve got no chance.

Signals by stage

Stage of investmentKey QuestionContext
Pre-seedWhy you?The earlier you go, the less quantitative data you have to support your bet. And therefore, your bet is largely on the founder. For me, it matters less their XX years of experience, but more so their expertise. In other words, insight. Can I learn something new in my first meeting (and consecutive ones too) with them?

At the pre-seed, there is also one more key signal I look for in founders – their level of focus. Rather than wanting to do everything, can they streamline their resources to tackle one thing? What is their minimum viable assumption they have to prove before they can build their MVP (or MLP – minimum lovable product)? Startups often die of indigestion, not starvation.
SeedWhy now?By the seed stage these days, you’ve either found your product-market fit or really close to finding it. The larger your round, the more you’re feeling the pull of the market. Whereas pull can come be measured (i.e. daily organic sign ups, demand converting to supply in a marketplace, etc.), sometimes when you’re at the cusp of it, there’s a level of foresight that is required. Some leading indicator for the business often comes as a lagging indicator from industry trends. What is the inflection point(s) (political, socio-economic, technological, cultural) we are at today that is going to have compounding effects on the business?
Series AWhy this?By the time you get to the A, you’re ready to scale. In other words, what you mainly need is to add fuel to the fire. I place a larger emphasis on traction here. Admittedly for me, compared to the two earlier stages, this is more of a numbers conversation. The best founders here have a very clear picture of what worked and didn’t work for the business. They’re already familiar with their main GTM channel, but are exploring new opportunities for channel-market fit where they need capital to test.

Not incredibly pertinent yet, but founders will have started thinking about their Act II. What’s the next product they’re going to offer to secure their immortality in the market?

In closing

A simple litmus test I often share with founders on signal is:

Your ability to raise capital is directly correlated with your ability to inspire confidence in your investor that you will get straight A’s with little to no help.

This isn’t just true for myself, but also most investors out there. While the best investors out there will always be there for you in your time of need, before they decide to jump aboard the same ship with you, you need to convince them that you’re a top 10% founder. Or a top 1% in-the-making.

While I dislike using the dating analogy, it’s an apt comparison in this case. You’re not going to share your deepest, least desirable secrets on your first date. You’re also not going around saying you’re the perfect – and I underscore perfect – partner without any flaws. ‘Cause that’s as much baloney as an unknown African prince in your inbox telling you to help him secure $5 million in gold bars by helping him set up a Swiss bank account with a deposit of $10K. It’s too good to be true. In reality, you’re most likely going to share that you have a number of great qualities, but you’re still growing in many ways.

Admit what you don’t know or don’t have. As long as it’s not mission critical or the biggest risk in your business (and if it is, figure that out before you raise VC funding), the investors who truly believe in you will understand. Always err on the side of honesty, but not bravado.

‘Cause you yourself are a signal. If you’ve got your bases covered and still have to go out of your way to convince an investor or try to flip their “no”, they’re probably not worth your time.

Cover photo by Michael Denning on Unsplash


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Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

The Gravitational Force of Founder-Market Fit

wildfire, founder market fit

There’s a question I love asking founders. What does product-market fit look like to you?

PMF is often nonobvious and guesswork in foresight, but incredibly obvious in hindsight. But the ability to foresee and measure an inflection point in the business is a common thread among the best founders in the world. For Rahul Vohra, that was when 40% or more of his customers responded with “very disappointed” to the survey question “How would you feel if you could no longer use Superhuman?” After all, the famous Peter Drucker did say, “You can’t manage what you can’t measure.”

Founders often find themselves pushing their product onto customers pre-PMF. But once they find PMF, they feel the pull of the market. In the words of David Sacks, when you find PMF, “the market is pulling product out of the startup.”

For further reading here, I highly recommend reading Lenny Rachitsky’s essay on the topic.

But, what is founder-market fit?

Much like PMF, for founders, there exhibits a similar level of pull. But its measurability is often not by quantitative metrics like PMF, but qualitative. At a virtual lunch last week, Founders Fund’s and Varda’s Delian Asparouhov shared his brutally candid remarks on living a fulfilling life.

One of the questions he answered was when did he know he just had to start Varda. Why didn’t he just stay a full-time VC? Delian called it the “mind virus.” When the problem hits you like a truck and you just can’t get rid of it. Once you get it, it infects your whole brain, and you can’t not think about it.

When you have more questions than answers. And each layer of questions gets more and more specific, and no longer generalist. In fact, the majority of questions that take up your mental real estate do not have membership in the:

  1. First 500 questions about the topic in a generalist’s mind
  2. First 100 questions in a specialist or expert’s mind space. In fact, one of the greatest litmus tests (not the only) you can administer is getting the “Oh f**k, how come I haven’t thought of that?” response.

Naivete matters

Paul Graham wrote an equally great piece on the topic. “Naive optimism can compensate for the bit rot that rapid change causes in established beliefs. You plunge into some problem saying ‘How hard can it be?’, and then after solving it you learn that it was till recently insoluble. Naivete is an obstacle for anyone who wants to seem sophisticated, and this is one reason would-be intellectuals find it so difficult to understand Silicon Valley.”

In the analogous words of Delian, “Just ask the technical experts, is this impossible? There’s a big difference between very, very difficult and impossible. Is it just a very technical religion where people say no or is it impossible?” There’s a superpower in knowing just enough to dream and reach for the “impossible”, but not enough to get trapped in the technical dogma of what is “possible.”

Great founders are armed with the ability to balance childlike wonder with optimistic pragmatism. Great founders dare to dream. It is neither the first, nor the last you’ll hear of James Stockdale on this blog. But nevertheless, I find his words to ring equally as true for the best founders who have graced this planet. “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they may be.”

In closing

In sum, what is founder-market fit? It is when passion turns into obsession. When founders are married to the problem, as opposed to the solution. When curiously passionate founders cannot stop themselves from doing everything in their power to engineer the solution to a problem deeply personal to them.

Here’s a simple way to think about it, using an equation most scientists are familiar with.

F = ma

Or otherwise, known as Newton’s second law. Force is the product of mass and acceleration. Think of force as the gravitational pulling force a founder has. Mass as the first impression a founder makes in meeting number one. Some permutation of their insights, their background and experience, and their domain expertise. And acceleration as the multiplicative velocity in which the founder learns. Subsequently, we have an equation that looks more or less like this:

Founder-market fit =
(initial impression) x
(founder’s compounding rate of learning)

For investors, a good sign of that is when that passion is contagious in the first meeting. And founders learn incredibly quickly (as a function of action) in every consecutive one after. The gravitational pull a founder brings where you just want to put down everything to listen to them. As investors, we love paying for that world-class education.

Photo by Tobias Seidl on Unsplash


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How to Develop Intuition as a Rookie Startup Investor

intuition, how to develop intuition

In the month before I started this blog in 2019, I had written 20 odd blogposts as a safety net in case I ran out of ideas in my weekly cadence. Most of which never had the chance to stand in the limelight, including my first one on intuition. Particularly, my one on intuition. Over the years, I’ve honed my own “intuition” – if I may be bold enough to call it that – on vetting startups. My intuition today is very different beast from my intuition 2.5 years back. This essay is a product of such constantly evolving self-discovery.

The spark of my intuition

When I first started my career in VC at Berkeley’s SkyDeck, I reached out to about 70-80 investors for a coffee chat, in which I posed one of my now favorite questions. What is the difference between a good and a great VC? Unsurprisingly, but frustratingly enough, most of the answers came in the form of “intuition.” Or its cousin, “pattern recognition.”

To me, who was still so new to venture, that was the best and worst non-answer I could get. Yet despite knowing that there was truth in their answer, I was still directionless. It wasn’t until an afternoon walk through San Francisco’s South Park with a very generous, but curt gentleman who carried quite the luggage beneath both of his eyes that I got the answer I wasn’t looking for.

“See a shitload of startups. When you see 10, pick your top 2. Then see 100, pick your top 2. Then see 1000, and again, pick your top 2. You’re going to notice that your podium will look quite different the more founders you meet with and the more startups you see.”

Recently, Plexo‘s Lo Toney told our fellows at DECODE the exact same thing:

And so, in hopes to guide someone in my shoes when I first started, here’s how I think about building intuition. Of course, I am a human and will always be a work in progress. It’s likely that next year I will see things differently than I see them today. Nevertheless this essay is a record of my thoughts today in early 2022.

Where to find a “shitload” of startups

There are multiple avenues these days for deal flow, including, but not limited to:

When I first jumped into venture, I used to ask my friends who I knew were early adopters (a product of going to a school in the Bay Area, like Berkeley) of products to recommend me 3-5 startups/products every other week. When they did, I would treat them out to boba. And if they introduced me to the founders for those products that I’d be excited to talk to, I’d treat my friends out to a small meal – around $10-15. At the same time, at SkyDeck, I tried to sit in on as many meetings as I could, particularly the ones around deal evaluation at the beginning of every cohort.

While I do recommend all of the above, the best training grounds for developing intuition is when you talk to founders yourself.

The five senses

Google defines intuition as “the ability to understand something immediately, without the need for conscious reasoning.”

Source: Google

So, by definition, intuition is subconscious – built upon the brain’s natural ability to recognize patterns. An apt synonym, according to the trillion-plus dollar company… “sixth sense.” A sixth sense birthed from the intense neural processing of the five other senses. So, it was only logical for me to understand the sixth sense by first fully comprehending my five others. That said, I use the five-sense nomenclature loosely, but it nevertheless has become my guiding framework for venture decisions over the years.

Smell

I invested based on my sense of smell.” These are the very words Softbank’s Masayoshi Son shared about his early investment in Alibaba. And he said the same about his investment into Yahoo! In fairness, his words make for good PR. And may just seem like smokes and mirrors. But for Son to have chosen Jack Ma out of the 20 prospective Chinese entrepreneurs he met with to invest in, he must be onto something.

There are two ways to develop an acute sense of smell as an investor, which you can develop in tandem.

  1. Spending a lot of time looking into the market
  2. Talking to many founders

On the former, we’ve been seeing a number of funds incubate their own startup ideas as a result of investors becoming deep subject-matter experts, but are discontent with the current ideas or teams on the market right now. Two examples include General Catalyst and Founders Fund. Draw market maps. Write research reports. Follow the experts on socials or on their blogs. Even better, talk to them as well. As a general warning, it’s hard being a generalist here. I would pick a few industries and/or functions you’re excited about or knowledgeable in already. Go deep before you go wide.

A few questions that have served me well include:

  1. What kind of inflection points are we at in the market? In what areas have headwinds become tailwinds?
  2. What are the technological, political, and/or socio-economic trends to be aware of right now? And where do these trends set up the world tomorrow to be?
    • I really encourage investors here to dream a little bit. To envision a world given these trends in which you’d be excited to have future generations live in.

On the latter, while Masayoshi talked to only 20, you can assume you he went through at least ten times that number of decks and business ideas. There’s no better practice than being in the field. Assuming you’ve taken step one (i.e. researching the market), one of the best litmus tests I’ve used to gauge a founder is their ability to riff on adjacent subjects to the business with me. Are they capable of going on tangents that really demonstrate domain expertise? Or are they caught up in the myopia of just their business?

Taste

There’s two kinds of tastes in which I look for, almost subconsciously, now.

  1. Have they tasted excellence?
  2. Have they tasted blood?

On excellence, many investors out there look for prior success in the field. For instance, previously founder of a unicorn exit, early employee or key executive at a now-successful company, or former big-time investor. Admittedly, there are only a small handful of these individuals out there. But I knew in my early days of scouting, I was at a massive disadvantage here for two major reasons.

  1. I didn’t have strong connections with most of this subset of the entrepreneurial market.
  2. This was also a founder persona I didn’t have unique insight to. In fact, it was general consensus to always take first meetings with these individuals in the venture industry. And as I learned early in my venture career, you make money either if you’re right on consensus or right on non-consensus. The latter of which is counted in multiples instead of percentages, which I’ve written about here and here.

In knowing so, I look for excellence, period. Have they tasted earned glory in any discipline? Do they know what it’s like to succeed in their field? And do they know what it takes to get there? On the flip side, do they know how hard it was to get there?

On the other hand, for blood, I want to know a founder’s propensity for conflict resolution. When was the last time they fundamentally disagreed with their co-founders? And how did they resolve it? Conflicts are inevitable. They’re bound to arise when you’re putting so much at stake for a common goal. I care less about the fact that they do come up, but more about that when they do, the team doesn’t just fall apart.

Every once in a while, I might disagree with the founder as well. And hear I look for the founder’s knee-jerk reaction and their ability to engage in thoughtful discussion. That does not mean they cannot disagree. Neither am I looking for another yes-person. But are they capable of helping me, and themselves, explore new horizons? Are they open-minded enough to entertain new possibilities, but still hold a remarkable level of focus to their 12-month horizon?

Touch

How high-touch or low-touch is this business? How much legwork does an investor need to do for this business to 10x its KPIs (within the next 12 months)?

For me, during my first meeting with the founder, ideally before, I try to answer two very simple questions:

  1. What is the biggest risk of this business?
  2. And is the person who can solve this risk on the team slide/in the room?

99% of the time, the person who can solve the biggest risk of the business has to be in the room. For instance, if it’s a machine-learning (ML) product, it’s a technical risk. So at least one of the co-founders must be a technical genius, not three MBAs. If it’s a B2B SaaS product, it’s a distribution risk. Meaning someone on the team must have deep connections to key decision makers to their target customers. In the early days, that’s really just at least one to two big-name customers. And ten other referenceable businesses. The second biggest risk is sales, and that I count on the founders’ ability to hustle.

1% of the time, and this is probably an exaggeration, you just have to really believe in the founder AND the product or market.

Hearing

Do founders spend more time talking, or more importantly, listening to their customers than they do in Rapunzel’s tower?

While I don’t ask all of them (since we’re guaranteed to run out of time before we run out of topics), here are the questions I consider when assessing how boots-on-the-ground a founder is:

What are customers saying about their product? The good? And the bad?

How did they acquire their first users/customers outside of their existing first degree network? Where from? What messaging do they use?

What is their customer win rate? In knowing so, what worked and what didn’t? At what point in the onboarding process do customers churn? What are their assumptions for why churn happens?

Do they know the numbers of their business (and ideally the market) like the back of their hand? For numbers of the market, are they able to recall the sources of most important numbers? For product metrics, how well do they know the main ones, like engagement, churn, monthly growth rates (over the past 3 months), net retention, and so on? Every so often, there’s a number or two, the founders are not aware of. And it’s fine. The test is once they realize their blind spot, how quickly do they move to patch it up? Subsequently, report back to me about their updated data measurements.

Of course, my job is not to distract founders. And I really try my best not to, so I don’t ask they measure superfluous metrics, unless I really do believe they’re crucial to the business.

Because I usually talk with founders who are pre-product-market fit, I usually lead with the question, “what does product-market fit look like to you?” Are they able to arrive at an actionable and measurable metric to optimize for? And can they back up why that metric is a good proxy for product-market fit?

(In)Sight

Can this founder teach me something new? Something that I never thought of or heard before, but makes complete sense. Is it a preposterous idea but backed by logic? Or does the founder have an original (and money-making) angle to what is already unoriginal? As an investor, especially as you see more startup ideas, the latter question is likely to surface more than the former.

Once the original insight is uncovered, it is then up to me to figure out the potential energy of the insight. How far can this insight take this team? Is it likely that this insight will uncover more insights down the road?

As an investor, you want to be right on the insight and team, not one or the other. Mike Maples Jr. articulates it best when he said, “We realize, oh no, this team doesn’t have the stuff to bend the arc of the present to that different future. Because I like to say, it’s not enough. […] I’d say that’s the first mistake we’ve made is we were right about the insight, but we were wrong about the team.”

“I’d say the reverse mistake we’ve made is the team just seems awesome, and we just can’t look past the fact that they didn’t articulate good inflections, and they can’t articulate a radically different future. They end up executing to a local maximum, and we have an okay, but not great outcome.”

In closing

Seedscout’s Mat Sherman wrote a great Twitter thread last month to help founders who are outsiders raise venture funding.

The fact of the matter is that despite the venture industry being a rather well-connected circle of individuals and firms, most entrepreneurs – both currently and aspiring – are outsiders. If you can’t hit up a close friend to write you a couple million dollars, you’re an outsider. This essay, while written for new investors, hopefully, is equally useful as a guide for founders looking for some insight as to how investors think. Or at the very minimum, how I think.

Photo by Liam Shaw on Unsplash


Any thoughts here are mine and mine alone. They are for informational and entertainment purposes only. None of this is legal or investment advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.


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