Tag: investing

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DGQ 14: Why does the world need another venture fund?

rock, big rock, small rock

If you’ve been following me on Twitter recently, you might have noticed I’m working on a new blogpost for the emerging LP. One that I’m poorly equipped personally to talk about, but one that I know many LPs are not. Hence, I’ve had the opportunity to sit down with a number of LPs (limited partners – people who invest in venture funds) and talk about what is the big question GPs need to answer to get LP money, specifically institutional LP money.

And it boils down to this question:

Why does the world need another venture fund?

Most LPs think it doesn’t. And it is up to the GP to convince those LPs why they should exist. For most institutional LPs, even those who mean to back emerging managers, to invest in a new manager, they have to say no to an existing manager. While data has historically shown that new managers and small funds often outperform larger, more established funds on TVPI, DPI, and IRR, when institutional LPs invest in a Fund I, it’s not just about the Fund I, but also the Fund II and Fund III.

For those who reading who are unfamiliar with those terms, TVPI is the total value to paid-in capital. In other words, paper returns and the actual distributions you give back to LPs. DPI, distributions to paid-in capital, is just the latter – the actual returns LPs get in hand. IRR, internal rate of return, is the time value of money – how much an LP’s capital appreciates every year.

It’s a long-term relationship. Assuming that you fully deploy a fund every three years, that’s a 19-year relationship for three funds. Three years times three funds, with each fund lasting ten years long. If you ask for extensions, that could mean an even longer relationship.

But the thing is… it’s not just about returns. After all, when you’re fundraising for a Fund I, you don’t have much of a track record as a fund manager to go on. Even if you were an active angel and/or syndicate lead, most have about 5-6 years of deals they’ve invested in. Most of which have yet to realize.

So, instead, it’s about the story. A narrative backed by numbers of what you see that others don’t see. Many institutional LPs who invest in emerging managers also invest directly into startups. I’ve seen anywhere from 50-50 to 80-20 (startups to funds). And as such, they want to learn and grow and stay ahead of the market. They know that the top firms a decade ago were not the top firms that are around today. In fact, a16z was an emerging fund once upon a time back in 2009.

Of course, anecdotally, from about 15-ish conversations with institutional LPs, they still want a 4-5x TVPI in your angel investing track record as table stakes, before they even consider your story.

Over the past two years, capital has become quite a commodity. And different funds tackle the business of selling money differently. Some by speed. Others by betting on underestimated founders and markets.

The question still looms, despite the cyclical trends of the macroeconomy, what theses are going to generate outsized alphas?

And synonymously, why does the world need another venture fund?

Photo by Artem Kniaz on Unsplash

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

Subscribe to more of my shenaniganery. Warning: Not all of it will be worth the subscription. But hey, it’s free. But even if you don’t, you can always come back at your own pace.

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.

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One of the Toughest Job Requirements to be a VC

I passed on a deal.

Every time I think it’s easier to say “pass on the good to make space for the great”, the world says you’re wrong. Last week, once again, I realized how hard it was to say “No”.

We’d been chatting for a few months now. They were raising a pre-seed. And they checked most of the boxes I look for in an epic founding team:

  • Spent time in the idea maze and deep domain expertise,
  • Had a unique insight which led to innovation in their business model,
    • Because I didn’t know their market well enough, I hesitate to say if this was an earned secret or just a lesser-known fact that an outsider would never hear about. The difference between, what Kanyi Maqubela at Kindred Ventures, a mystery and a secret.
  • Consistently followed through with their promises and commitments (to me),
  • Dreamed big – big TAM, big vision,
  • Hustled to build relationships with some of the largest enterprise customers in their sector (though, yet to close any contracts),
  • Onboarded some incredible talent,
    • As I heard on my buddy’s podcast recently, “you can only learn from experience, but it doesn’t have to be yours.

I’ve written more here about what I look for.

Over the past few months, I asked for more time in hopes to find something more. Admittedly, I could think of a million excuses. And I have. I could have said:

  • They’re too early, since I rarely do pre-seed deals these days.
  • Or it’s the lack of traction.
  • Maybe that they could be more articulate about their go-to-market and product-market fit.
  • Maybe it’s the fact that at an early stage, that they have both a CEO and president. In other words, competing personalities in leadership.
  • Surprisingly large team for pre-seed startup.
  • Or, simply, I don’t know their space well enough, albeit adjacent to mine.

The more I thought about it, the more I realized I was just making excuses. I could circumvent most of these “reasons” with just a little effort on my part. And the fact that I was introduced to them by someone I really respect in the industry didn’t make it any easier. In fact, that alone was one of the strongest driving forces for me to want this deal to work out. The truth is, I just wasn’t excited about the product. And I had been spending time – arguably wasting theirs – trying to find my excitement. But I couldn’t, no matter how hard I tried.

I know it may be completely self-serving here. Call it immaturity or naivete. As a scout, I live by a self-imposed rule that every deal I refer, I want to be their greatest champion – their greatest evangelist – when I do so. In other words, if I had the capital, I would invest in each and every one I refer. On the same token, every deal I refer is just the start of an exciting long-term relationship. Post-referral, during diligence, post-investment and even if the deal doesn’t close. But for this startup, I just felt myself dragging my feet through knee-deep water just to meet with them over time.

Thinking I was in over my head, I hit up two mentors of mine in the space to give me the reality check I thought I needed. I thought and was, borderline, hoping they’d say, “You’re a sucker to bring personal emotions into an investment.” Or “Suck it up. Stop being a millennial/snowflake.” But neither did. I also told another friend last night and she replied, “It’s what makes you human. And I think people need to know about this side of VC.”

So, I’m writing this now in hopes that it will contextualize some of the decisions we make on this side of the table. I made the decision with the expectation that I’d be forgotten or passed on by them when they raise a future round. If they ask me again, it’ll be an honor and a privilege. And maybe my disposition will change in 1-2 years’ time. But it’s naive of me to expect that. Nevertheless, I still wish them the absolute best, and I hope they become the rock-star success they set out to be.

Photo by Bruce Jastrow on Unsplash

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Rolling Funds and the Emerging Fund Manager

library, rolling funds, startup investment

In the past few months, Rolling Funds by AngelList have been the talk of the town. Instead of having to raise a new fund every 2-3 years, fund managers can now continuously accept capital on a quarterly basis, where LPs (limited partners, like family offices or endowments or fund of funds (FoF)) typically invest with 1-2 year minimum commitments. Under the 506c designation, you can also publicly talk about your fundraise as a fund manager. Whereas the traditional Fund I typically took 11 months to fundraise for a single GP (general partner of a VC fund), 11.9 if multiple GPs, now with Rolling Funds, a fund manager can raise and invest out of a fund within a month – and as quick as starting with a tweet. AngelList will also:

  • Help you set up a website,
  • Verify accredited investors,
  • Help set up the fund (reducing legal fees),
  • And with rolling funds, you can invest as soon as the capital is committed per quarter, instead of waiting before a certain percentage of the whole fund is committed as per the usual 506b traditional funds.

Moreover, Rolling Funds, under the same 506c general solicitation rules, are built to scale. Both for the emerging fund manager playing the positive sum game of investing upstream as a participating investor, and for the experienced fund manager who’s leading Series A rounds. In the former example with the emerging fund manager, say a solo GP investing out of a $10M initial fund size, 20 checks of $250K, and 1:1 reserves. Or the latter, $50-100M/partner, writing $2-3M checks. Maybe up to $7-10M for a “hot deal“, which by its nature, are rare and few in between. In the words of Avlok Kohli, CEO of AngelList Venture, Rolling Funds are what funds would have looked like if they “were created in an age of software”.

I’m not gonna lie, Rolling Funds really are amazing. Given the bull case, what is the bear case? And how will that impact both emerging and experienced fund managers?

Continue reading “Rolling Funds and the Emerging Fund Manager”
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The Four Traits of World-Class Startup Founders

Proportionally speaking, I rarely make referrals and intros. Numerically speaking, I set up more intros than the average person. Frankly, if I made every intro that people have asked of me, I’d be out of social capital. It’s not to say I’m never willing to spend or risk my social capital. And I do so more frequently than most people might find comfortable. In fact, the baseline requirement for my job is to be able to put my neck on the line for the startups I’m recommending. The other side of the coin is that I’ve made more than a few poor calls in my career so far. That is to say, I’m not perfect.

I only set up intros if I can see a win-win scenario. A win for the person who wants to get introduced. And a win for the person they will be introduced to. The clearer I can see it, the easier the intro is to make. The less I can, the more I look for proxies of what could be one.

This largely has been my framework for introducing founders to investors, as well as potential hires, partners, and clients. Over the years, I realized that I’ve also been using the same for people who would like an intro to someone above their weight class.

Below I’ll share the 4 traits – not mutually exclusive – of what I look for in world-class founders.

  1. Insatiable curiosity
  2. Bias to action
  3. Empathy
  4. Promise fulfillment
Continue reading “The Four Traits of World-Class Startup Founders”
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Before the Close – How to Increase the Chance of Raising Capital

A number of founders ask me for fundraising advice. While they come in different magnitudes, one of the common themes is: “I’ve had many investor meetings, but I still can’t get a term sheet. What am I doing wrong? What do I need to do or to say to get a yes?”

To preface, I don’t have the one-size-fit-all solution. Neither do I think there is a one-size-fit-all solution. Each investor is looking for something different. And while theses often rhyme, the “A-ha!” moment for each investor is a culmination of their own professional and life experiences. This anecdote is, by no means, prescriptive, but another perspective that may help you when fundraising, if you’re not getting the results you want. This won’t help you cheat the system. If you still have a shoddy product or an unambitious team, you’re still probably not going to get any external capital.

One thing I learned when I was on the operating side of the table is: When you want money, ask for advice. When you want advice, ask for money. It’s, admittedly, a slightly roundabout way to get:

  1. Investor interest,
  2. And reference points for milestones to hit.

But it’s worked for me. Why? Because you’re fighting in a highly-competitive, heavily-saturated market of attention – investor attention. This method merely helps you increase the potential surface area of interaction and visibility, to give you time in front of an investor to prove yourself.

Investors are expected to jump into a long term marriage with founders, while, for the most part, only given a small cross-section in your founding journey to evaluate you. It’s as if you chose to marry someone for life you’ve only met 60-90 days ago. While angels and some people have the courage and the conviction to do that, most investors like to err on the side of caution. Contrary to popular belief, venture capitalists are extremely risk-averse. They look for risk-adjusted bets. And if you can prove to them – either through traction or an earned secret – that you’re not just a rounding error, you’ll make their lives a lot easier.

So, let me elaborate.

When you want money, ask for advice.

As you’re growing your business and you want to show you are, ask investors for advice. Tell them. “So I’ve been growing at X% MoM, and I’ve gotten to Y # of users. I’m thinking about pursuing this Z as my next priority. And this is how I plan to A/B test it. What do you think?”

And if you keep these investors in the loop the entire time and ask and follow-up on their advice, at some point, they’d think and ask, “Damn, this is an epic business. Will you just take my money?”

So, what are good numbers?

The Rule of 40 is a rough rule of thumb many investors use for consumer tech markets. Month-over-month growth rate plus profit should be greater than or equal to 40. So you can be growing 50% MoM, but burning money with -10% profit, aka costs are greater than your revenue. Or you can be growing 30% MoM, but gaining 10% profit every month. And if you’ve got 10s of 1000s of users, you’re on solid ground. Better yet, one of the biggest expenses is increasing server capacity costs.

For more reference points on ideal consumer startup numbers, check out this blog post I wrote last year.

For enterprise/B2B SaaS, somewhere along the lines of 10-15% MoM growth. With at least 1 key customer logo. And 5 publicly referenceable customers.

Of course, the Rule of 40 did not age well for certain industries in 2020.

When you want advice, ask for money.

When you ask for money most of the time, investors, partners, and potential customers will say no, especially if you’re super early on and don’t have a background or track record as an entrepreneur. So when they do say no, I like to ask them one of my favorite questions: “What do I need to bring you for you to unconditionally say yes?” Then, they’ll tell me what they want to see out of our product or our business. These, especially if they’re reinforced independently across multiple different individuals in your ecosystem, should be your North Star metrics. And when you do put their advice to action, be sure to follow up with the results to their implemented advice.

  1. You either do what they recommended. And show them what happened. And what’s next.
  2. Or you don’t do what they recommended. But show that you heavily considered their recommendation. What you did instead. Why you chose to do what you did instead. And what’s next.

To take it one step further, once I ask the above question to have a reference point for growth trajectory, I ask: “Who is the smartest person(s) known to achieve X (or in Y)?” with X being the answer you got via the previous question. And Y being the industry you’re tackling.

For instance, I’d recommend:

Then, go to that person or those people and say, “Hey Jennifer, [investor name] said if there’s one person I had to talk to about X, I have to talk to you.” Feel free to use my cold email “template” as reference, if you’re unsure of what else to say.

If you use this tactic again and again, eventually you’ll build a family of unofficial (maybe even official) mentors and advisors, even if you never explicitly call them that. Not necessarily asking for money all the time. But asking for money might help you ignite the spark for this positive feedback loop.

In closing

When I was on the operating side, a brilliant founder with 2 multi-million dollar exits once told me: “Always be selling. Always be fundraising. And always be hiring.”

I didn’t really get it then. In fact, I didn’t get it the entire time I was on the other side of the table. What do you mean “Always be fundraising”? Should I just be asking for money all the time? What about the business?

It wasn’t until I made my way into VC at SkyDeck that I realized the depth of his words. Keep people you eventually want to fundraise from and hire in the loop about what you’re building. Keep them excited. Build a relationship beyond something transactional. Build a friendship.

Jeff Bezos put it best when he said:

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.

“At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow and we’re very stubborn. We say we’re stubborn on vision and flexible on details.”

Photo by Frame Harirak on Unsplash

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Fantastic Unicorns and Where to Find Them

As a venture scout and as someone who loves helping pre-seed/seed startups before they get to the A, I get asked this one question more often than I expect. “David, do you think this is a good idea?” Most of the time, admittedly, I don’t know. Why? I’m not the core user. I wouldn’t count myself as an early adopter who could become a power user, outside of pure curiosity. I’m not their customer. To quote Michael Seibel of Y Combinator,

… “customers are the gatekeepers of the startups world.” Then comes the question, if customers are the gatekeepers to the venture world, how do you know if you’re on to something if you’re any one of the below:

  • Pre-product,
  • Pre-traction,
  • And/or pre-revenue?

This blog post isn’t designed to be the crystal ball to all your problems. I have to disappoint. I’m a Muggle without the power of Divination. But instead, let me share 3 mental models that might help a budding founder find idea-market fit. Let’s call it a tracker’s kit that may increase your chances at finding a unicorn.

  1. Frustration
  2. The highly fragmented industry with low NPS
  3. Right on non-consensus
Continue reading “Fantastic Unicorns and Where to Find Them”
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A Reminder of “Why I Love You” – Managing Downtime and Dynamics Between Fundraising Meetings

love, founder vc love, vc fundraising meetings

I recently read Mark Suster‘s 2018 blog post about startups on “Remind me why I love you again?”. As an extremely active VC, he specifically detailed why, unfortunately, by meeting 2, 3, and so on with a founder, he may forget the context of reconnecting and why the founder/startup is so amazing. And, simply, he calls it “love decay”.

Mark Suster’s graph on ‘Love Decay’

The longer it has been since a VC/founder’s last meeting, the harder it is to recall the context of the current meeting. Though I may not be as over-saturated with deal flow as Mark is, it is an unfortunate circumstance I come across in meeting 5-10 founders and replying to 100+ emails a week.

Continue reading “A Reminder of “Why I Love You” – Managing Downtime and Dynamics Between Fundraising Meetings”
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#unfiltered #21 The Recipe for Personal Growth – Thomas Keller’s Equation for Execution, The VC/Startup Parallel, Helping Others, La Recette Pour La Citron Pressé

lantern, personal growth, light

Over the weekend, I was brewing up some mad lemonade. ‘Cause well, that’s the summer thing to do. Since I’m limited in my expeditions outdoors, it’s just watching the sun skim over the horizon, blossoming its rose petals across the evening sky, in my backyard, sipping on homemade lemonade. If you’re curious about my recipe, I’ll include it at the bottom of this post.

When I’m cooking or performing acts of flavor mad science, I enjoy listening to food-related podcasts, like Kappy’s Beyond the Plate, Kappy’s CookTracks or Bon Appétit’s Foodcast. Unfortunately, all are on a temporary hiatus. So, I opted for the next best – YouTube videos. And recently, a curious video popped up in my Recommended feed. A 2010 TED Talk with Thomas Keller.

Thomas Keller. An individual probably best known, among many others, for his achievements with The French Laundry. Needless to say, I was enamored by his talk. But the fireworks in my head didn’t start going off until the 12:46 mark.

Continue reading “#unfiltered #21 The Recipe for Personal Growth – Thomas Keller’s Equation for Execution, The VC/Startup Parallel, Helping Others, La Recette Pour La Citron Pressé”
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Why Aren’t Investment Theses Hyper-Specific?

pedestrian, vc investment thesis

As a result of my commitment to provide feedback for every founder who wants a second (or third) pair of eyes on their pitch deck, I’ve been jumping on 30-minute to 1-hour calls with folks. Although I’ve had this internal commitment ever since I started in venture, I didn’t vocalize it until earlier this year. And you know, realistically, this is not gonna scale well… at all. But hey, I’ll worry about that bridge when I cross it.

Something I noticed fairly recently, which admittedly may partly be confirmation bias ever since I became cognizant of it, is that there have been a significant number of founders currently fundraising who complain to me about:

  1. Many VCs don’t have their investment thesis online/public.
  2. Of those that are, VCs have “too broad” of a thesis.

So, it got me thinking and asking some colleagues. And I will be the first to admit this is all anecdotal, limited by the scope of my network. But it makes sense. That said, if you think I missed, overlooked, over- or underestimated anything, let me know.

The Exclusionary Biases

By virtue of specificity, you are, by definition, excluding some population out there. For example, in focusing only on potential investments in the Bay, you are excluding everyone else outside or can’t reach the Bay in one way or another. Here’s another. Let’s say you look for founders that are graduates from X, Y, or Z university. You are, in effect, excluding graduates from other schools, but also, those who haven’t graduated or did not have the opportunity to graduate at all.

The seed market example

Here’s one last one. This is more of an implicit specificity around the market. The (pre-) seed market is designed for largely two populations of founders:

  1. Serial entrepreneurs, who’ve had at least one exit;
  2. And, single-digit (or low double) employees of wildly successful ventures.

Why? You, as a founder, are at a stage where you have yet to prove product-market fit. Sometimes, not even traction to back it up. And when you’re unable to play the numbers game (like during the stages at the A and up), VCs are betting on the you and your team. So, to start off, we (and I say that because I’ve been guilty of overemphasizing this before) look into your background.

  • What did your professional career look like before this?
  • Do you have the entrepreneurial bone in your body?
  • How long have you spent in the idea maze?

The delta between a good investor and a great investor

Let’s say an investor were to be approached by two founders with the exact same product, almost identical team, same amount of traction, same years of experience, and let’s, for argument’s sake, have spent the same number of years contemplating the problem, but the only difference is where they came from. One is a first-time founder from [insert corporate America]. The other is the 5th employee of X amazing startup. Many VCs I’ve talked with would and have defaulted on the latter. And the answer is reinforced if the latter is a founder with an exit.

The question wasn’t made to be fair. And, it’s not fair. To the VCs’ credit, their job is to de-risk each of their investments. Or else, it’d be gambling. One way to do so is to check the founder’s professional track record. But the delta here that differentiates the good from the great investor is that great investors pause after given this information and right before they make a conclusion. That pause that gives them time to ask and weigh in on:

What is this founder(s)’ narrative beyond the LinkedIn resume?

Shifting the scope

It’s not about the quantitative, but about the qualitative. It’s not about the batting average, but about the number and distance of the home runs. So instead of the earlier question:

  • How long have you spent in the idea maze?

And instead…

  • What have you learned in your time in the idea maze?

Similarly, from what I’ve gathered from my friends in deep/frontier tech, instead of:

  • How many publications have you published?

And instead…

  • Where are you listed in the authorship of that research? The first? The second? The 20th?
    • For context of those outside of the industry, where one is listed defines how much that person has contributed towards the research.
    • As a slight nuance, there are some publications, where the “most important” individual is listed last. Usually a professor who mentored the researchers, but not always.
  • And, how many times has your research been cited?

Some more context onto specificity

Some other touch points on why (public) investment theses are broad:

  • FOMO. Investors are scared of the ‘whats if’s’. The market opportunity in aggregate is always smaller than the opportunity in the non-aggregate.
  • Hyper-specific theses self-selects founders out who think they’re not a ‘perfect fit’. Very similar to job posts and their respective ‘requirements’.
  • Some keep their thesis broad in the beginning before refining it over time. This is more of a trend with generalist funds.
  • Theses are broad by firm, but more specific by partner. The latter of which isn’t always public, but can generally be tracked by tracking their previous investments, Twitter (or other social media) posts, and what makes them say no. Or simply, by asking them.

The pros of specificity

Up to this point, it may seem like specificity isn’t necessarily a good thing for an investor. At least to put out publicly.

But in many cases, it is. It helps with funneling out noise, which makes it easier to find the signals. It may mean less deal flow, which means less ‘busy’ work. But you get to focus more time on the ones you really care about. And hopefully lead to better capital and resource allocation. The important part is to check your biases when honing the thesis. Also, happens to be the reason why LPs (limited partners – investors who invest in VCs) love multi-GP funds (ideally of different backgrounds). Since there are others who will check your blind side.

Specificity also works in targeting specific populations that may historically be underrepresented or underestimated. Like a fund dedicated to female founders or BIPOC founders or drop-outs or immigrant founders. Broad theses, in this case, often inversely impact the diversity of investments for a fund. When you’re not focusing on anyone, you’re focusing on no one. Then, the default goes back to your track record of investments. And your track record is often self-perpetuating. If you’ve previously backed Stanford grads, you’re most likely going to continue to attract Stanford grads. If you’ve previously backed white male founders, that’ll most likely continue to be the case. In effect, you’re alienating those who don’t fit the founder archetype you’ve previously invested in.

In closing

We are, naturally, seekers of homogeneity. We naturally form cliques in our social and professional circles. And the more we seek it – consciously and subconsciously, the more it perpetuates in our lives. Focus on heterogeneity. I’m always working to consider biases – implicit and explicit – in my life and seeing how I’m self-selecting myself out of many social circles.

Whether you, my friend, are an investor or not. Our inputs define our outputs. Much like the food we put in our body. So, if there’s anything I hope you can take away from this post, I want you to:

  1. Take a step back,
  2. And examine what personal time, effort, social, and capital biases are we using to set the parameters of our investment theses.

Photo by Andrew Teoh on Unsplash

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The Secret Sauce

Photo by Aarón Blanco Tejedor on Unsplash

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

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

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

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

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

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