Recently, I had three conversations about trust. So forgive me, but that’s the soup du jour today, as their comments are still swimming in my mind.
I spent some time with the Head of Investor Relations at a high nine-figure AUM firm. And he said something that echoed much of the reality of fundraising these days. “Fundraising is all about trust. It’s not about the performance metrics. It’s about who believes in you.”
Then, immediately after, I caught up with an LP friend, who said, “Investor relations is a wasted job title in VC. They’re glorified note takers and relationship managers. I won’t invest in any fund where I haven’t met the GP.” Only to later share how much we both admired a certain Head of IR at a large multi-stage fund.
At first glance, the irony is blinding. The funny thing is that both are equally as true. GPs have a bank account where they can deposit trust. They withdraw trust every time they make an ask. Whether it’s for capital or special terms on the term sheet or for a certain ownerships target or for a guest speaker for an event they’re hosting. Before a GP starts a firm, they need to bank a lot of trust. They should give more than they take. And to run a firm, there are three types of primary customers you need to bank trust with:
Founders,
Co-investors,
And LPs.
You also can’t take a loan on trust (in other words, outsource trust) before you’ve deposited enough trust in your own bank account. Or else, you’ll be in debt. If you’re in too much debt (i.e. have a negative balance), your reputation takes a hit. But when you’ve banked enough trust, you can have a separately managed trust account managed by others. An IR professional who manages the trust account with LPs. A community/platform person with co-investors and talent. And so on.
Having others manage these accounts too early in the firm lifecycle means taking debt and impacting reputation. So when my buddy who’s the LPs says he doesn’t like most IR folks, it’s because before the IR person was hired, the GP didn’t bank enough trust.
And the truth is trust is built not in grand gestures and one-off deals. It’s in the small interactions. How fast do you respond? Even when you’re busy, do you make time for people important to you? Do you remember what you talked about last time? Do you close the loop on advice you get from LPs—whether you use it or not? Do you remember their answer to ‘What did you do last weekend’ 15 weekends ago? Do you follow through with what you promise—even if it’s a restaurant recommendation you mentioned in the call?
In a conversation with a Fund I GP yesterday who successfully raised his 8-figure fund in 8 weeks (and yes, part of that duration was over the holidays), he said something I really liked: “Every LP is looking for returns. That’s a given. But every LP is also looking for returns plus X. Your job during the fundraising process is to find out what X is, and it may be less obvious than you think it is.” For some, X is undoing boredom. For others, it’s the front row seat to learn. Others still, it’s the prospect of social capital that will come with making an investment. And you can’t find any of these out, if you don’t spend the time to build trust with the other party.
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
A lot of what I will say applies similarly to assessing founders and with senior talent, but for the sake of this blogpost, I’m going to focus primarily on doing diligence on GPs.
Sequoia’s Pat Gradyco-wrote a piece on AGI that’s been making its rounds the last few days. FYI, this post has nothing to do with AGI, so don’t get your hopes up. But in it, he shares:
Note the highlights above are all around how to better understand an individual’s internet presence. While not all-encompassing, understanding someone’s brand via their social media is more than just how many followers, likes, comments, and shares. As my good YouTuber friend once told me, “Not all subscribers are created equal. English-speaking personal finance content get paid the most per impression.” Analogously, the same is true for LinkedIn or Twitter/X content.
Just because you have 25K followers, how often are you just resharing your employer’s content? Or your portfolio company’s content? How often do you share your thought leadership? Do people follow you because of your perceived status or do people follow you because of the weight of your ideas? There’s a great Simon Sinek talk about the former Under Secretary of Defense on this, which I won’t bore you with the details, but if you want the full story, it’s here. In summary, if you no longer held the job title you do today, would people engage with you differently?
That’s what I’m trying to figure out.
The first filter is: What is your insight per post ratio? This includes reshares and comments they make on other people’s posts. At a high level, do you recognize what good content looks like?
The second filter is: What is your original insight per post ratio? How much of your activity is original ideas? Is that what people engage with? Or do they engage more with your reshared content? When they do engage, how?
Level 1 is a like. The least number of clicks to engage with you.
Level 2 is a reaction other than a like. It takes a second longer to do so, but is more intentional. To be fair, a spam-like content (i.e. “LFG”, “Proud of you”, “Excited”, etc.), I also put in this tier.
Level 3 is a thoughtful comment that you can’t use on any other post. They’ve read and thoughtfully engaged back. Also on this tier is a quick reshare.
Level 4 is a thoughtful reshare. Or on Twitter (still not easy to call it X), a “quote retweet.” You’re staking not only your personal brand and reputation with your own followers, but you’re also letting others know how you’ve thought about the content being shared.
It’s not a perfect scorecard, but I do keep a rough mental tally (which goes into my own memo) of what a GP’s social brand is. And at what point was there an inflection in their thinking and/or following. Usually quite correlated with each other.
Other things I find interesting to observe, but cannot be understood in isolation:
Most frequent commenters and reshare your content
Reactions-to-follower count ratio
Connections-to-follower ratio
How similar/different their content on LinkedIn vs Twitter/X vs Instagram/TikTok vs podcast platform is
AI-search optimization (AEO): What keywords and/or questions do certain GPs own in search traffic? How does it compare across ChatGPT vs Claude vs Gemini? And in incognito AI search.
Frequency of getting tagged by others on social media outside of viral periods
Endurance of content even when little to no engagement, usually for podcasts, blogs and newsletters. And why do they continue doing so even when it’s not producing the results they desire (more of a qualitative understanding on the personality traits of a GP)
Frequency of guest appearances on others’ content channels and how do those appearances’ views compare to said influencer’s average view-to-subscriber ratio
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
One of the most interesting self-reflective questions I think GPs should ask is: If someone else had the exact same strategy and offered the exact same terms, why would someone not pick you over another VC? That’s adverse selection.
One of the three pillars (or five pillars, depending on who you ask) of underwriting a venture fund is winning. The others being seeing and picking (and supporting and selling). But sometimes what’s more interesting than underwriting why a GP wins is understanding all the reasons they won’t win.
It’s an interesting thought exercise I like working through with a GP. “Why won’t a founder let you invest?” or “Assuming you wanted to invest, why would you lose out on a deal?”
The most common answers are always:
“I missed the timing.”
“There was no more space left.”
“They weren’t raising at the time.”
In my opinion, while possibly true, all cop-out answers. Then I follow up: “Assuming you wanted to invest, and there’s space left, and they’re currently raising, why would a founder say no to you?” Or “Why wouldn’t you be able to invest?” More often than not, I get an answer along the lines of: “I win (almost) every deal I want.” Or “I have yet to raise my fund.”
Even if true historically, it doesn’t answer the question. It’s like asking a job candidate: “Tell me about your weakness.” And they respond with, “I’m too honest.” Or worse, “I have no weaknesses.”
What I’m trying to get at in these questions is not the “right” answer. There is none. But rather what are the reasons you’ll fail to win a deal. Which of those reasons are areas where you would like to improve upon? Which of those reasons are areas where you will continue to be unrelenting on? What will you not change? Only then can I get a better understanding of the GP you will become 2-3 funds from now. And if so, does it make sense to do business with each other today?
There’s a Fund I GP I ended up investing in. When I first asked him the question above, he reached the conclusion that his pitch and value-add resonated more with second-time founders than first-time founders at the pre-seed stage. And given that he wanted to grow into a lead investor eventually, what he had to figure out was how to build a strong enough brand with first-time founders, requiring both education and intentional positioning. For me as an LP, it became easy for me to see how he would grow into a Fund II GP. Between then and his next fundraise, I’d just track how many first-time founders he invested in, try to spend time with them at events, and ask why did you take this GP’s check and what did you really want from him.
There is no right answer as to what founders wouldn’t want to work with you. It’s just an exercise of self-awareness, so you can figure out what’s worth working on and what’s not. Adverse selection reasons I’ve heard in the past, in no particular order, include:
Political alignment
Naming a firm after their own name instead of an ideal (yes, that is a real answer I’ve gotten before)
Speed to make a decision
High ownership targets
Response time, including taking the holidays/weekends off when their peers might still be dealmaking
Lack of brand awareness
No founding experience
No experience at a large established firm
No relationships with key potential customers
Values shared publicly / controversial opinions
Personality (i.e. too nice, people pleaser, argumentative, arrogant, name-dropping/logo-shopping, too humble, etc.)
Lack of talent networks
Having invested in a competitor
A homogenous partnership
A rumor that is widespread but may not have real credence
A single remark from an influencer in the ecosystem (or a close friend), then what’s more interesting is why someone would say something like that
The way a GP dresses (especially important in certain geographies outside of the US)
The initial outreach was done by a junior team member or a broker/dealer
Subsequent conversations done by a junior team member
A reference call with their network done in poor taste
Someone with no board experience asking for a board seat
Having someone else on the team take the board seat even though you did the deal and the founder wanted you
Aggressive term sheet terms (1X+ liquidation preferences – participating and preferred)
Having no respect for prior round investors (especially, in relation to their most helpful investors so far, often related to their pro rata)
Badmouthing their existing investors and/or teammates
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
I caught up with a single family office over the holidays. Let’s call him Mark. Mark told me that he had caught up with a Fund I GP that I had passed on. Let’s call her Susan. In that conversation with that GP, he told Susan that I introed him to another GP “Charlie” whom she knew and whom I invested in, which he eventually passed on. And Susan asked Mark why I invested. That it made no sense. That Susan herself would have never invested in Charlie. As such, she didn’t know why I would invest in Charlie and not her. After sharing that last line, with no explicit question that plead for an answer, Mark looked at me, waiting to see how I’d respond.
I stared back at him. And he to I. And I to him.
As he felt seemingly unsatisfied with my reaction, I asked him, “If I put both of these GPs on a report card, how would you score each?”
He followed up, “Susan is more experienced. She’s done X and Y. And she came from Z.”
“You’re right. Susan is all of that. In fact, on a report card, it’s fair to say that her GPA is a solid B+, maybe an A-.”
He concurred.
I went on. “And Charlie would probably score a B, maybe B-, if we were really critical. But to you, did anything about Susan jump out at you?”
“Not exactly.”
“What about Charlie?”
“Well, there’s that…”
“I agree. For me, and you don’t have to agree with my assessment, Charlie is on paper a lower GPA than Susan, but Charlie spikes in very particular areas. Areas I personally believe puts him in a position to do really well. That he will have a good chance to outperform. Susan is factually better in almost every area than Charlie is, but she doesn’t spike in any area. At least it’s not obvious to me. I like her thesis. I think she has a great GP-thesis fit. And I do believe that her thesis has a really good chance of being right, but I’m not sure she’s the only person in the world who can do that, much less the best person in the world to do it. In fact, I can think of two other GPs who spike in that thesis area where she doesn’t.”
It’s harsh criticism. And it’s not my place to give non-constructive criticism. So what I said when I passed was that we had other deals in the pipeline that were a lot more interesting to us. Which is true. But it’s not my place to say “I don’t think you’re good enough.” And she probably felt my pass was unsatisfying. Because in her shoes, I’d probably feel the same.
I don’t invest in all-rounders. There’s a time and place and industry for those. But I don’t believe it’s venture. Even less early stage emerging managers. There’s a line I’ve long liked in the F1 world. “In Formula 1 it’s nearly impossible to go from 13th to 1st on a sunny day, but it’s possible on a rainy day.” In the uncharted territory of true early, early stage investing, it’s always a rainy day. And to go from 13th to 1st, you need to make bold decisions. Measured, well-timed, but risky decisions. You need to make certain sacrifices to do so.
To me, that meant comparatively lower grade-point averages, but much, much higher select individual subject grades. In fact, only an A++ would suffice. A spike must be at least three standard deviations from the mean. As an emerging manager LP, who plans to be an active participant in the journey, naturally with the GP’s permission, it falls on me and my peers to help our GPs raise their overall GPAs, but we can’t help them spike. But in that, we must know and recognize their flaws.
One of the most interesting spectacles I’ve always marveled at is how lumberjacks fell trees. The first cut is the notch cut that indicates the direction the tree will fall. The second is the felling cut that catalyzes the tree to fall, acting as the hinge.
In many ways, the GP spikes (and flaws) makes the first cut. Whether you count it as nature or nurture. The GP’s job is to figure out which direction they’d like to fall. Or to borrow a line from Mark Manson’s most important question of your life: “What pain do you want in your life? What are you willing to struggle for? How do you choose to suffer?” To further borrow, “What determines your success isn’t ‘What do you want to enjoy?’ The question is, ‘What pain do you want to sustain?’ The quality of your life is not determined by the quality of your positive experiences, but the quality of your negative experiences. And to get good at dealing with negative experiences is to get good at dealing with life.” All in all, it’s a GP’s job to make that choice. An LP cannot make that choice for the GP. And it is a function of the flaws they’re willing to overcome, and how they want to double down on their spikes.
The second cut is for investors, board and advisory members to nudge our investees towards the direction they so chose. As the great Tom Landry once said, “A coach is someone who tells you what you don’t want to hear, who has you see what you don’t want to see, so you can be who you have always known you could be.” But the prerequisite for the second cut is the first. The first requires intentional and special people.
Along a similar vein, my buddy Henry wrote a post recently I really liked.
“Is this founder special?” That’s probably the only question that has to be asked in every non-obvious investment decision. Maybe every investment decision. But especially true under imperfect information conditions. And special isn’t just about getting a high GPA.
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“‘I remember’ is more meaningful than ‘I love you.'”
I was catching up with an college friend over the holidays who’s now in a wonderfully happy relationship now, when once upon a time, she once doubted her ability to fall in love again. And as we were talking about what makes this guy special compared to all the other ones, she said: “Because he remembers the small things.”
“I love you”, while great for Hallmark movies, often feels empty if not paired with action. And more often than not, actions speak louder than words. Remembering that whenever they order they pick the carrots out of the salad, so you order salad without the carrots. Remembering their bucket list and making it a quarterly goal to check something off that bucket list.
Separately, I caught up with a friend who runs investors relations (IR) for a large multi-stage firm. Someone I’ve heard from many—colleagues, LPs, founders, even her friends—that she is one of the most thoughtful people in the world, which seems to be “easy” for her because she has a great memory and they “don’t”. For a blogpost that will come out next year, we were talking about IR best practices and what her CRM looks like. And I can say it’s accident that she comes off with great memory. There are details she tracks in there that no sane capital formation professional would actively track. One’s go-to coffee order. Their children’s birthdays. Their anniversary. Their first day on the job. And so on. What is that James Clear line again? “You do not rise to the level of your goals. You fall to the level of your systems.”
This past year was a year where I found myself remembering. How I got here. Did I even want to be here? Why did I want to be here? Who helped me get here? What they did? What might’ve seemed like an accident, but was a subconscious habit or intention? Even to the point I’ve asked several guests on the podcast, if they always knew they wanted to be where they are today. How did they know? When did they realize it? Given how personal some of the answers got, we had to leave quite a few on the editing floor. (Sorry.)
I left Alchemist close to the beginning of this past year. 2025 was also the first year since I started where I didn’t share my birthday resolutions on this blog. Largely because I didn’t know if I needed to add more to my list of things to do, but rather subtract things.
And now I’m writing this on the last day of the year, as it felt right to recap on the year only after the year was done. (Almost done.)
2025’s Most Popular
Most of my writing this year centralized around LP/GP dynamics. More so than any previous year.
Which is funny. I started this humble blog as a public FAQ. I used to—still do—get quite a few messages often asking for the same advice. I’ve always disliked giving general advice. A piece of advice is only as great as the situation in which you use it in. But most people ask generic questions. And generic questions often get generic advice. Nevertheless, I’ve always erred on the side of sharing the circumstance in which the advice is given when I do share generic advice, except when the advice, in my experience, applies to most people I talk to. And it’s funny that of this year’s most popular blogposts, four definitely include generic advice. Two arguably more circumstantial. But proportionally, even looking back at my most popular blogposts, the furthest reaching ones often house FAQs that most people can relate to. Or know someone that can relate to it.
Without further ado, my most popular pieces of writing this year:
Hustle as a Differentiator — I don’t know how ‘hustle’ went up in search volume this year, but it did. At least in terms of how people found this essay. But I also think people like stories and tactical examples of when and how hustle beat everything else. And this is the blogpost for that. Also, the only one of the top six not written this year.
If 198 Pieces of Unsolicited, (Possibly) Ungooglable Advice for Founders Were Not Enough — The third installation of my 99 pieces of tactical founder advice series. Admittedly, not surprised this went far. Sometimes great content is hard to find. And every time I publish a collection, like this, I hope it becomes the Dewey Decimal Classification for good, tactical content in the innovation ecosystem.
Dear LP — I wrote the sister blogpost of this first. But an emerging manager asked me to write that calls LPs out on their bad behavior. Not a good reason to write a piece in my opinion, until the subsequent weeks’ worth of LP conversations left me frustrated at LP behavior myself. This is also the blogpost where I had more than a handful of friends reach out to ask if I was okay. Which I was and am. This essay was the therapy I needed.
Good Misses and Bad Hits — Most outcomes in venture aren’t clear until a decade later. And when they are, so much of our past memory atrophies that for many of us, we can’t pattern match to why we made the decisions we did. Inspired by our Golden State celebrity, we decided to write a piece on what it means to measure inputs before the outputs and how we can course correct before it’s too late.
Dear Emerging Manager — Born out of frustration with emerging managers who seem to be living under a rock. But also a realization that not every GP has the vantage point that LPs do. In fact, most don’t. So this letter was hopefully helpful to debunk some of the myths GPs have.
Goldilocks and the 3 Secondaries — One of my favorite pieces I co-wrote this year with Dave, as it is one of the most tactical and intellectually rigorous pieces this year, but also a great mathematical exercise of how much of your private stake in a company to sell, when, and to whom.
All-Time Most Popular
2025 was the year I took a step back from promoting any of this blog’s content online. I also took down any vestigial pages that asked for a subscription within the first 10 seconds of browsing a page on this blog. I simply wanted this blog to be my safe harbor, my personal diary on my journey week by week. I realized that every time I actively promoted my blog on social media, I felt a part of me die.
Unlike Superclusters, this blog isn’t meant for one particular audience. While this blog has grown over time and I’m thankful to each and every one of you who has joined me in this journey, and while I had many an opportunity to do a sponsored blogpost, selling any piece of this virtual real estate felt disingenuous. It felt that I was selling a part of my soul. Because every week when I write, I write about whatever I want to write about. I don’t have an agenda. I merely write to write.
And the way I felt most true to myself was to no longer pursue any marketing of this blog. The only reason any of the afore-mentioned blogposts in the last section made its way to new audiences is that I’m lucky to have readers like you share things with the world, while I’ve hermitized.
As such, any growth of this blog this year is because of you, not me. For that and more, I am deeply thankful. Nevertheless, the all-time most popular blogposts haven’t varied much compared to last year, except for our lucky number five. Interestingly enough, I didn’t even write that one this year.
The Science of Selling – Early DPI Benchmarks — Honestly, it still surprises me that this is my most popular one to date. Not because I think it’s a bad topic—in fact, I truly believe it’s a much needed discussion as venture funds face liquidity crunches and the asset class institutionalizes—but because, I think it’s still a niche topic that is not widely searched for. But I’m glad that people are searching for answers here. This one also led me to write its sister piece here, which ranked 6th for this year’s most popular.
The Non-Obvious Emerging LP Playbook — My first piece that felt like it went viral. And the one that taught me how much dialogue is needed in this world around investing in venture funds.
10 Letters of Thanks to 10 People who Changed my Life — Another surprise that this topic of gratitude is as enduring as it is. Hopefully, this will play a small part in helping create a more grateful world. We stand on the shoulders of giants. It’s always important to never forget that fact.
Hustle as a Differentiator — Only a matter of time that this one beat out the one I wrote about how to host fireside chats. 🙂
2025’s Most Memorable
It’s always deeply interesting to me that sometimes the blogposts I spend the most time writing and/or are the ones that resonate with me the most personally don’t always go the furthest. A constant reminder that what the world might like, what you might like, may vary from what I like. From time to time, I get small notes from you that an esoteric, but deeply personal blogpost peaks your interest. And it really makes my day. For a very brief 24 hours, if only to relish in the small joys in life, I save those notes for when I feel imposter syndrome. Trust me, it happens. Not because the readership is highest, but because it’s nice to know I’m not alone in my peculiar, sometimes really nerdy interests.
The below I will list, in no particular order, as each meant something to me at the time of writing each, as well as moving forward:
Goldilocks and the 3 Secondaries — Same rationale as above. And if you want the actual model we used to model when and how much to sell on the secondary market, it’s in there.
Flaws, Restrictions, and Limitations — Inspired by Brandon Sanderson’s framework for character development, I’ve found this framework quite useful when assessing how risky an investment is into an emerging manager.
Dear Emerging Manager — Same as the above. Free therapy for myself. Hopefully helpful to the world.
The Question Off — One of my favorite drills I did this year to be a more thoughtful conversationalist, with none other than the best sparring partner out there, Kevin Kelly.
On Re-Ups — I’m an emerging LP. I haven’t been allocating to venture funds for over a decade, and so I’m still learning. This year, for the first time, I had managers I invested in, in previous vintages, come back and ask for me to re-up. Rather than do so haphazardly, I had to build a system for when it makes sense for me to re-up. This is it.
Gratitude and Deal Flow — One of my favorite re-framings on who I choose to invest in. And I couldn’t spell out why I liked certain managers over other great ones until a friend spelled it out for me.
Intro Policy — Another piece for personal therapy. Since writing this, it’s been much easier for myself to decide when to make intros.
300 WhatsApp Messages Later: Our Risk Framework for Backing Emerging VCs — One of the beauties of collaborating with someone brilliant—I’m looking at you, Ben—is that I learn something new as I am writing this alongside my co-author. Iron sharpens iron. And it was through this piece, that I built a more robust risk framework to evaluate emerging managers.
Scientists, Celebrities and Magicians — Kudos to my friend, Michael, for teaching me his framework for how a professional can be a triple threat, which I’ve since applied to the world of venture. And how different investors and leaders spike.
Referencing Excellence — The more I invest as an LP, the more important I realize how important reference calls are. The more important I realize they are, the more I realize I need to refine the way I get to the truth. Unfortunately, there’s no silver bullet, but this blogpost led me down my first real personal exploration for how to do references my way.
There is but one personally memorable blogpost I will intentionally leave out of the above list. It is the only one I’ve gone back to edit not once, not twice, but four times this year. Let’s call it an easter egg. If you do find it somehow, just know that I plan to continue updating that piece next year as well.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
A quick thought on investing in generalist funds, inspired by a GP following up with me after I told him I prefer investing in “specialist” funds. Which he followed up with “I am a stage specialist.” Technically, he’s not wrong. But under that definition, almost all emerging managers are stage specialists. Their specialization just depends on which stage we’re talking about. But when most, including myself, use the word specialists, we really mean sector specialists.
A couple things to caveat before I go further:
I’m an emerging LP. I don’t have that many years or funds I’ve invested in at this point, so I need to spread my coverage wider than after I figure things out. But not too wide that I trend towards the median, also known as “indexing venture.” Median, even top quartile in today’s venture, is uninspiring. And there are far better liquid options that can deliver the same return profile as top quartile in venture.
I have a stage preference because I think it’s where you can build meaningful relationships while still figuring things out alongside the founder. As they say, a friend in need is a friend indeed.
I have a geographical preference because of my existing network, which makes certain opportunities easier to diligence.
I prefer sector specialists because I’m designing a portfolio where I can hopefully predict where 50% of my underlying portfolio will come from, and 50% where I can’t. Since most things in venture are opportunistic, and I give each of my managers that longer leash to make bets to be opportunistic (20%-ish; not a hard number, but can’t be 70%). Specialists are easier to underwrite how valuable they can be to a portfolio. Generalists, it’s harder to, unless I’m somehow convinced that a GP has a unique skillset I’ve never seen before in my career so far, which the bar just gets higher the longer I’m in business, AND that skillset is uniquely valuable to a founder across sectors.
I want to have exposure to 50-60 new companies/opportunities per year, with very little overlap. Stats suggest 30 of a sample size becomes statistically significant so anything less than that, I’m not giving my null hypothesis an honest chance. If I believe that 20 companies per year matter (not sure of the exact number, but this number feels directionally accurate), I want to know my managers collectively together has at least a 1 in 3 chance of hitting at least one. That means being in the right networks. Proportionally, some should spend their time hunting (i.e. actively spend time in interesting ways to find and chase after the best opportunities). Some should spend time fishing (i.e. building a brand so fish swim to or at least through their fishing hole). Some should spend time farming (i.e. cultivating relationships).
That said, my portfolio has yet to deploy into 50 new opportunities per year, so I am actively adding to it, in specific areas. Areas I don’t have good coverage over for now. So to invest in a new sector generalist manager, I likely need to “fire” one or more managers from my existing portfolio, which means I won’t re-up in them. And there are only a small handful o reasons I’ll won’t re-up into an existing manager.
Their investments have really deviated off of the thesis I underwrote them to have.
There’s a major team change that puts into question their ability to outperform.
Their fund size has drastically increased to a point I question the return profile that would get me excited.
They’ve made a series of bad bets where I question their ability to make decisions (i.e. I meet with their founders and they just don’t feel like high performers.).
They lose motivation to be a VC and hang up the cleats. In this case, I won’t have to say the “no.” They will for me. But on occasion, they’ll try to raise another firm, or hear whispers on how tough the market is, and they’ll choose not to raise another vintage.
I meet with a new GP covering an area an existing manager covers but materially better on almost all fronts. 10-20% better, even 50% better, is negligible, and also really hard to measure in foresight. And assuming the manager I’ve invested in learns quickly, that 50% gap will be closed shortly.
Luckily none of the above has happened yet. But I imagine, because I’m not perfect, at some point, one or some of the above will.
So if you’re a generalist covering 2-4 areas that my existing portfolio is covering AND has reasonable access to, in order to invest in you, I must believe that you’d be better than the firms I’ve already invested in, then subsequently fire them from my portfolio the next vintage.
That is a high bar. And only gets higher the more my portfolio grows.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Warning: This is a brief-ish, but hopefully entertaining intermission from the usual Superclusters programming. When we passed the 50th episode mark more than a few episodes ago, Tyler (my editor) and I thought it’d be interesting to record an episode where I change seats. Instead of me asking the questions, someone else would ask me questions. And I couldn’t imagine any better person to do so than my good friend, Allie, who in my humble opinion, is one of the best interviewers alive today.
Allie Garfinkle is a senior finance reporter for Fortune, covering venture capital and startups. She authors Fortune’s weekday dealmaking newsletter Term Sheet, hosts the Term Sheet Podcast, and co-chairs Fortune Brainstorm, a community and event series featuring an annual retreat in Deer Valley, Utah. A regular contributor to BBC’s Business Matters podcast, Allie is also a frequent moderator at major conferences such as SXSW. Before joining Fortune, she covered Amazon and Meta at Yahoo Finance and helped produce Emmy-nominated PBS Frontline business documentaries, including Elon Musk’s Twitter Takeover and The Power of the Fed. A graduate of The University of Chicago and New York University, Allie currently resides in Los Angeles.
[00:00] Intro [02:01] Art [09:39] Competition [17:49] Paleontology [18:14] Allie’s Tiki mugs [22:49] How has VC evolved? [29:41] Evaluating risk [43:04] Why is it important for VCs to stay in touch? [47:10] Are there reliably good investors? [53:09] Young GPs in market [54:58] How useful is education that come via public talks? [57:50] Does your niche fund size make sense for the market? [1:01:16] Is there too much venture capital? [01:05:24] How much of VC is art vs science? [1:07:18] What’s going on in Allie’s world? [1:09:45] Post-credit scene: Receipts
I’m intentionally keeping this section void of the things that I said since I hate the idea of quoting myself.
“Part of the point of this [investing job] is that you want to be anonymously, asymmetrically correct. And you can’t necessarily be that by saying or doing the same thing as everyone else. That being said, the worst nightmare for a VC is that no one wants to back a company they’ve backed.” — Allie Garfinkle
“If it eventually doesn’t become consensus, you were wrong.” — Allie Garfinkle
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
The holiday season has always been a great time to celebrate the movers and shakers in our world. This season we’re celebrating my personal favorites in the LP world. To start this mini-holiday series off, Earnest Sweat and Alexa Binns runs one of the most popular podcasts on venture capital limited partners, Swimming with Allocators. I was also fortunate enough to be on their podcast as well as a bonus crossover episode.
[00:00] Intro [02:09] Alexa’s earliest relationship with money [03:28] Earnest’s earliest relationship with money [04:45] Earnest’s first major purchase [06:41] Alexa’s first major purchase [08:25] The difference between public speaking and interviewing [12:19] Memorable guests on the SwA podcast [14:46] To do or not to do in-person interviews [18:05] Evolution of YouTube titles [20:04] Why err towards evergreen content? [22:30] Was SwA designed for LPs or GPs? [24:12] How did Earnest and Alexa meet? [24:56] How did Swimming with Allocators start? [27:21] The Pandora’s Box of intros [28:02] Alexa’s 3 buckets for LP investing [30:12] What is ‘coming soon’ for Earnest and Alexa? [36:58] Post-credit scene: Spider-Man & Investors as Avengers
“Having done my investment philosophy, I’ve got three buckets. There is the ‘Let it ride, you can’t beat the market’ bucket. That’s the majority of what I’m working with. That’s 90[%] plus. There is a bucket where I’ve worked as a VC, I’ve managed a bunch of LP investments, I am better suited to vet deals than the average person. I believe in my ability to pick winners in this very thin layer of finance. Just in angel investing and GP selection where I’ve got lived experience and then my network. And then there’s a bucket for other ways capital can make your life richer.” — Alexa Binns
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
50% of a fund’s portfolio will come from predictable, hopefully, scalable sourcing mechanisms. It’s the community you run. The events you host. The newsletter you write and the podcast you moderate. It’ll come from existing networks that you’ve built trust with. Prior companies. Collegiate classmates. And geographical proximity.
50% will be opportunistic. Sitting next to a founder in coach. Standing in line at a coffee shop waiting for your friend, only to strike up a conversation with someone who’s been waiting even longer than you have for their friend. That friend of a friend’s spouse’s sister’s cousin you meet at your neighbor’s holiday party. Sitting next to someone who also is the proud parent of a Rottweiler at the dog park.
As such, only half your portfolio can be underwritten by an LP. Half will hardly be able to (with rare exceptions based on fund strategy). And that’s okay. Venture is a game of outliers. You need to increase the surface area for serendipity to stick. As long as most of your opportunistic deal flow is on-thesis. All in all, no more than 10% of your deals should truly be off-thesis. 20% if you have generous and/or venture-literate LPs, which often means their fund-of-fund portfolios are younger and still growing.
But of all the opportunistic deal flow out there, being open-minded of such opportunities is imperative. If you fish, you need to know when to reel it in. If you farm, you need to know when the crop is ripe enough to harvest. If you hunt, you must chase the game.
If you’re a fisher…
Build content libraries at scale. Increase the surface area for serendipity to stick. Meaningful and engaged distribution matters more than anything else. In an age of ephemeral attention, decide if you want to create ephemeral content (i.e. news, updates, trends) or evergreen content (i.e. timeless lessons, things that don’t change, classics). Do you want to stay on top of things or get to the bottom of things? The former requires you to stay on the rat wheel, else you disappear into obsolescence.
Stand for something. The hill you’re willing to die on must be unique to you, where most people would disagree. But then, you’d be the n of 1 for that belief. Highly optimized for those seeking such a perspective.
Host events. Stay top of mind.
Build super-connector networks. For some, that’s a scout program. For others, it’s a venture partner one. And others still, an emerging manager fund-of-funds.
If you’re a farmer…
Be more helpful than people would assume makes sense.
Get/stay involved in networks of aspiring entrepreneurs.
Nurture teams and help founders actively attract the best talent and the most enduring customers.
Work with founders and ecosystem builders who know how to be grateful. Do not lose the fruits of your labor because no one gave you a chance to harvest them, including yourself.
If you’re a hunter…
Move fast, close fast.
Be mobile. Be ready to meet your founders where they are at. Even if that means buying a flight out the next day. When everyone else uses a scheduling assistant and sits on Zoom, capitalize on in-person interactions with haste.
Know what you’re looking for before you find what you’re looking for, so that when you do come across one, even accidentally, you will have reached conviction before others have gotten to a first meeting.
Of course, most managers are often some permutation of the three. Rarely are they only one. And if they are, they are undeniably the industry’s best in each. Dare I say, as an emerging manager, it is better to spike in one than to just be proficient in all three.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Ben Choi from Next Legacy joins David on El Pack to answer your questions on how to build a venture capital fund. We bring on 3 GPs at VC funds to ask 3 different questions.
Gilgamesh Ventures’ Miguel Armaza, also host of the incredible Fintech Leaders podcast, asks Ben what is the timing of when a GP should consider raising a Fund III.
Similarly, but not the same, Strange Ventures’ Tara Tan asks when an LP backs a Fund I, how do they know that this Fund I GP will last till Fund III.
Arkane Capital’s Arkady Kulik asks how one should think about building an LP community, especially as he brings in new and different LP archetypes into Arkane’s ecosystem.
Ben manages over $3.5B investments with premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning three decades in the technology ecosystem.
Ben’s love for technology products formed the basis for his successful venture track record, including pre-PMF investments in Marketo (acquired for $4.75B) and CourseHero (last valued at $3.6B). He previously ran product for Adobe’s Creative Cloud offerings and founded CoffeeTable, where he raised venture capital financing, built a team, and ultimately sold the company.
Ben is an alum and Board Member of the Society of Kauffman Fellows (venture capital leadership) and has also served his community on the Board of Directors for the San Francisco Chinese Culture Center, Children’s Health Council, Church of the Pioneers Foundation, and IVCF.
Ben studied Computer Science at Harvard University before Mark Zuckerberg made it cool and received his MBA from Columbia Business School. Born in Peoria, raised in San Francisco, and educated in Cambridge, Ben now lives in Los Altos with his wife, Lydia, three very active sons, and a ball python.
[00:00] Intro [05:05] Ben’s 2025 Halloween costume [06:44] Jensen Huang’s leather jackets [07:24] Jensen Huang’s answer to Ben’s one question [10:05] Enter Miguel, Gilgamesh Ventures, Fintech Leaders [14:43] What are good signals an LP looks for before a GP raises a Fund III? [22:35] Why does Ben say ‘established’ starts at Fund IV? [25:08] Who’s the audience for Miguel’s podcast? [27:52] In case you want more like this… [28:32] Enter Tara and Strange Ventures [32:46] How does Ben know a Fund I will become a Fund III? [36:53] How does Ben know if a GP will want to build an enduring career? [40:58] How does Tara share a future GP she’d like to work with to Ben? [42:43] Marriage and divorce rates in America [43:34] What should a Fund I do to institutionalize? [46:28] Should you share LP updates to current or prospective LPs? [48:57] Enter Arkady and Arkane Capital [51:09] How does one think through LP-community fit? [1:01:31] What’s Arkady’s favorite board game? [1:03:08] Ben’s last piece of advice to GPs [1:09:50] My favorite Ben moment on Superclusters
“The dance of fundraising is when you do have [your thesis], the LP has to figure out is this a rationalization of the past or is it actually what happened? Was this known at the time? Because if it was, we can have some confidence in the future going forward. But if it was just a rationalization of some randomness, then it’s hard to know if Fund IV or V or VI will benefit from the same pattern.” — Ben Choi
On solo GPs bringing in future partners by Fund III… “The future unidentified partner is the largest risk that we have to decide to accept. So there actually isn’t a moment where we decide this GP is going to be around for Fund III. It’s actually the dominating risk we look at and we get there, but it’s a preponderance of other things that we need to build our conviction so high that we’re willing to take that risk.” — Ben Choi
“It’s brutal. It’s a 30-year journey. For any GP who raises a single dollar from external LPs, it’s a 30-year journey.” — Tara Tan
“I don’t think anyone goes into this business to raise capital, but your ability to raise capital is ultimately what allows you to be in this business.” — Ben Choi
On community… “Your core question is how much diversity—in the technical term of diversity—can you tolerate before you lose the sense of community.” — Ben Choi
“Most letters from a parent contain a parent’s own lost dreams disguised as good advice.” — Kurt Vonnegut
“Fundraising is a journey of finding investors who want what you have to offer; it’s not convincing somebody to do something.” — Ben Choi
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
