One of my favorite Hunter Walk lines, and one I cite quite often is: “Never follow your investor’s advice and you might fail. Always follow your investor’s advice and you’ll definitely fail.”
Investors are more likely to drive a company to the ground than otherwise. Founders listen to the advice of people they deem to be more senior and more experienced than them, as if they were written into the Bible. The cold, hard truth for people who give advice is that:
Not all advice is created equal and most advice is situational.
Your advice is more likely to be useless than useful in the aggregate supply of advice.
Advice should always be taken with a grain of salt. And oftentimes, certain pieces of advice is overweighted given the brand of the person giving it (who is right vs. what is right) and/or given the number of times the advice is given.
I’m lucky enough to be asked to be an advisor to a small number of funds, startups, and non-profits. Nothing to ever be worth bragging about. In fact, sometimes I wonder why I have a seat at the table. Nevertheless, lucky to share a drink with people smarter than me. I also realize that I’m a work in progress, and love to learn, just for the sake of learning. I’m not the famous person in the room, nor am I the most experienced person in the room.
So…
I always preface my advice with “Take this with a grain of salt, and this is purely my opinion – one among many others. I trust you to make the final judgment call of what makes the most sense.”
I give the unorthodox opinion. If I don’t have one, I don’t share any advice. I will caveat that I play in the early stages of company formation, when organizations are more so the pirates than the navy. When things are non-obvious, and need to fight to have a seat at the table. And given that the company and/or fund’s job is to question the status quo, I believe it is my job is to enable the founders to consider unorthodox paths. The minimum I can do is suggest that even if my advice is wrong, there are more paths than the one or two options we have in front of us. Or as Mike Maples writes in his book Pattern Breakers, “breakthroughs require pattern breaking.”
All in all, is my advice better than yours? Or anyone else’s? Who knows? But at least it’s different.
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.
“Some of the best investments, as we look back in history, were never obvious at the moment the investments were made. You may not have to be contrarian, but you have to have a variant perception than the rest of the market. Maybe you saw the team differently. You saw the space growing differently. That, to us, inherently, is a single decision maker-type thought process at the earliest stage, when it’s less about metrics. It’s more about how you evaluate the talent and the team.” – Sean Warrington
Sean Warrington leads private market investing at Gresham Partners, a $10 billion multi-family office based in Chicago. Known for being a transparent and user-friendly LP, he and the Gresham team aim to simplify the fundraising process — offering single-check investments, a streamlined diligence process, and prompt, candid feedback to GPs.
[00:00] Intro [03:29] Who is Jeff French? [05:26] The metrics for success for a junior LP [07:20] The 3 chapters of Sean’s evolution as an LP [11:05] Sean’s first investment [14:44] When GPs put LPs on strict timelines [16:53] One archetype of GP that Sean is excited about [19:37] What it looks like to be thoughtful when growing AUM [23:16] What most LPs don’t understand about solo GPs [25:58] What happens when a GP leaves a partnership [27:33] The definition of LP/GP alignment [30:47] Reference archetypes and how to find them [35:32] How to manage bandwidths in a small team [38:58] Frameworks for taking calls [42:26] How much does Sean travel? [43:25] Why coffee chats don’t work [45:30] What Sean’s changed his mind on about investing [47:12] What did Jason Kelce’s retirement mean to Sean? [49:36] Post-credit scene
“If you’re 60-70% of the time picking good managers, I think you’re pretty good at this industry.” – Sean Warrington
“Frameworks are not foolproof. What they’re designed to do is help us focus on places where we can get to an eventual yes.” – Sean Warrington
“We don’t want a slow no. A slow no is bad for everybody.” – Sean Warrington
“Some of the best investments, as we look back in history, were never obvious at the moment the investments were made. You may not have to be contrarian, but you have to have a variant perception than the rest of the market. Maybe you saw the team differently. You saw the space growing differently. That, to us, inherently, is a single decision maker-type thought process at the earliest stage, when it’s less about metrics. It’s more about how you evaluate the talent and the team.” – Sean Warrington
“One thing LPs are bad at remembering is we are exceptionally diversified investors. For us, to have anything even be 1% – even a manager being a single percent of the overall pool of capital – is very difficult to do. Many times we’re talking about basis points.” – Sean Warrington
“The big risk that LPs don’t appreciate… There’s this view that these two- and three-person teams coming together create this better judgment. What they’re not factoring in is that these are somewhat forced marriages. These are people who may or may not have long histories together. They may not have great bedside manner when they’re in the thick of it.” – Sean Warrington
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.
“Most references will not give a negative reference about someone, but you will have to understand and listen between the lines. What is a good or a bad reference? They might say, ‘I really like him as a person. He’s really nice.’ But this is a person that’s worked together with you in a team, and you’re not saying he’s great with founders or finding the best deals. Maybe he’s not that good.” – Raviv Sapir
Raviv Sapir is an early-stage investor at Vinthera, a fund of funds and venture firm with a hybrid strategy that combines VC fund investments with direct startup investments. With a background in tech and finance, an MBA from HEC Paris, and years of experience mentoring startups and supporting LPs, Raviv brings a sharp eye for high-conviction opportunities and a practical approach to venture. He previously held product roles at leading Israeli startups and served in a technological unit within the Israeli Defense Forces. His work across geographies, sectors, and investment stages gives him a uniquely holistic and global perspective on the venture ecosystem.
[00:00] Intro [03:31] Swimming since he was 7 [09:49] Breaking down each GP’s track record and dynamics in a partnership [11:25] Telltale signs that a partnership will last [12:50] An example of questionable GP dynamics [21:45] Virtual partnerships [25:43] GPs working out of coworking spaces [28:30] Commonly held LP assumptions [32:16] A big red flag GPs often say [34:27] What does Raviv look for during reference calls? [39:41] How does the diligence change for a Fund I/II vs Fund III/IV? [42:26] Qualitative traits Raviv likes to see in a Fund I GP vs Fund II+ GP [44:04] Ideal cadence of reporting and LP/GP touchpoints [46:03] Role of the LPAC across different funds [48:47] Diligence as a function of check size [54:37] What’s Raviv’s favorite episode of Venture Unlocked? [56:23] The podcasts that Raviv listens to
“Some of the small funds perform better but a lot of them–… they perform much worse because the variance in their performance is so big. You might have good odds of succeeding with a small fund but very high odds of performing way worse than the bigger funds.” – Raviv Sapir
“GPs are great at selling. ‘Every time is the best time to invest.’” – Raviv Sapir
“Most [references] will not give a negative reference about someone, but you will have to understand and listen between the lines. What is a good or a bad reference? They might say, ‘I really like him as a person. He’s really nice.’ But this is a person that’s worked together with you in a team, and you’re not saying he’s great with founders or finding the best deals. Maybe he’s not that good.” – Raviv Sapir
“‘Interesting’, especially in the US, is used in a negative way.” – Raviv Sapir
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.
“Get to 70% conviction. 90% means you’re too late. 50% means you haven’t done your homework.” Keith Rabois.
“Do half-ass two things; whole ass one thing.” Ron Swanson.
But the one that stands out the most is: “You either believe or you don’t.” Which I’ve heard many an LP tell me on the podcast. But also across VCs I’ve met over the years. And in full transparency, I struggle with that. Theoretically it makes sense. Building 99% of a car still means you don’t have a working car. There are a thesaurus of synonyms alongside, “I just don’t believe in you.” We’ve all heard it.
“You were an amazing candidate, but unfortunately, the talent pool was really competitive and we decided to move on with someone else. But please do apply again for a job that may be a better fit for you.”
“It’s not you; it’s me.”
“We’re just in different chapters of our lives. And we deserve to meet someone who is where we are.”
“You’re too early for us.”
“You’re out of scope.”
“I just have too much on my plate now, and I just don’t have the bandwidth to focus on this now.”
“Let me run this by my hiring/investment committee/leadership.”
All that just mean “I don’t believe in you.” (But it makes me feel like an asshole if I said it directly to your face. And I don’t want to be perceived as an asshole.) Ashamedly so, I’ve used a few of these myself.
In the investing world, I wonder if there are varying levels of conviction. Phenotypically expressed in varying check sizes. In fact, we have terminology for it now. Core checks. And access checks, or discovery checks, or simply, non-core checks. A core check is a substantial position. A meaningful percentage of the overall fund size. At least 1%. But depending on the portfolio construction, it varies from 1-5% of the fund. A discovery check, on the other hand, is smaller. Oftentimes, less than 0.5% of the fund size. Dipping one’s toes into the water so to speak, as opposed to a headfirst dive or a cannonball to extend the metaphor.
But if conviction really is black and white, should there be varying levels of conviction? Is there such a thing as believing in someone, but only half as much? Or a third as much as someone else?
Moreover one of the greatest lessons we learn over time as investors is that we’re quite terrible, over large sample sizes, with predicting winners out of our portfolio. The three to five biggest winners that put you on the roadmap are often not our three to five “favorite” investments ex ante.
A really good friend of mine once told me (mind you, that both my male friend and I are heterosexual), “The conviction you have in someone to be your girlfriend is different from the conviction you have in someone who is to be your wife. You build that trust over time. And what you look for is different over time.”
So back to the original question: Is conviction black and white? Is there really only belief and disbelief? Is there such a thing as I kind of believe? Or I believe but…?
While I don’t have a black and white answer to this black and white question, I’m inclined to believe yes. It is black and white. It just depends where you put the bar. The bar for you to date someone is different from the bar for you to marry someone. The bar to approve an investment to return a $10M fund is different from the bar to return a $1B fund. And, the bar to invest in an asset in a power law-driven industry, like venture, is different from the bar to invest in an asset in a normally-distributed industry, like real estate or public markets. What’s black for one is white for another.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“A lot of family office principals, unless they’ve worked in finance – they should not be solely making the decision on which RIA to hire.” – Scott Saslow
Scott Saslow is the founder, CEO, and family office principal for ONE WORLD. He’s also the founder and CEO of The Institute of Executive Development, as well as the author of Building a Sustainable Family Office: An Insider’s Guide to What Works and What Doesn’t, which at the time of the podcast launch is the only book written for family office principals by a family office principal. Scott is also the host of the podcast Family Office Principals where he interviews principals on how families can be made to be more resilient. Prior, he’s also found independent success at both Microsoft and Seibel Systems.
[00:00] Intro [02:09] The significance of ‘ojos abiertos’ [05:49] Scott’s relationship with his dad [07:46] The irony of Scott’s first job [11:19] Family business vs family office [13:50] The corporate structure of a family office [17:39] From multi family office to single family office [18:54] The steps to pick a MFO to work with [22:37] The 3 main functions a family office has [31:00] Why Scott passed on SpaceX [36:07] Why Scott invested in Ulu Ventures [44:23] What makes Dan Morse special
“A lot of family office principals, unless they’ve worked in finance – they should not be solely making the decision on which RIA to hire.” – Scott Saslow
“The three main functions that family offices tend to have are investment management, accounting and taxes, and estate planning and legal.” – Scott Saslow
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.
In a previous era, in a more disconnected world, prior to social media and instant cellular connection, not everyone knew everyone. Information was traded in hushed rooms. And so, who you knew became the modicum of influence. The definition of being an insider.
Today who you know no longer matters. Networks overlap. There are tons of third places that bring people together for off-the-record discussions. And just knowing someone isn’t enough to exert influence. The network of who I know is just as large or small as the next person over. While people still use who you know as the proxy for being an insider, that definition has lost its luster. Because even if you didn’t know someone, almost everyone is one click, one message, or one email away.
It’s no longer about who you know, but about who trusts what you know. If two people were to send the same email forwardable to me, I’m more likely to take the email intro from the person I trust more.
It’s even more important when it comes to references and diligence. Most allocators who invest in the venture world aren’t as connected. For the most part, if this isn’t the only asset class they’re involved in, they don’t have to be. They’re paid to be generalists. And by function of that, when they do their on-list references, it’s hard to get the raw truth from the strangers they talk to. It’s different if you live and breathe this space. Then you need to know enough people well where either they can serve as the reference or vouch for you to a reference. That requires not only knowing the right people, but also maintaining a strong bond with them.
I can’t speak for other industries as much, though I imagine it may be quite synonymous with venture. But in venture, most people trade favors. It’s a relationship-driven business for a reason. The problem is most people only make withdrawals from their karmic bank account. Many of whom are in karmic debt. Rather than karmic surplus. VCs especially.
There’s this tweet Brian Halligan of Hubspot fame wrote that I stumbled upon yet I quite like.
VC's are good at making withdrawals from favor banks.
VC's could be better at making deposits into favor banks.
The humble truth is that some people say I’m an insider. Yet, I don’t think I am. I know a certain few people really, really well. I know many people kind of well. And I know jack shit about the vast majority of people in our industry. I’ve always thought that my number one priority is to do right by the people I do know. I’ve also been blessed they’ve been kind enough to let me and have vouched for me.
There was a line that RXBAR’s Peter Rahal said recently that really stuck with me. “Strategy is choosing what not to do.” To analogize that to an insider, in my experience, a true insider is an insider because they choose who not to spend a disproportionate amount of time with. An insider is often not cavalier with how they spend their time and who they spend their time with. They’ve either learned from scar tissue or model the ability of others who are insiders.
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 ideal situation for a GP is that you have a single close. All LPs who are interested all confirm their participation by the same deadline. And all wires for the first capital call come in at the same time. It’s the utopia. Unfortunately, reality isn’t as picturesque. The truth is the vast majority of LPs wait till the final close, and as long as you have multiple closes, there is no urgency to commit by a certain date.
In fact, it’s almost always better to commit as late as you can if there are multiple closes. Investing in funds is investing in a blind pool of human potential. The blindness scares and humbles many allocators. It is in our interest to invest in the least blind pool of potential possible. And usually, when there are multiple closes, the GP(s) start deploying before the fund closes. So if you come in at the end, you at least get to see 10-20% of the portfolio. Sometimes more, as most LPA clauses stipulate that the final close must happen within 12-18 months from initial close. Of course, you can always move that date via LP votes or just not having that clause in the LPA in the first place.
Single Close
Multiple Closes
LP Network
Robust
Weak
LP Check Size
Large
Small
# of Checks
Few (most of the time)
Many (first close is usually existing LPs/friends and/or anchor)
Deployment
Deploys after the close
Can deploy after the first close (while still fundraising for the rest of the fund)
With single closes, while it helps to get it all one and done, you can’t deploy until you’ve closed. If your network with LPs and your trust with those respective LPs isn’t great, it’s more risky to go for a single close. Many LPs also have different timelines. So, instituting a single close means you need to be firm and align LPs on your timeline. It helps if you have a few large chunks that cover more than 50% of the fund before you set a close date.
With multiple closes, the good news is that you leave the door open for LPs who run processes on their own timelines. And that you can deploy as you’re still fundraising, as long as you get past the first close. The downside is that there’s no urgency for anyone to come in before the final close. It’s better if you don’t have a network of strong LPs, which pertains to the vast majority of first-time fund managers.
So, what to do?
Let’s get the single close strategy out of the way first. First of all, to do this, you need to come from a place of privilege. You must have a large amount of market pull. LPs who are dying to give you money. And for better or worse, not that you have to take them, people who would give you a blank check. Although, as a footnote, beware of the blank checks. More often than not, they’re easily disappointed.
You must have a strict process. And LPs need to self-select themselves in or out of the process very early in the process. Most important part of this, which is often a really hard thing to do for a lot of first-time GPs, you need to be intellectually honest with yourself if an LP is a fit for you or not. Your job is to figure that out before the LPs figure it out. And as soon as you do, you need to “fire” that prospective LP before they tell you no.
For that, even though you may lose the potential of a transaction, in my experience, you often win their respect.
Assuming what the LP invests in is what you are offering, manage your drip campaign well. Do your best to throttle opportunistic asks that deviate from your process. But do so with grace. And I can’t underscore grace enough.
Some things I’ve seen in the past for funds who can close a fund in a single close (none of the below are the Bible, but hopefully tools for the toolkit):
The deck is never sent out before the first meeting.
If the deck is sent out before the first meeting, it is either only a teaser deck (less than five slides) or the GP/IR team says something along the lines of: “If we don’t hear back from you within three days, we will assume our fund is out of scope, and will prioritize our time with other investors.”
The data room opens up on a very specific date. None get access to it before (except for existing LPAC members, and sometimes existing LPs who’ve indicated early interest).
The data room closes on a very specific date. No one will get access to it after. The sub docs need to all be signed within a week or two after.
No additional calls with LPs unless they can commit a meaningful check to the fund. Usually double digit percentage of the fund size.
LPs get little to no additional asks. No side letters.
Communication from the GP/IR team throughout every step of the way is paramount.
Again, a single close is a privilege. And a power. And with great power comes great responsibility, as a wise old uncle once told a budding superhero.
Ok, multiple closes. I often treat Fund I’s different from the other funds. One of the few major differences is that you don’t have existing LPs. Instead, you have friends and family and people who’ve believed in you before. Nevertheless, early momentum is always a good thing to have before you officially open up the fundraise.
The first close is ideally the minimum viable fund size for you to deploy your strategy and/or the fund size you need to prove out the minimum viable assumption before you raise your next fund. It’s helpful to assume you won’t be able to raise anymore after the first close. While usually not true, but nevertheless, a useful mentality. Most GPs close too small of a first close that still constrains them from truly deploying their strategy. For instance, for Costanoa Ventures Fund I in 2012, the first close was at $40-50M on June 7th, 2012, but ended up at $100M at the final close.
For each of the closes, I generally wouldn’t recommend different economic terms, like reduced fees for earlier LPs. I get the incentives. But two reasons:
LPs talk. It’s usually not a good look among LPs if they know that other people at your AGM got better terms than they did.
You’re discounting your value. If you’re investing in an asset class that’s truly transformative and you truly have better access than others, don’t short sell yourself.
That said, I do believe you should reward early believers. Either for those that come in via Fund I or first or second closes. Or both.
Many LPs especially high net-worth individuals (HNWIs), family offices and corporates love co-investment opportunities. Realistically, these will be 90-100% of your Fund I LPs. Leverage that. For instance, first-close LPs get unfiltered access to SPVs/co-investment opportunities. Maybe, opportunistic intros to portfolio companies as well. Second-close LPs get access to all SPVs, but are capped on allocation, assuming the opportunity is oversubscribed. Final-close LPs get last pick.
If you’re raising a Fund II+, first-close LPs can be given SPV access to deals coming out of earlier funds as well. Although, use this strategically so that your Fund I LPs won’t feel slighted.
As you might surmise already, there is no one right answer. Oftentimes, it’s a function of who you know, how quickly they commit, and how obvious you are to them. “Obviousness” is a product of track record, your brand, the quality of your reference checks, and obviously, how complex your story is.
4/13/2025 Edit: Example of Costanoa Ventures’ first close
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.
I was chatting with my new friend, an English-teacher-turned-Broadway-playwright-turned coach, Michael, not too long ago. (Mucho gracias to Brandon who hosts one of my favorite podcasts, for putting us in touch.) In theatre, there’s the idea of the triple threat. Singer. Actor. Dancer. A talented individual is usually all three. But more importantly, not all of their archetypes are created equal.
In a broader sense, but quite synonymously, a triple threat is a permutation of the scientist, celebrity, and magician, which I had to have Michael expand on.
The scientist is the analytical thinker — the subject-matter expert. The scientist loves research, the details, repetitive tasks, logistics and as the name suggests, the science of how things work. Think Tim Ferriss.
The celebrity thrives on relationships and promotion. A true celebrity has the superpower and the willing personality to make others feel like a celebrity. Think Gary V.
The magician is none of the above. They are wired for novelty. What are new ways to do this? What’s a new perspective to approach that? Think Seth Godin.
Every person has some degree of each. But knowing where one excels helps focus your brilliance. Or in Michael’s words, your zone of excellence. Your zone of genius.
Each archetype has their own signature move. The scientist, an intriguing hypothesis. The celebrity, a small crowd who really believe in that individual. The magician, a magic box. Something mysterious and intriguing, and well, something that feels like magic. Which led me to ask, “The celebrity’s signature move seems self-explanatory, but what’s the difference between a scientist’s signature move and a magician’s?”
“The scientist’s doesn’t creative or profound from the outside looking in, but the magician’s almost always feels creative from the layperson’s perspective. The scientist’s signature move is most appreciated by other scientists, astounded by the level of rigor and detail to arrive at such a hypothesis. The magician can wow even the untrained eye and ear.”
Michael goes in a lot more definitional depth in his recent appearance on Brandon’s show, so I won’t belabor the Meriam Webster version of the three archetypes.
That said, to take it a step further in the venture world (’cause that’s how my brain works), we have:
The scientists — the functional operators (i.e. sales, marketing, product, engineering, legal, customer success, finance, etc.), the founders (particularly the founders who had one major exit)
The celebrities — the community builders, the content creators, the event organizers
The magicians — I honestly don’t think the vast majority of venture folks fall in this bucket. Many think they do, but most fall short. The fastest litmus test is to have a pitch meeting with GP, and see how they start the pitch. If they pull up the pitch deck first and walks you through the presentation, they’re almost always not magicians. Most LPs are outsiders. And if a pitch or a fund just feels to similarly to all the other stuff you see, it’s because the GPs pitching are purists. Scientists. True students of the craft, but don’t thrive in low context environments.
Celebrities, at least to me, feel the easiest to tease out. Obvious unique sourcing abilities. Many will argue they can win deals easily, but the truth is, most celebrities in venture write small checks. And when you’re a small checkwriter (sub-$250K), you’re everyone’s friend. Even if you aren’t a celebrity. Availability bias, if I might say so myself.
It’s the equivalent of booking multiple quick coffee meetings on your calendar — hell, even Zoom calls. Short, and can easily fit in busy schedules. So when multiple people want to book Zoom meetings on the same day, it’s doable. You’ll find a way to make it work. But how many dinners will you have? Likely one. So if multiple people want to book you for dinner that same Thursday, you have to pick one. Not two. Not three. Just one.
That one is the equivalent of writing a large check into an oversubscribed round. You’re going to have to squeeze someone else out. And you force the founder to make a decision of if they want you or Sally. Anyways, I digress.
The scientists and magicians are harder to distinguish. May be obvious to most of you smart readers, but this is me in semantics-mode with Michael. The scientist looks like a magician to insiders. A true magician looks like a magician to everyone (especially outsiders). The scientist requires people with high context to fully appreciate their brilliance. The magician requires the bare minimum context.
As such, magicians often have breadth in experience. FYI, being a generalist does not count. Magicians are likely polymaths or polymath candidates. They have some of the most diverse information diets, and are able to string together seemingly disparate thoughts through associative property. Probably did well in grade school algebra. 🙂
And this is my long, elaborate, word-count-filling-high-school-essay way to say… VCs should be magicians or try to be, so that they can help founders to be, because:
VC is a 50-60 year old industry that has seen almost no innovation.
The best lessons around investing and building are often from folks outside of tech.
VCs should stop consuming only tech/startup/VC news.
(Thank you for coming to my TED talk.)
And thank you Michael for the lesson.
4/4/2025 Footnote: When it comes to co-founders, they should ideally excel in archetypes where you don’t but are still complementary AND all co-founders must value and want to grow in the area that you excel in. Otherwise, you’ll have disgruntled co-founders who never feel like you’re pulling your weight. And unspoken expectations lead to quiet resentments.
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.
One of my favorite equations that I’ve come across over the last few years is:
(track record) X (differentiation) / (complexity) = fund size
I’ve heard from friends in two organizations independently (Cendana Capital and General Catalyst), but I don’t know who the attribution traces back to. Just something about the simplicity of it. That said, ironically, for the purpose of this blogpost, I want to expand on the complexity portion of the equation. Arguably, for many LPs, the hardest part of venture capital as an asset class, much less emerging managers, to underwrite. Much of which is inspired by Brandon Sanderson’s latest series of creative writing lectures.
Separately, if you’re curious about the process I use to underwrite risks, here‘s the closest thing I have to a playbook.
A flaw is something a GP needs to overcome within the next 3-5 years to become more established, or “obvious” to an LP. These are often skillsets and/or traits that are desirable in a fund manager. For instance, they’re not a team player, bad at marketing, struggle to maintain relationships with others, inexperienced on exit strategies, have a limited network, or struggle to win >5% allocation on the cap table at the early stage.
Restrictions, on the other hand, are self-imposed. Something a GP needs to overcome but chooses not to. These are often elements of a fund manager LPs have to get to conviction on to independent of the quality of the GP. For example, the GP plans to forever stay a solo GP even with $300M+ AUM. Or the thesis is too niche. Or they only bet on certain demographics. Hell, they may not work on weekends. Or invest in a heavily diversified portfolio.
Limitations are imposed by others or by the macro environment, often against their own will. GPs don’t have to fix this, but must overcome the stigma. Often via returns. Limitations are not limited to, but include the GPs are too young or too old. They went to the “wrong” schools. There are no fancy logos on their resume. They’re co-GPs with their life partner or sibling or parent. As a founder, they never exited their company for at least 9-figures. Or they were never a founder in the first place.
To break down differentiation:
f(differentiation) = motivation + value + platform
Easy to remember too, f(differentiation) = MVP. In many ways, as you scale your firm and become more established, differentiation, while still important, matters less. More important when you’re the pirate than the navy.
Motivation is what many LPs call, GP-thesis fit. To expand on that…
Why are you starting this fund?
Why continue? Are you in it to win it? Are you in it for the long run?
What about your past makes this thesis painfully obvious for you? What past key decisions influence you today?
What makes your thesis special?
How much of the fund is you? And how much of it is an extension of you or originates with you but expands?
What do you want to have written on your epitaph?
What do you not want me or other people to know about you? How does that inform the decisions you make?
What failure will you never repeat?
In references, does this current chapter obvious to your previous employers?
And simply, does your vision for the world get me really excited? Do I come out of our conversations with more energy than what I went in with?
As you can probably guess, I spend a lot of time here. Sometimes you can find the answers in conversations with the GPs. Other times, via references or market research.
Value is the value-add and the support you bring to your portfolio companies. Why do people seek your help? Is your value proactive or reactive? Why do co-investors, LPs, and founders keep you in their orbit?
Platform is how your value scales over time and across multiple funds, companies, LPs, and people in the network. This piece matters more if you plan to build an institutional firm. Less so if you plan to stay boutique. What does your investment process look like? How do people keep you top of mind?
Of course, track record, to many of you reading this, is probably most obvious. Easiest to assess. While past performance isn’t an indicator of future results, one thing worth noting is something my friend Asheronce told me, “TVPI hides good portfolio construction. When I do portfolio diligence, I don’t just look at the multiples, but I look at how well the portfolio companies are doing. I take the top performer and bottom performer out and look at how performance stacks up in the middle. How have they constructed their portfolio? Do the GPs know how to invest in good businesses?” Is the manager a one-hit wonder, or is there more substance behind the veil?
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.
References and getting beneath the surface have always been fascinating to me. Because of my job, my interests, and my content, I meet a lot of GPs and founders. And when they’re in pitch mode, they will almost always tell you about how amazing they are and how amazing their product is. Truth is, they probably are amazing. But in our world where everyone is, no one is. So what’s more interesting to me is their level of self-awareness. For the purpose of this piece, this is mainly about GPs. And hopefully, in service of GPs and LPs investing in GPs.
When someone is pitching you, especially if it’s the first time you’re meeting with them, they will tell you about all the sunshine and rainbows. That they knew there was going to be a pot of gold at the end of the rainbow. With a leprechaun there exclaiming, “I told you so.” I get the psychology behind it. Who wants to buy a new/used car with a dent behind the seat of the shotgun, just hidden from plain sight? Who wants to buy a home where the last owner passed away in it? Or an apartment where the family living above has rowdy kids?
For better or worse, usually for the worse, all of the above salespeople are looking for buyers, not customers. Customers are repeat purchasers; buyers are not. On the flip side, your LPs are more likely to be repeat purchasers. Customers. Specifically, the institutional LPs are looking for 20-year relationships. That’s 3-4 funds. Both Chris Douvos and Raida Daouk have independently shared with me that the average venture fund lasts twice as long as the average American marriage. So you need to know as much as you can get your hands on before you “marry” your LPs. And as such, LPs want to know both what worked and what didn’t. Or at least I do.
Usually, investors usually tell me all the predictions they had that worked out. “We were investing in AI back in 2019 before it became big.” To be fair, so were most other investors. “I knew cryptocurrency was going to be huge back in 2015.” And so on. As an LP, it’s hard to tell what is revisionist’s history and what isn’t. But what is helpful is to know if you had any predictions in the past that didn’t work out.
Why did you hold those beliefs so strongly? What were the factors that led you to that prediction? What did you learn after your prediction proved otherwise?
Venture is still very much a cottage industry. Why? No matter how big funds get. No matter how large deals become. And no matter how many rounds new names for the very first round of funding there are. Series A. Seed. Pre-seed. Angel round. You name it. The definition of venture is betting on the non-obvious before it becomes obvious. You will be wrong more often than you’re right. At the very end of the day, it is an art form. Not because it needs to be, but because very few have actually tried to break down the art form into a science.
Why? Science and strategy require games where the feedback loops are often AND where there are predictable, deterministic outcomes. If you input A in, you get B out. Venture is not that. You can do everything “by the book” and still fail. Although the book itself has yet to really be written.
Yet the most repeatedly successful firms (that have been able to transition leadership successfully to at least one other generation) are sommeliers of succession planning. How they transition this generation’s knowledge to the next. It requires not just being brilliant, but being brilliant enough to be able to break down instinct and intuition as if it were a math formula. If not classical physics, at least quantum.
All that to say, if I ask a GP to break down a prediction — whether it worked or didn’t — and they can’t answer it other than “I just knew,” I’m personally not sure if they’re ready to build a generational firm.
The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
