The Value of Being an Outsider

fence, inside, outside

In 1968, NASA tasked the late George Land to create a test that would help NASA hire more creative geniuses. Does genius and creativity come from nature or nurture? As such his job was to create a test so simple that even children could take it. And he found that for children ages 4-5, out of 1,600 children, 98% of them qualified to be a genius. Divergent thinkers. Then, he waited five years to assess these same children. To which he found, only 30% qualified. Then another five years later, only 12% of the same children were what he counted to be geniuses.

It begged the question: What percent of adults are geniuses?

The answer, 2%.

For those curious, I’d highly recommend George’s 2011 TEDx talk about the topic.

Of course, the lesson from all of this is the fallacy of modern-day education. And the same is true for the adult world between convergent thinkers and divergent thinkers. I believe in the world of venture at least, we have terminology that’s little less palatable (at least for me, although on occasion I’m guilty of using them myself): insiders and outsiders.

My friend Anne sent me this piece by Auren Hoffman recently on insiders and outsiders. An incredibly well-written piece, and quite thought-provoking. I’ve largely thought about how outsiders can become insiders, but silly me, less about the value of staying an outsider or an insider aiming to become an outsider. Moreover, that to be successful as an insider, there’s actually a rather predictable path to become one. Or at least to help your children become one. Go to Harvard. Play insider sports, like gold, or horse-riding, or sailing. And son. But in Auren’s words, to be successful as an outsider, well, “being [an outsider] is MUCH higher beta. They could end up changing the world for the better. They also could blow it up. Or just never be accepted and live less happy.”

And while I may not agree with everything that Auren proposes, a lot of it makes sense. In fact, 11 words definitely caught my eye. “Outsiders take things from insiders.  Insiders inherit things from other insiders.” And as such, insiders play the status quo; outsiders change the status quo.

It’s interesting. Every generation of VC, there’s a changing of the guard. Many of the new regime are outsiders. People who think different. People who exhibit a level of creativity that is uncommon in VCs. Either in the form of business models or how they provide value. How they build brand. Or simply how their brain works. People that in bringing a fresh perspective were able to find the next great companies unlike any other.

Interestingly enough, in my buddy and Superclusters guest Jaap’s recent study of 2,092 North American and European VC funds, he found that these are the folks who are more likely to hit fundraise targets than any other GP persona. Aka 45% success rate. And perform highest at 2.4X net TVPI, but only average on DPI and IRR.

Source: Jaap Vriesendorp’s cluster model on 2,092 VC funds. Find a more interactive one here.

My guess here is that these outsiders, in being artisanal about their craft and — well, at least with respect to the VC industry at large, divergent thinkers — find their tribe rather quickly because LPs quick self-select themselves in or out of a relationship with them. They’re the round pegs in the square holes, to borrow a Steve Jobs moniker. So when most others look square, the few round holes instantly identify with these round pegs. And more often than not, they’re new to the asset management game, so have lower fund targets and a more precise strategy. Downside to that is they’re still learning the ropes of exit strategies and fund management. Which also explains the high volatility in returns.

And while there’s much higher beta in being an outsider, there’s plenty of research to suggest that there is also greater alpha. But it’s going to be unfair. The deck is rigged against you. There’s a great Marcus Aurelius line. “Mental toughness is knowing life isn’t fair and still playing to win.”

The outsiders who win exhibit exactly that mental fortitude against stacked odds. Besides, there’s joy in doing things differently.

Photo by Randy Fath on Unsplash


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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.

Exit Windows Matter More Than Entry Windows | Jaap Vriesendorp | Superclusters | S2E6

Jaap Vriesendorp is one of the managing partners of Marktlink Capital, an investment manager from the Netherlands investing over $1b into private equity and venture capital funds. Marktlink Capital’s LPs are almost exclusively Dutch (tech) entrepreneurs from companies such as Booking.com, Adyen and Hellofresh. At Marktlink Capital Jaap focusses on selecting venture and growth funds across Europe and the US. Before Marktlink Capital, he spent the majority of his time at McKinsey where he was one of the leaders of McKinsey’s practice for Venture Capital, Unicorns & Startups in Europe. Besides work, Jaap enjoys sports, mountains, technology, comic books, music and art.

He holds an MBA from INSEAD and is a guest lecturer at the Rotterdam School of Management (Erasmus University). He occasionally shares his views on private market investing on Medium.

You can find Jaap on his socials here:
LinkedIn: https://www.linkedin.com/in/jaap-vriesendorp/
Medium: https://medium.com/@jjjvriesendorp

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[03:04] The significance of Mount Pinatubo in Jaap’s life
[06:23] One Shell Jackets
[08:45] The entrepreneurial gene in the Vriesendorp family that dates back to Jaap’s grandfather
[14:32] The 1-year time constraint of starting Welt Ventures
[17:43] What did the transition to becoming an investor look like for Jaap
[20:28] The 3 traits that define a community
[24:03] How often does Jaap host events?
[25:30] How does Marktlink Capital have 1000 LPs?
[27:15] What was Marktlink’s pitch to their LPs?
[28:32] What is the typical individual LP’s allocation model to VC/PE?
[29:41] Why is VC/PE uncorrelated to the public markets?
[35:10] The 3 facts that define Welt Ventures’ portfolio construction model
[38:28] Exit windows matter more than entry windows
[42:15] Diversification in PE = Concentration in VC
[47:42] 3 types of emerging GPs that deliver alpha
[49:35] Which European fund has a really unique thesis?
[51:44] Which school did Jaap apply to but not get in?
[53:55] Thank you to Alchemist Accelerator for sponsoring!
[56:31] If anything resonated with you in today’s episode, we’d be honored to earn a like, comment, or share!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“We set out to achieve three things with the community:

  1. We wanted people to have fun with each other. And when entrepreneurs meet entrepreneurs, good stuff happens even if you don’t bring any content.
  2. We wanted to bring the absolute best type of propositions. So in terms of sales, it means sales almost without being sales where you offer something that people really want.
  3. Organized knowledge in a way that nobody does.” – Jaap Vriesendorp

“85% of returns flow to 5% of the funds, and that those 5% of the funds are very sticky. So we call that the ‘Champions League Effect.’” – Jaap Vriesendorp

“The truth of the matter, when we look at the data, is that entry points matter much less than the exit points. Because venture is about outliers and outliers are created through IPOs, the exit window matters a lot. And to create a big enough exit window to let every vintage that we create in the fund of funds world to be a good vintage, we invest [in] pre-seed and seed funds – that invest in companies that need to go to the stock market maybe in 7-8 years. Then Series A and Series B equal ‘early stage.’ And everything later than that, we call ‘growth.’” – Jaap Vriesendorp


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