Tag: peter fenton

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DGQ 21: What’s going to get you excited to be at this business in 5 years?

watch, time

This one was inspired by Harry Stebbings’ episode with Dan Siroker that I tuned into earlier this week. In it, Dan describes his most memorable VC meeting, which happened to be with Peter Fenton at Benchmark. Where Peter asks Dan, “Dan, what’s gonna get you excited to be at this business in five years?”

In sum, what are your future motivations going to look like? Nine out of ten times, it’s likely not going to be exactly the same as the one today. And given that it will look differently, can you still stay true to the North Star of this business as you do today? What’s gonna change? What’s gonna stay the same?

For the most part, the people and the problem space are likely to stay the same. The product may look quite different though. And it’s highly likely that in five years, you would have found product-market fit. So, that’s Act I. Is it the advent of the next chapter of what your company could look like that gets you excited? Hell it might be. You can then tackle a bigger problem. A larger market. An adjacent market. Or what Bangaly Kaba calls the adjacent users. For some founders, it’s the market they always wanted to tackle, but couldn’t when they realized their beachhead market must be something else.

While I can’t speak for everyone, here are some of the answers I’ve personally come to like over the years. From either founders or fund managers:

  • There is no other industry that offers the same velocity of learning that this one provides.
  • I want my company’s legacy to outlive my own. And I want to empower the next generation of builders with the resources and the power to solve the greatest needs of our generation.
  • I want to go home and tell my my wife/husband/kids that I lived my fullest life today. And this is what gives me endless joy.
  • Act I was solving a problem I faced. Act II is solving a problem others face in our space.
  • Getting on the phone with a customer and hearing how much our product changed their lives makes me really happy.
  • If I’m not regularly putting the firm’s reputation on the line, we’re not trying hard enough. And I live for that challenge.
  • I want to build a world where people don’t settle for “It is what it is.”
  • No one else is solving the problem I want to solve in the way that I believe it should be solved.
  • I want to continue to be a superhero, a role model, for my daughter/son.

In many ways, it’s quite similar to the question I ask first-time GPs or aspiring GPs about their motivation.

Things in venture exist on long time horizons. For founders, it’s at least 7-9 years before an exit. For fund managers, it’s 10-15 years per fund. And that’s just a single fund. Anything more is longer. So in order to compete against the very best, you need to have long time horizons. You must have the resolve to stay the course. As Kevin Kelly says, “The main thing is to keep the main thing the main thing.”

Along the same vein, there’s also a Jeff Bezos quote I really like: “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people… Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”

Photo by Luke Chesser on Unsplash

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

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.

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Telltale Signs of When Risk is High

jenga, risky

At the end of last week, an LP told me something quite provocative. That right now in 2024, we’re in a low-risk environment.

And in all fairness, I thought he was completely bonkers. Fear is high. Investments have slowed their pace, especially in the private markets. Markets have really yet to recover. Some believe we’ve hit the bottom and will bounce around the bottom a few times. Others think we’ve yet to see the worst of it. Hell, just yesterday, Eric Bahn tweeted the below:

Wars are raging across the world. Currency is fluctuating on a global scale. Hell, even for the average person, prices are going up at a rate unfamiliar to most people’s memory.

But his next line really made me pause. “You’re right. There’s geopolitical risk, currency risk, market risk, and valuation/pricing risk. And we can identify every single one of them. In fact, the actual risk of investing today is really low, but the perceived risk is really high. Risk is highest when you can’t tell what the risk is. That was 2020 and 2021, when you couldn’t put a finger on what kinds of risk were out there.”

And that really stuck with me. To underscore again, risk is highest when you can’t tell what the risk is.

And so paved way for this blogpost. Albeit, that last line was the punchline.

He later told me that the concept wasn’t original, but that its origin traces its way back to Ken Moelis. Regardless of the attribution, it’s worth doing a double take on.

There’s that famous Peter Drucker line, “You can’t manage what you don’t measure.” And in many ways, it is just as true for risk as it is for tasks and KPIs and OKRs.

The family office for a well-known luxury brand once told me that they like to pay the complexity premium on esoteric alternatives. To them, venture is one of those esoteric alternatives. In addition, they’re also happy to overpay during bull markets. Access to a volatile and nascent asset class, to them, deserves a premium.

But taking a step back, there may be more wisdom to it than I initially thought. In bear markets, when the risk is real and discrete, there is no complexity premium to pay. After all, you can begin to manage what you do measure. On the flip side, in a bull market, where no one really knows who will win or what the macro risks are, a premium can be and often is paid as a bet on a company’s future and insurance against a margin of error that is hard to define.

Of course, one can say that the premium is often hype-driven instead of risk-driven. But really, hype is just long-term risk donned with a new set of clothes. A short-term luxury with a buy-now-pay-later tag that comes in quarterly installments of belt-tightening and regret.

While I personally have always believed that as an investor it’s better to be disciplined and to “dollar cost average” across vintages vis a vis time diversification, there are several great investors who believe price is a trap. At the top of my head, Peter Fenton and Keith Rabois. The latter shared his thoughts earlier this year on why. At least for seed and Series A. That in summary, there is no limit on how much you pay for a great company at the seed and Series A (likely the pre-seed as well) that won’t return you multiple-fold back. And that debates on price really are leading indicators on conviction or lack thereof.

The last part of which I agree to an extent.

All that to say, I think a useful exercise to go through whenever making a major (investment) decision is to take out a notepad and write down all the risks you can think of. If you can think of it, you can probably find a way to hedge against it. On the flip side, if you’re about to make a decision and you can’t think of any risks, that’s probably the biggest risk you’ll take.

As my mom told me since I was a kid, “There’s no such thing as a free lunch.”

But if you do come up with a good list, and the world around you is still scared, and you think there might be something special in the opportunity in front of you, sometimes it pays to be bullish when others are bearish.

Photo by Naveen Kumar on Unsplash

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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.

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