Tag: questions

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The Phantom Testimonial Corollary

thumbs up, scenery, testimonial

I’ve always admired the way Mike Maples has thought about backcasting. In summary, he proposes that true innovators are visitors from the future. Or as he puts it: “Breakthrough builders are visitors from the future, telling us what’s coming.” Such that they “pull the present from the current reality to the future of their design.” In other words, start from the future, then work your way backwards to figure out what you need to do today to get there.

And I find it equally as empowering to do the same exercise as an emerging manager. Hell, for any aspiring institutional investor. Be it from an angel to a GP. Or an individual LP to a fund of funds.

Start from your ideal fund model. Your ideal LP base. Your ideal pitch deck. Then work backwards to figure out what you need to do today. For the purpose of this blogpost, I’ll focus on reference checks.

For everyone in the investing world, especially in the early-stage private markets, we all know that reference checks is a key component of making investment decisions. Yet too often, founders and emerging managers alike think about them retroactively. Post-mortem. Testimonials that are often not indicative of one’s strengths. And especially not indicative of how a GP won that investment, as well as how they can win such investments in the future.

An exercise I often recommend investors do is write your ideal reference you would like to get from a founder. Be as specific as you can. What would your portfolio founders say about you? How have you helped them in a way that no one else can? What do founders who you didn’t fund say about you?

Another way to think about it is if you were to own a word — something that would live rent free in people’s minds — what would you own? Hustle Fund owns “hilariously early.” Spacecadet Ventures owns “the marketing VC” and they live up to it. Cowboy’s Aileen Lee created the idea of “unicorns.” “Software is eating the world” is attributed to Marc Andreessen.

On the flip side of the token, what are testimonials that should never be written about you?

Hell, at this point, if you’re an aspiring institutional investor, and have yet to spell things out, create the whole deck. Fill in the numbers and the facts later, but for now, make up your ideal deck. When leading indicators become lagging, then update it and fill it in.

Then be that kind of investor for every founder you help. As Warren Buffett once said, “You should write your obituary and then try and figure out how to live up to it.”

Photo by Nghia Le 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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From Demo Day to First Meeting: My Demo Day Checklist

notebook, page, notes, checklist

Possibly the quiet thing out loud, one of the best parts about demo days is the excuse to catch up with old friends. Yes, we do go there to see deals, but realistically, many of us would have started the conversations with many of the demoing class before demo day. This is not only true for VCs at startup demo days, but equally so for LPs at emerging manager demo days.

Earlier this week, my friend invited me to go to his emerging manager demo day. I’ve always admired how intentional he’s been with picking, so it was a natural yes. The pitches came and gone. And as the networking part kicked off after, a few LP friends and I came together to catch up but also to compare notes. What did we think of Fund A? Fund D? Who was interesting? Who would we take a second conversation with? And why?

Naturally, we shared our respective decision-making frameworks. A lot of which overlapped. Others were more unique to each LP themselves. Simply because the motivations of LPs often differ from each other. Some do so for co-investment opportunities. Others invest in VC as an asset class. And there are also those that invest to pay it forward.

So while it’s not my place to share the words whispered to me in confidence, here are some general takeaways:

  • Unlike startup pitches, there is no consistency of pitch format among emerging managers.
  • Most GPs don’t seem to know what kinds of metrics/facts immediately stand out to an LP. One such GP buried an amazing angel track record TVPI as one line in his deck.
  • Humor sells.
  • Spinouts are only interesting if your track record is portable. In other words, if you were too junior on the team to have pounded the table for deals, you don’t count as a spinout in some LP’s minds.
  • Unscripted moments are memorable. At least ones that feel unscripted.
  • DPI earned within 5 years (as opposed to 5+ years) begs the question of where does it come from (i.e. secondaries, acquisition, etc. Former will lead to yellow flags.)
  • Track records that began post-2019 have an asterisk next to them.

That said, if it may be helpful to not only GPs, or other LPs out there, I’ll share my own calculus below.

I want to preface that the goal of the below “checklist” is for me to quickly decide which GPs I should follow up with, given limited information in the format of a 5-minute pitch. As such, this isn’t all-inclusive, but simply answers the question: Is this fund/manager interesting enough for me to spend another hour with them?

I will also say that this works best for me particularly for Funds I and II.

And one more thing, I’m still a WIP. In other words, this is the checklist that suits my current needs the best, but your mileage may vary.

The Demo Day checklist

At a high level, below are the five categories that are the most interesting to me.

  • Sourcing — Are they fishing in differentiated pools? Do they have proprietary access to deals? Where are they finding diamonds in the rough?
  • Picking — This can be interesting in two ways: (a) track record (which only starts to become interesting after 5+ years with 20+ deals), and/or (b) decision-making framework/algorithm.
  • Winning — Why do the best founders pick you? How much ownership can you get in these companies? Some examples here.
  • Likability — You’re either very likeable or contrarian. Anything else just isn’t memorable. And if not memorable for me, likely not memorable for founders. In many ways, I’m looking for ways you stay rent free in a founder’s mind when they know nothing else other than the fact that you invest in early stage companies. ‘Cause let’s be honest; most firm’s websites say just that and nothing more. Some might call this GP-founder fit. Others call it vibes.
  • Uniqueness — A bit amorphous here, but really, it’s just: Is there something I’ve never heard of before?
    • As a caveat, I only started including this “pillar” after I saw about 200 decks and pitches. Before that, I simply didn’t know what counted as unique and what didn’t.

And for each category, I give 4 different kinds of scores.

✔️There’s something special here. Worth digging deeper. If I continue on to diligence, this is usually the first thing I reference check.
〰️No strong opinion here and/or there’s no edge here.
❌I use this extremely sparingly. This is a sign of a red flag. In fact, there are very few red flags that can even come out in a 5-minute pitch. So really, I only use an X when I feel the fund manager is sharing something dishonest.
Yes, that’s a blank space. Meaning the pitch itself failed to offer any reference point or evidence on this variable.

And for the five categories above, having a check mark in at least two of them is enough for me to say yes to another conversation. No single A+ trait standing in pure isolation. But only one X is enough for me to pass.

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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The Complexity of the Simple Question (DGQ 20)

Last week, Youngrok and I finally launched our episode together on Superclusters. In the midst of it all, we wrestle with the balance between the complexity and simplicity of questions to get our desired answer. Of course, we made many an allusion to the DGQ series. One of which, you’ll find below.

In many ways, I started the DGQ series as a promise to myself to uncover the questions that yield the most fascinating answers. Questions that unearth answers “hidden in plain sight”. Those that help us read between the lines.

Superclusters, in many ways, is my conduit to not only interview some of my favorite people in the LP landscape, but also the opportunity to ask the perfect question to each guest. Which you’ll see in some of the below examples.

  1. Asking Abe Finkelstein about being a Pitfall Explorer and how it relates to patience (1:04:56 in S2E1)
  2. What Ben Choi’s childhood was like (2:44 in S1E6) and how proposing to his wife affects how he thinks about pitching (1:05:47 in S1E6)
  3. How selling baseball cards as a kid helped Samir Kaji get better at sales (45:05 in S1E8)

In doing so, I sometimes lose myself in the nuance. And in those times, which happen more often than I’d like to admit, the questions that yield the best answers are the simplest ones. No added flare. No research-flexing moments. Where I don’t lead the witness. And I just ask the question. In its simplest form.

For the purpose of this essay, to make this more concrete, let’s focus on a question LPs often ask GPs.

“Tell me about this investment you made.“

In my mind, ridiculously simple question. Younger me would call that a lazy question. In all fairness, it would be if one was not intentionally aware about the kind of answer they were looking to hear OR not hear.

The laziness comes from regressing to the template, the model, the ‘what.’ But not the ‘why’ the question is being asked, and ‘how’ it should be interpreted. For those who struggle to understand the first principles of actions and questions, I’d highly recommend reading Simon Sinek’s Start with Why, but I digress.

Circling back, every GP talks about their portfolio founders differently. If two independent thinkers have both invested Company A, they might have different answers. Won’t always be true, but if you look at two portfolios that are relatively correlated in their underlying assets AND they arrive at those answers in the same way, one does wonder if it’s worth diversifying to other managers with different theses and/or approaches.

But that’s exactly what makes this simple question (but if you want to debate semantics, statement) special. When all else is equal, VCs are left to their own devices unbounded from artificial parameters.

Then take that answer and compare and contrast it to how other GPs you know well or have invested in already. How do they answer the same question for the exact same investment? How much are those answers correlated?

It matters less that the facts are the same. Albeit, useful to know how each investor does their own homework pre- and post-investment. But more so, it’s a question on thoughtfulness. How well does each investor really know their investments? How does it compare to the answer of a GP I admire for their thoughtfulness and intentionality?

(Part of the big reason I don’t like investing in syndicates because most outsource their decision-making to larger logos in VCs. On top of that, most syndicate memos are rather paltry when it comes to information.)

The question itself is also a test of observation and self-awareness. How well do you really know the founder? Were you intentional with how you built that relationship with the founder? How does it compare to the founder’s own self-reflection? It’s also the same reason I love Doug Leone’s question, which highlights how aware one is of the people around them. What three adjectives would you use to describe your sibling?

Warren Buffett once described Charlie Munger as “the best thirty-second mind in the world. He goes from A to Z in one go. He sees the essence of everything even before you finish the sentence.” Moreover in his 2023 Berkshire annual letter, he wrote one of the most thoughtful homages ever written.

An excerpt from Berkshire’s 2023 annual letter

As early-stage investors, as belief checks, as people who bet on the nonobvious before it becomes obvious, we invest in extraordinary companies. I really like the way Chris Paik describes what we do. “Invest in companies that can’t be described in a single sentence.”

And just like there are certain companies that can’t be described in a single sentence — not the Uber for X, or the Google for Y — their founders who are even more complex than a business idea cannot be described by a single sentence either. Many GPs I come across often reduce a founder’s brilliance to the logos on their resume or the diplomas hanging on their walls. But if we bet right, the founders are a lot more than just that.

Of course, the same applies to LPs who describe the GPs they invest in.

In hopes this would be helpful to you, personally some areas I find fascinating in founders and emerging GPs and, hell just in, people in general include:

  • Their selfish motivations (the less glamorous ones) — Why do this when they can be literally doing anything else? Many of which can help them get rich faster.
  • What part of their past are they running towards and what are they running away from?
  • All the product pivots (thesis pivots) to date and why. I love inflection points.
  • If they were to do a TED talk on a subject that’s not what they’re currently building, what would it be?
  • Who do they admire? Who are their mentor figures?
  • What kind of content do they consume? How do they think about their information diet?
  • What promises have they made to themselves? No matter how small or big. Which have they kept? Which have they not?
  • How do they think about mentoring/training/upskilling the next generation of talent at their company/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.

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DGQ 19: Does the overall level of the team make me question if I’d be a good enough to play in this industry?

“I won’t forget the first time I saw Jason Peters do a one-on-one pass set with Trent Cole, and being amazed at the speed, balance, and power I just witnessed. It reminded me, or looked like, a grizzly bear wrestling a panther. It was so impressive, it made me question if I was good enough to play in this league.”

Much of this DGQ was inspired by Jason Kelce’s retirement speech, delivered with the prose and candor befitting of a legend. Which for those who have yet to read/listen to it, it’s 24 minutes that will be well-spent, whether you’re a sports, football, or Eagles fan or not.

There’s something really special about being the underdog. Whether you feel it or others say it. That slight chip on the shoulder, that measured level of imposter syndrome, is fuel to the fire. There is a distinct advantage for being the dumbest person in the room, knowing that there are mentor figures on the team you can learn voraciously from, even if by osmosis. And if you do have naysayers, you have the greatest privilege to prove them wrong. It means that you have space to grow. That journey ahead, at least for me, is quite exciting.

After all, in Jason’s 2018 Super Bowl Parade speech, he quoted another line from Jeff Stoutland. “Hungry dogs run faster.”

Although not framed nearly as eloquently as Jason Kelce put it, it’s something I think about a lot. Does the overall level of the team make me question if I’d be a good enough to play in this industry?

Challenge is as scary as it is thrilling.

Similarly in VC, we often say it’s an apprenticeship business. And it’s true. Almost every great investor I know had someone who took them under their wing and showed them the ropes. Sometimes a set of people. And it’s incredibly hard to learn and check your blindside without someone who plans to dedicate a good portion of their time to do so. That said, the next best you can get is to learn by osmosis.

You are the average of the five people you hang out with most. So if you have the chance to live and breathe alongside people who intimidate you with their skill, intellect and the way they execute in a good way, take it.

Photo by Vicky Sim 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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The Proliferation of LP Podcasts

I am under no illusion that there is a hell of a lot of interest in the LP landscape today. Not only from GPs who are realizing the difficulties of the fundraising climate, but also from aspiring and emerging LPs who are allocating to venture for the first time. The latter of which also have a growing set of interests in backing emerging GPs. And in the center console in this Venn diagram of interests lies the education of how to think like an LP.

I still remember back in 2022 and prior, we had Beezer’s #OpenLP initiative, Ted Seides’ Capital Allocators podcast, Notation Capital’s Origins, and Chris Douvos’ SuperLP.com. Last of which, by the way, can we start a petition to have Chris Douvos write more again? But I digress. All four of which trendsetters in their own right. But the world had yet to catch storm. Or maybe, the people around me and I had yet to feel the acceleration of interest.

Today, in 2024, we have:

There is no shortage of content. LPs are also starting to make their rounds. You’ll often see the same LP on multiple podcasts. And that’s not a bad thing. In fact, that’s very much of a good thing that we’re starting to see a lot more visibility here and that LPs are willing to share.

But we’re at the beginning of a crossroads.

A few years back, the world was starved of LP content. And content creators and aggregators like Beezer, Ted, Nick, and Chris, were oases in the desert for those searching. Today, we have a buffet of options. Many of which share listenership and viewership. In fact, a burgeoning cohort of LPs are also doing their rounds. And that’s a good thing. It’s more surface area for people to learn.

But at some point, the wealth of information leads to the poverty of attention. The question goes from “Where do I tune into LP content?” to “If I were to listen to the same LP, which platform would I choose to tune into?“

After all, we only have 24 hours in a day. A third for sleep. A third for work. And the last competes against every possible option that gives us joy — friends, hangouts, Netflix, YouTube, hobbies, exercise, passion projects and more.

In the same way, Robert Downey Jr. or Emma Stone or Timothée Chamalet (yes, I just watched Dune 2 and I loved it) is going to do multiple interviews. With 20, 30, even 50 different hosts. But as a fan (excluding die-hard ones), you’re likely not going to watch all of them. But you’ll select a small handful — two or three — to watch. And that choice will largely be influenced by which interviewer and their respective style you like.

While my goal is to always surface new content instead of remixes of old, there will always be the inevitability of cross-pollination of lessons between content creators. And so, if nothing else, my goal is to keep my identity — and as such, my style — as I continue recording LP content. To me, that’s the human behind the money behind the VC money. And each person — their life story, the way they think, why they think the way they think — is absolutely fascinating.

In closing

There’s this great Amos Tversky line I recently stumbled upon. “You waste years by not being able to waste hours.” And in many ways, this blog, Superclusters, writing at large, and my smaller experiments are the proving grounds I need to find my interest-expertise fit. Some prove to be fleeting passions. Others, like building for emerging LPs, prove to be much more.

Photo by Jukka Aalho 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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What You Can and Cannot Control as a GP

radio, communication, fm

Not too long ago, I was catching up with the amazing Owen Willis, someone I’ve been lucky to see in action during our time at On Deck together, who now runs Opal Ventures. And there was one thing he mentioned that I cannot stop thinking about.

As a fund manager, there are things you can control. And things you cannot.

So often, many a fund manager focus on things they cannot. The market. In many ways, marks. And not enough on things, they can. Chief of which, communication. What. How. When.

Are your LPs hearing about news on you or your portfolio — good and bad — from you or from another source?

What are you seeing in the market? What is your insight into it? Why? After all, LPs pay you for your opinion.

And how frequently do you maintain an open line of communication with your LPs? Do you share everything? Or only the good? Do you miss regular updates because of how busy you get?

To nosedive a level deeper, as a GP, what are your most powerful tools of communication with LPs? Not to lead the witness, but you’ve probably figured it out. LP updates. Many GPs I meet tend to only have one type. At best one and a half.

There’s the update GPs send your existing LPs. But they also understand the value of prospective LPs, so they end up sending the exact same to prospects. Maybe with some numbers redacted (if it includes sensitive information on the portfolio). Most of the time, that’s it. But really, it’s helpful to think about existing and prospects as two different audiences. The former will naturally be disposed to support. The latter is still deciding if they want to support. They have yet to be converted.

As such, instead of one, there should be two types of LP updates. To make it simpler, one is for “customer success.” The other is for “sales and BD.”

The “customer success” update

There’s a lot of content on this front already, so I’ll spare you the extra verbiage here. But if you want a place to start, I’d recommend the below first:

But to provide a brief summary (plus, a snazzle dazzle of the Cup of Zhou perspective), typical LP updates I see have:

  1. The Abstract / TL;DR / What to know if you only had 2 minutes
  2. Performance (TVPI, DPI, IRR, new investments, % deployed, % left, % capital called, and (if so) did you preemptively mark down portcos and why)
  3. Net New Investments — 2-3 lines about each company + what’s promising + why’d you invest + website link + key highlights (you’ll need sign off from your founders for this last one)
  4. Asks — for your portfolio and for your fund
  5. Team updates — if your team changed (i.e. new hires)
  6. General portfolio updates — the good, the bad, the ugly
  7. Capital call schedules / Legal stuff if any
  8. Insights into the market (if any)

In general, you want to tell your LPs if there are any updates before they find out about them themselves. Better to hear from you than from other channels.

Lastly, I like personal flare and highlights as well. But hell, that’s up to each GP’s preference.

The “sales” update

So, there will be some overlap of information with the earlier type of update. With some redactions, particularly the specific numbers on the portfolio side. That said, rather than what goes in it, what might be more helpful is how to think about it.

Sales, like in any other industry, requires you to know your customer.

Some general framing questions:

  1. Are they the solution to your problem or are you the solution to their problem?
    • For instance, are they actively looking to deploy? Why? What motivates them? If not, you might be pushing a rock uphill. If yes, are you actually what they’re looking for, or can you better triage them to a friend who is investing in what they’re looking for. Relationships are long.
  2. Do they see VC as an access class or an asset class?
    • Generally, not always, individuals and family offices see VC as an access class. So they care more about co-investment opportunities, deal flow for them to directly invest, and/or opportunities to learn from you. In other words, these LPs want to see what you’re investing in, who else is validating your investments, and what are you seeing and learning. If you’re a Fund I, you’re probably spending more time with these LPs.
    • Institutions, like foundations, endowments, pensions, and fund of funds, see VC as an asset class. As such, returns and performance matter a lot more. So the best ways to convince them is to let the numbers do the talking AND how close you stick with your initial strategy and if you deviate, why. Promise fulfillment, or in LP lingo, consistency of strategy, matters just as much as returns, if not more, once return profiles measure up to 3-5X across several years. Or when and how quickly DPI hits 1X. If you’re a Fund II+, you’re probably spending more time prospecting these.
  3. Are you looking to institutionalize your fund? To go from a fund to a firm?
    • If so, how do you set yourself up to grow in team? How are you knocking out key risks one by one?
    • And in a loose way, not for an LP update, what happens once you get hit by a bus?
  4. What kind of cadence makes sense for you and is enough to keep you top of mind for these LPs?
    • Including events you’re hosting or when you’re visiting certain geographies are always a nice added bonus.

And lastly, getting feedback is always important. As you might suspect. So that your communication between both your existing and prospective LPs only improves over time.

Photo by ANDY ZHANG 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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Winning Deals Based on Check Size (VCs versus LPs)

scale, weight, size

I know I just wrote a blogpost on how LPs assess if GPs can win deals. But after a few recent conversations with LPs in fund of funds, as well as emerging LPs, I thought it would be interesting to draw the parallel of not only proxies of how GPs win deals, but also proxies of how LPs win deals. And as such, coming back with a part two. Maybe a part one and a half. You get the point.

The greatest indicator for the ability to win deals as a VC is to see what the largest check (and greatest ownership target) a world-class founder will take from you. (That said, if you are only capable of winning deals based on price, you might want to consider another career. You should have other reasons a brilliant founder will pick you.) And even better if they give you a board seat.

The greatest indicator for the ability to win deals as an LP is to see what the smallest check a world-class GP will take from you. And even better if they give you a seat on the LPAC.

In the world where capital is more or less a commodity, the more capital one can provide (with some loose constraints on maximums), the better. But if someone who has no to little trouble raising is willing to open doors in a potentially over-subscribed fund for you, that’s something special.

An LP I was chatting with recently loves asking the question, “How big of a check size would you like me to write?” And to him, the answer “As much as you can.” Or “I’ll take any number.” is a bad answer. According to him, the best GPs know exactly how much they’re expecting from LPs, and sometimes as a function of how helpful they can be, especially in a Fund I or II. But always as a function of portfolio construction. Your fund size is after all your strategy, as the Mike Maples adage goes. While I don’t know if I completely agree with this approach, I did find this approach intriguing, and at least worth a double take.

I’m forgetting the attribution here. The curse of forgetting to write things down when I hear them. But I was listening to a podcast, or maybe it was a conversation, where they used the analogy that being a VC is like watching your child on the playground. You let your child do whatever they want to. Go down the slides. Climb the monkey bars. Sit on the swings. And so on. You let them chart their own narratives. But your job as the parent is once you see your kid doing something dangerous, that’s when you step in. When they’re about to jump off a 2-story slide. Or swing upside-down. But otherwise your kid knows best on how to have fun. In the founders’ case, they know how to build an amazing product for an audience who’s dying for it.

Excluding the fact that you’re a good friend or family that go way back, you likely have something of great strategic value to that GP — be it:

  • Network to other LPs
  • Operational expertise and value to portfolio companies (to a point where you being an LP will help the GP win deals with founders)
  • Operational expertise to the GP and the investment team
  • Investment expertise to help check the GP’s blindside
  • Access to downstream capital
  • Deal flow, or
  • Simply, mentorship

At the same time, ONSET Ventures once found that “if you had a full-time mentor who was not part of the company’s management team, and who had actually run both a start-up and a larger business, the success rate increased from less than 25% to over 80%.” (You can find the case study here. As an FYI, the afore-mentioned link leads to a download of the HBS case study.)

That’s the role of the board. The LPAC. Of the advisory board. For a founder or emerging GP, the full-time availability of said board members or LPAC members is vital.

A proxy of a mentor’s availability is pre-existing relationships between founder/emerging funder and said investor or advisor. Another is simply the responsiveness of the investor or advisor. Do they take less than 12 hours to reply? Or 3-5 business days? It’s for that latter reason Sequoia’s Pat Grady once lost out on an investment deal to his life partner, Sarah Guo. Being responsive goes a long way.

In sum, for LPs in fund of fund managers, small things go a long way.

Photo by Piret Ilver 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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“Who Else is Investing?” Is a Good Question

who, who else

Ok, before y’all rise up in arms, hear me out. And if by the end of this blogpost, you still want to bring the pitchforks and torches, so be it.

Generally, I get it. Who else is investing isn’t usually a great question. Because for most investors who ask this question, it means they’re outsourcing their conviction.

Tweet I stumbled on reading Chris Neumann’s post yesterday

In fact, I wrote a quick LinkedIn (and tweet) post about it the day before yesterday. Which admittedly got a lot more attention than I expected. And if you have the time, it’s worth seeing the discussion on that post that ensued.

Source: Me on LinkedIn
Yes, I’m a dark mode user. 🙂

So, potentially hot take, I believe investors should ask the question. Who else is investing? It’s part of the diligence process. That said, when they ask that question is key. There’s a vast ocean between the shores of asking that question before you reach conviction and after.

If you pop the question before you reach conviction, well, we’ve seen the follies of that. Most evidenced by the manic rush of 2020 and 2021 into “hot deals” largely led by names that grew to popularity around the dinner table.

If you pop it after, it’s diligence. Where the availability of names shouldn’t convince you to bat or lack thereof to otherwise. But that you now have additional opportunities to reference check and cross-diligence the same opportunity. And it extends to the LP side as well. Jamie Rhode who’s now at Screendoor, said on a Superclusters episode that one of her greatest lessons as an LP was committing to a fund where there was a bunch of soft commits but far less in hard commits, and ended up overexposing Verdis (where she was at) to a single asset and taking a much higher ownership as an LP into a single fund.

Truth is, LPs pay GPs for their opinion. Not anyone else’s. And while given long feedback loops, no one really knows what’s right and what’s wrong except over a decade later and only in hindsight, you have to really believe it, and be able to back it up.

Photo by Patrick Perkins 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.

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When Trying Something New

new, apple, vision pro

The great Jim Collins has this line I really like where he says fire bullets then cannonballs. “The right big things are the things you’ve empirically validated. So, you fire bullets, you validate, then you go big — bullets, then cannonballs — it’s both.”

Too often — something I see in me as much as I see in founders — when trying something new, we bottle it up. We charge the entropy of our creativity. Waiting to release it all at one big moment. A cannonball. No one else should or needs to know know. Sometimes it’s a fear of someone else stealing your idea. Sometimes, well, speaking more for myself, I just like surprises. I love the mystique. And on the slim chance you’re right, albeit rare, then awesome. But 999 out of 1000 times, you’re likely not. At least not in the first try.

I’m forgetting and also can’t seem to find the attribution. But I read somewhere that the only difference between vision and a hallucination is that others can see it. You see… the greatest YouTubers test their ideas with test audiences several times. In fact, they even test their video titles with select audiences a number of times before launching. (Instagram even added the ability to do it at scale for creators too.) Reporters do too with their headlines. Legendary investor Mike Maples at Floodgate once said, “90% of our exit profits have come from pivots.” ONSET Ventures also found in its research1 that founded the institution back in 1984 (prescient, I know) that there is a 90% correlation between success and the company changing its original business model.

All to say, one’s first idea may not always be the best and final idea. So, test things. With small audiences. With trusted confidants.

And while I may not do this all the time, with my bigger blogposts (like this, this, and this), I always run it by co-conspirators, subject-matter experts, lawyers, writers, bloggers, and people who love reading fine print. And sometimes the final product may not look like the one I initially intended, which will be true for an upcoming bigger blogpost. For events, like one I recently worked with the team at Alchemist on — redefining what in-person Demo Days look like at accelerators, we tested the idea with 20 other investors and iterated on their feedback before launching on January 30th this year. And still is not even close to its final evolution.

As Reid Hoffman once said, “If you are not embarrassed by the first version of your product, you’ve launched too late.”

Now that it’s out there…

One of the greatest Joker lines in The Dark Knight is: “Trust no one, salt and sugar look the same.”

It’s true. Whether people like something or not, they’ll always tell you things were good. It’s the equivalent of when one goes to a restaurant, orders something that’s a bit saltier than one’s liking, but when the server comes by to ask, “How is everything?”, most people respond with “Everything’s fine.” Or “good.”

You’re not going to get the real answer out of people oftentimes. Unless people really do love or hate something you did passionately. So… you must hunt for them. You must lure out the answers. You need to force people to take sides. There can be and shouldn’t be middle ground. If there are, that means they don’t like it.

Maybe it’s in the form of the NPS question. On a scale of 1-10, how likely would you recommend this product to a friend? And you cannot pick 7.

In the event space, I’ve come to like a new question. If I invited you to this event the week of, would you cancel plans to make this event? And to add more nuance, what kinds of events would you cancel to be here? What kinds of events would you not cancel?

Sometimes it helps to seed examples on a spectrum (although I try not to lead the witness here). Would you cancel a honeymoon? Or would you cancel going to another investor/founder happy hour? What about an AGM (annual general meeting, annual conference in VC talk)? What about a vacation?

As Joker said, salt and sugar look the same. So you have to taste it. Looking from afar won’t help. And if you want to iterate and improve, you need what people really think. I’d rather have people hate or dislike something I’ve created than have a lukewarm or worse, a “good” reaction.

In a way, if you’re not getting enough of an auto-immune response from the crowd, and the antibodies don’t start kicking in (aka the naysayers), you’re not really doing something new.

Photo by Roméo A. on Unsplash

1 FYI, the research link redirects to its HBS case study, not the original research. Couldn’t find the latter unfortunately. But the point stands.

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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.

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v28.0

I came across a quote recently, which I believe originates from Qi Lu, former COO of Baidu, and the one who created Bing, Microsoft’s search engine. “Luck is like a bus. If you miss one, there’s always the next one. But if you’re not prepared, you won’t be able to jump on.”

And your bus fare comes by way of preparation. The 10-year overnight success.

Or as the classic Seneca line goes, “Luck is when preparation meets opportunity.” Or as Louis Pasteur also said, “Chance favors the prepared mind.” And by having a prepared mind at the bus stop, you’ve increased the surface area for luck to stick.

Of course, I could fill an entire blogpost with just quotes on what luck means. But I won’t.

Year 27 on this planet was simply a year to try new things. An exploration of the human mind. An exploration of what are the boundaries of the LP landscape. And what’s worth pushing on, and what’s not. The output of which culminated in events, new ways to operate, building trust circles, the podcast, more content on the blog, and of course, a lot more conversations with influencers in and away from the limelight.

The inputs of which came from my last year’s resolution.

A reflection

Last year, the goal was to find myself in the flow state at least twice a week. Truth was, at that point in time, I had yet to figure out how to truly measure it. And it wasn’t until October 15th last year when I started measuring the early semblances of it outside of just allotting time to be in the flow state. For me, it came down to a simple question. Was today worth it?

In other words, was today well spent? Defined by either:

  1. Learning a new skill or framework
  2. Creating a core memory
  3. Or by realizing something I never realized before, a new way of looking at the world around me.

Each of which, at least for me, largely become possible when I am in an egoless state working or thinking about something proactively than reactively.

As of writing this blogpost, I’m 16 weeks in. And I have 18 days well spent. On average, between one and two days per week. Leaning more on one though.

Though I might be able to allot time on a weekly basis on my calendar for “flow state,” I’m not always in the mood for it. That in itself was dependent on circumstance, timing, stress, and the disciplined pursuit of inspiration. The last of which was a luxury I couldn’t always afford. Sometimes when there are more pressing matters, I can’t help but find my mind wandering and stressing over more urgent matters than focusing on doing something new.

As such, to help me do so, I focused on things I could control daily: Was I consuming a healthy and diverse diet of information? Which I measured through reading, listening to podcasts and content, and conversations with different kinds of people.

I also look back at my journal entries for the past year, and anecdotally, more than 60-70% of them are about topics and tasks I had to do, pre-assigned (often self-assigned due to constraints). And a lot of them focus on the 10%, maybe 20%, marginal improvement and refinement of what’s been done already, rather than the 10X thinking I find more common in journal entries in the years before. The difference between reactive journaling and proactive journaling. The product of consuming too much (work, podcast, and otherwise) of the same genre of information. Simply, I didn’t cover all my macros.

So, this year…

So this year’s goal is no different than the last. To explore. To find myself in creative pursuits and in the flow state. And to take risks.

While I remember the lyrics, I often forget Sanderson’s Second Law. “Flaws/limitations are more interesting than powers.” Constraints are the breeding grounds of inspiration.

Not sure how much of this is lore, but I remember reading once that Bill Gates loves hiring lazy procrastinators. As his words once rung, “I choose a lazy person to do a hard job. Because a lazy person will find an easy way to do it.” For Gates, the constraint of time and energy on a responsible individual is the forcing function for brilliance.

While it’d be ridiculous to give myself a pat on the back for “brilliance,” there is immense value in time constraints, as well as intentionally handicapping myself to produce results. To not let perfect be the enemy of good.

As such, I’m going to impose limitations on myself as a forcing function of iteration, and hopefully by product of doing so, I live more days that are worth it. For now, the count is 19 since Oct 15, 2023 (when I started counting).

How I will measure success, with a North Star of at least 2 per week

While I don’t know what else will come up, my goal is to color in as many pickles as I can in the fickle jar. For now, to hold myself accountable:

  • Publish the intuition vs discipline blogpost (final draft done by end of February)
  • Host an escape room where all the clues to escape are based on each guest’s individual stories (March)
  • Build a repeatable framework for backing GPs as an individual LP (by the end of February)

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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