questions - Cup of Zhou

May 19, 2025May 19, 2025

You’re Looking at Networks Wrong | Albert Azout | Superclusters | S5E5

“Networks are more persistent than performance.” – Albert Azout

Albert Azout is the Co-Founder and Managing Partner of Level Ventures, a technology investment firm built on software and data science and invests in both entrepreneurs and venture capital managers, including the likes of Air Street Capital, Emergent Ventures and Work-Bench, just to name a few. Prior to Level, Albert has been a serial founder, starting analytics businesses and even a social media company before Facebook.

You can find Albert on his socials here:
LinkedIn: https://www.linkedin.com/in/albertazout/
Substack: http://albertazout.substack.com/

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

OUTLINE:

[00:00] Intro
[02:36] The origin of Albert’s blog
[04:45] How did Albert first start coding?
[07:43] Albert’s interest in networks
[13:10] Entrepreneurship around Albert
[16:27] What is collaborative filtering?
[22:18] How complexity economics affect the networks of VCs?
[27:14] Fear and greed regimes
[28:51] Telltale signs that inform the kind of regime you’re in
[30:31] Why it’s the wrong time to be investing in defense tech
[34:53] What are most LPs missing about GP networks?
[37:31] How is Level Ventures looking at networks differently?
[44:42] Archetypes of GPs that Albert likes
[46:43] The 3 advantages GPs need to have
[55:02] How does Albert balance over- vs under-diligencing?
[57:15] Albert’s view on luck
[57:47] Albert the “consciousness expert”

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“You have to have an understanding of the regime you’re in for you to make good decisions as an investor.” – Albert Azout

“Price reflects the inefficiencies of the market.” – Albert Azout

“What really matters is what you’re hearing around you. When you hear overly coherent narratives, that’s a big thing for me. And it happens in subcycles as well. […] But when people are behaving and making decisions based on narratives that are overly coherent, that’s a big sign. That’s a very social problem.” – Albert Azout

“What you want to see in a venture company which you’re looking for huge outliers, is you want to see increasing returns to scale. You want to see demand-side feedback loops, where you have very low marginal costs of distribution. And that requires mostly winner-take-all, or winner-take-most kinds of markets.” – Albert Azout

“You want to be pre-narrative. You want to position your capital in an area where the supply of capital increases over time and where those assets will be traded at a premium.” – Albert Azout

“Networks are more persistent than performance.” – Albert Azout

“Venture is simple but hard.” – Albert Azout

“We look for GPs who have one, a network advantage and two, a knowledge advantage – both of which have to be not redundant and economically important. And the third thing is the fund strategy itself. There’s a lot of nuances but there are two things that are important. One is that it has to be an outlier. […] It has to have the right construction for us. […] My second point is more important. It involves game theory, which is the competitive dynamics in the market. ” – Albert Azout

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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.

May 12, 2025May 12, 2025

When an Olympic Daydreamer Becomes an LP Whisperer | Asher Siddiqui | Superclusters | S5E4

“What I hear from LPs is that the market is important. And of course, the market IS important. And I think that that’s true. But if you truly believe in venture as a purist, then all of it is irrelevant because at any point in time, someone will come and have this unique insight. And the timing is against them. The world is against them. They’re in the wrong place at the wrong time, and yet, they have this unique insight at this point in time. They have the opportunity to invest at this point in time. And so, just because the timing is wrong doesn’t mean you shouldn’t be backing them. Because they might be right. And you might be missing out on the best opportunity in your lifetime.”

Asher Siddiqui is a global tech investor, M&A dealmaker, and venture fund builder with over 25 years of hands-on experience across venture capital, entrepreneurship, and more than $15B in executed M&A transactions.

He began his career as a software engineer and entrepreneur in the US and UK before spending a decade leading M&A and corporate venture at Etisalat Group (now e& Group), one of the world’s largest listed TMT investment groups. There, he led acquisitions, exits, and strategic transactions across multiple continents.

In 2016, Asher joined the global leadership team at 500 Startups in San Francisco, helping scale the platform to $2B+ AUM, with a portfolio that includes 35+ unicorns and 160+ centaurs.

Since then, he has helped launch and scale several institutional VC firms—including Race Capital, Lumikai, Sukna Ventures, Zayn VC, and Humanrace Capital—and serves on the advisory boards of funds such as FootPrint Coalition Ventures, Merus Capital, and The Treasury.

To date, Asher has made 100+ venture investments (both direct and LP), raised hundreds of millions in LP commitments, mentored hundreds of emerging VC managers globally, and advised countless founders.

You can find Asher on his socials here:
LinkedIn: https://www.linkedin.com/in/ashersiddiqui/
X / Twitter: https://x.com/ashercdkey

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

OUTLINE:

[00:00] Intro
[03:36] Why doesn’t Asher like the saying ‘The sky’s the limit?’
[07:20] The launch of CNBC Africa
[15:25] How do two competing personalities create one of the largest media empires in the world?
[17:39] Combining vision and execution
[21:22] Asher’s framework for executing on a vision
[31:00] Why Asher was the youngest Global Head of M&A of a major telecom business
[43:57] What sets a great investor apart from a great fund manager
[45:27] Roleplaying a GP thinking about secondaries
[51:44] What do most LPs underestimate and overestimate
[58:24] Most telling predictors of outperforming GPs
[1:07:13] The best wine and food for each situation
[1:12:25] Asher’s Vinod Khosla story

SELECT LINKS FROM THIS EPISODE:

The Non-Obvious Emerging LP Playbook
500 Global
Sukna Ventures
Race Capital
Footprint Coalition
Robert Downey Jr.
SHUAA (formerly known as Abu Dhabi Financial Group)
e& (also known as Etisalat)
CNBC Africa
Carl Sagan
Zafar Siddiqui
Rakesh Wahi
Dubai
Johannesburg
Forbes Africa
Lancaster University Ghana
KPMG
Michael Phelps
McKinsey & Company
“‘There’s something happening here. But what it is ain’t exactly clear.’ –Buffalo Springfield, For What It’s Worth”, a December 2024 Stepstone report on the venture market
Jensen Huang
University of Michigan
Rioja wine
Pinot grigio / gris
Vinod Khosla
TechCrunch Disrupt SF 2011
Kleiner Perkins
Khosla Ventures

SELECT QUOTES FROM THIS EPISODE:

“The best opportunities are the opportunities that aren’t obvious to anyone.” – Asher Siddiqui

“Execution is nothing without a vision, and vision is nothing without execution.” – Asher Siddiqui

“If only there was an Olympic sport called daydreaming, then Asher will be a gold medalist every time.” – Asher Siddiqui’s mom

“What was less relevant was the number; what was more important was the process.” – Asher Siddiqui

“If you ask the baseline obvious questions, you get the obvious responses.” – Asher Siddiqui

“You have to be thinking about exits because if you’re so laser-focused on building your portfolio and not thinking about exits, then maybe you’re a great investor, but not a great fund manager.” – Asher Siddiqui

On investors selling secondaries… “You may choose to take some off the table. And this is a market risk, not a specific lack of belief in the founder. I cannot tell you what the right answer is. What I can tell you is what I’m interested in backing are fund managers that are in the pursuit of truth, and they’re making the best judgment calls in the pursuit of truth that they can at this point in time, based on the data they have available.” – Asher Siddiqui

“There is no right or wrong answer. Because you may get it right this time – you may get it wrong this time – what matters is-… This is Fund III, right? What about Fund VI or Fund VII or Fund VIII? Are you building a culture for you to continue to build a team that has this culture to continuously follow and pursue this pursuit of truth for the best outcomes based on the process that you have, as opposed to just shooting from the hip and gut instinct, which is great while you’re around. But when you retire and your firm’s going on, you’ve basically created a culture where people shoot from the hip and maybe the people who come after you are not as good as you.” – Asher Siddiqui

“Exiting a position in a company to return DPI to LPs is not a reflection of your stance on the company, but your stance on the market.” – Asher Siddiqui

Why LPs should go to annual meetings… “I’m looking for a minimum of one insight that I can take away, and I’m hoping to ask one intelligent question that will stand out as a credible LP in the minds of the GP.” – Asher’s Swedish pension allocator friend

“So, when I hear people talk about scaling venture, what the fuck are you talking about? Venture is not scalable. There are things that you can scale. There are processes that you can scale. But ultimately, you still have to rely upon finding those people and finding them at the right time – and the right time could be the ‘wrong’ time – but finding them when they find that opportunity and when they see that meaningful insight. I’ve heard people say it’s not thesis-driven; it’s market-driven. No, I disagree. I think it’s both of those. But actually it’s individual-driven if you can find that person.” – Asher Siddiqui

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!

May 5, 2025May 5, 2025

Why Individuals Can Be Better than Teams | Sean Warrington | Superclusters | S5E3

“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.

You can find Sean on his socials here:
X / Twitter: https://x.com/srwarrington
LinkedIn: https://www.linkedin.com/in/srwarrington/

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

OUTLINE:

[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

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“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

“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!

April 30, 2025April 25, 2025

Happiness

I had a number of people ask me what I’m doing next. So I told them.

One of the key pillars of what I am doing now is content. It’s why I write this blog. It’s why I produce Superclusters. It’s why there are a few new projects I’m working on that will shed light to this opaque world in which we’re in. Particularly in venture. In the allocator world.

I don’t hold anything back. There are no other cards I’m hiding up my sleeve. When a friend, an acquaintance, a stranger ask me how I do something, I tell them. Unfiltered. Without restraint. Without reservation. Without hesitation.

And for some reason, recently I’ve had more people ask me why. “What’s in it for you?” “What’s your master plan?” “Do you make more money this way?” “Why not just do X?” “You know you can get people to pay you a lot of money for this.” “Aren’t you afraid of being obsolete?”

Some questions come from a place of fear. Others, a place of greed. None of it from a place of joy.

There’s nothing in it for me, except for one thing. If I can help one more person not fall through the pitfalls I went through, or help one more person live a more meaningful life, or help one more person smile, I’d do it in a heartbeat.

There’s a great line I remember watching in the show After Life. “Happiness is amazing. It’s so amazing it doesn’t matter if it’s yours or not. A society grows great when old men plant trees the shade of which they know they will never sit in.”

I just want a better world. I want to make people happy. And I don’t care if it’s my own. But making another person truly happy makes me happy.

Whether you believe me or not, that’s up to you. But that’s all I have to say.

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!

April 28, 2025April 28, 2025

You’re Doing Diligence Wrong | Raviv Sapir | Superclusters | S5E2

“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.

You can find Raviv on his socials here:
LinkedIn: https://www.linkedin.com/in/raviv-sapir/

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

OUTLINE:

[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

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“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!

April 24, 2025April 24, 2025

#unfiltered #94 Is Conviction Black and White?

I’ve heard a collection of sayings around conviction.

“Do or do not; there is no try.” Yoda.

“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.

Photo by Jan Kopřiva on Unsplash

#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!

April 21, 2025April 21, 2025

How to Start a Single Family Office | Scott Saslow | Superclusters | S5E1

“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.

You can find Scott on his socials here:
LinkedIn: https://www.linkedin.com/in/scott-d-saslow-46620/
Website: https://www.oneworld.investments/
Family Office Principals’ Podcast: https://oneworldinvestments.substack.com/podcast

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

OUTLINE:

[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

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“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!

April 18, 2025April 18, 2025

Insider is Spelled with Two I’s

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.
— Brian Halligan (@bhalligan) March 17, 2025

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.

So, at the end of the day, ask yourself honestly:

Who do I know?
Who trusts what I know?

Photo by Marissa Daeger 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!

March 21, 2025March 21, 2025

Flaws, Restrictions and Limitations

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.

To break down complexity:

f(complexity) = flaws + restrictions + limitations

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 Asher once 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!

March 4, 2025March 3, 2025

DGQ 24: What predictions did you have in the past that didn’t play out as you expected?

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.

Photo by petr sidorov 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!

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