One of my favorite equations that I’ve come across over the last few years is:
(track record) X (differentiation) / (complexity) = fund size
I’ve heard from friends in two organizations independently (Cendana Capital and General Catalyst), but I don’t know who the attribution traces back to. Just something about the simplicity of it. That said, ironically, for the purpose of this blogpost, I want to expand on the complexity portion of the equation. Arguably, for many LPs, the hardest part of venture capital as an asset class, much less emerging managers, to underwrite. Much of which is inspired by Brandon Sanderson’s latest series of creative writing lectures.
Separately, if you’re curious about the process I use to underwrite risks, here‘s the closest thing I have to a playbook.
A flaw is something a GP needs to overcome within the next 3-5 years to become more established, or “obvious” to an LP. These are often skillsets and/or traits that are desirable in a fund manager. For instance, they’re not a team player, bad at marketing, struggle to maintain relationships with others, inexperienced on exit strategies, have a limited network, or struggle to win >5% allocation on the cap table at the early stage.
Restrictions, on the other hand, are self-imposed. Something a GP needs to overcome but chooses not to. These are often elements of a fund manager LPs have to get to conviction on to independent of the quality of the GP. For example, the GP plans to forever stay a solo GP even with $300M+ AUM. Or the thesis is too niche. Or they only bet on certain demographics. Hell, they may not work on weekends. Or invest in a heavily diversified portfolio.
Limitations are imposed by others or by the macro environment, often against their own will. GPs don’t have to fix this, but must overcome the stigma. Often via returns. Limitations are not limited to, but include the GPs are too young or too old. They went to the “wrong” schools. There are no fancy logos on their resume. They’re co-GPs with their life partner or sibling or parent. As a founder, they never exited their company for at least 9-figures. Or they were never a founder in the first place.
To break down differentiation:
f(differentiation) = motivation + value + platform
Easy to remember too, f(differentiation) = MVP. In many ways, as you scale your firm and become more established, differentiation, while still important, matters less. More important when you’re the pirate than the navy.
Motivation is what many LPs call, GP-thesis fit. To expand on that…
Why are you starting this fund?
Why continue? Are you in it to win it? Are you in it for the long run?
What about your past makes this thesis painfully obvious for you? What past key decisions influence you today?
What makes your thesis special?
How much of the fund is you? And how much of it is an extension of you or originates with you but expands?
What do you want to have written on your epitaph?
What do you not want me or other people to know about you? How does that inform the decisions you make?
What failure will you never repeat?
In references, does this current chapter obvious to your previous employers?
And simply, does your vision for the world get me really excited? Do I come out of our conversations with more energy than what I went in with?
As you can probably guess, I spend a lot of time here. Sometimes you can find the answers in conversations with the GPs. Other times, via references or market research.
Value is the value-add and the support you bring to your portfolio companies. Why do people seek your help? Is your value proactive or reactive? Why do co-investors, LPs, and founders keep you in their orbit?
Platform is how your value scales over time and across multiple funds, companies, LPs, and people in the network. This piece matters more if you plan to build an institutional firm. Less so if you plan to stay boutique. What does your investment process look like? How do people keep you top of mind?
Of course, track record, to many of you reading this, is probably most obvious. Easiest to assess. While past performance isn’t an indicator of future results, one thing worth noting is something my friend Asheronce told me, “TVPI hides good portfolio construction. When I do portfolio diligence, I don’t just look at the multiples, but I look at how well the portfolio companies are doing. I take the top performer and bottom performer out and look at how performance stacks up in the middle. How have they constructed their portfolio? Do the GPs know how to invest in good businesses?” Is the manager a one-hit wonder, or is there more substance behind the veil?
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
As part of a new project I’m working on with a friend, I’ve spent the last few months doing a lot of research into the history of technology and Silicon Valley, and talking to a lot of primary and secondary sources. One of the rabbit holes I went down last week led me to a really interesting story on deal dynamics back in 1968.
For the historian reading this, you may already know that was the year of the Apollo 8 mission. The assassination of both Martin Luther King Jr. and Robert F Kennedy. The Tet Offensive in Vietnam is launched. Also, the year the Beatles’ Magical Mystery Tour album tops music charts and stays there for eight straight weeks. And their White Album goes to number one on December 28th that year too. 2001: A Space Odyssey premieres. Legendary skateboarder Tony Hawk is born.
For the tech historian, that’s the year Intel was founded.
“They came to me with no business plan.” — Arthur Rock
The last two of the Traitorous 8. Gordon Moore and Bob Noyce. Bob Noyce co-invented the integrated circuit. And Gordon Moore coined a term many technologists are familiar with. Moore’s Law. That the number of transistors on a chip double every two years. In 1968, the two last bastions finally left. Instead of promoting Bob to be CEO, the team at Fairchild chose to hire externally. And that was the straw that broke the camel’s back.
The first investor the two went to was Arthur Rock to start a new semiconductor company, with no business plan. Although, eventually, they wrote a single-paged, double-spaced business plan.
Around the same time, Pitch Johnson from Draper and Johnson (Draper comes from Bill Draper’s name) had just sold his portfolio at D&J to Sutter Hill, and Bill himself had joined Sutter Hill right after. Pitch was catching up with Bob, who he had known for a long time having been on the board of Coherent together. Their families had met each other several times. And planes have always been a fascination for both of them. After all, both of them were pilots.
Bob said, “I’m starting a company making integrated circuits, I hope you’ll be interested.”
Pitch responded with an offer of “a couple hundred K”, said that Bill may also be interested, and, “Well, anything you’re doing, Bob, of course I’d be interested.”
As Arthur Rock was putting together that deal, Bob asked Pitch to call Arthur. Pitch reaches out to Arthur, and Arthur tells him to “call [him] back next week.”
Next week comes by. Pitch calls again. And Arthur says, “I’ve done the deal, and you’re not in it.”
Dejected, Pitch picks up the phone to call Bob back, “Art doesn’t want me in the deal.”
Surprised, Bob calls Arthur and Arthur, in the tough, but honest Arthur way, responds, “Am I going to do the deal, or is Pitch going to do the deal?”
Inevitably, Pitch and Bill lost out on investing in Intel. Intel ended up raising $2.5M for 50% of the company.
At the end of last year, I was catching up with a senior partner at a large multi-stage fund. At one point in the conversation, he asked me, “Wanna see how lead investors work with each other?”
Before I could even reply, although I would have said “Yes” regardless, he pulls out his phone and shows me a text thread he has with another Series A lead investor.
The text starts: “Looking at [redacted company]. Any thoughts?”
The other guy responds back: “We are too.”
And the thread ends after one single exchange.
As much as VC has evolved and became a little more mainstream, deal dynamics with lead investors, or at least perceived-to-be lead investors, seem to hold. Of course, as a caveat, not every interaction is like this.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
The title says it all. I’m four seasons in and I’m fortunate to have learned from some of the best and most thoughtful individuals in the LP industry. I often joke with friends that Superclusters allows me to ask dumb questions to smart people. But there’s quite a bit of truth there as well. I look back in Season 1, and I’m proud to see the evolution of my questions as well.
There was a piece back in 2022 where Johns Hopkins’ Jeff Hooke said that “75% of funds insist they are in the top quartile.” To my anecdotal knowledge, that seems to hold. I might say 75% of angel investors starting their first funds say they’re top quartile. And 90% of Fund IIs say their Fund Is are top quartile. So the big looming question as an LP is how do you know which are and which aren’t.
And if we were all being honest with each other, the first five years of returns and IRRs really aren’t indicative of the fund’s actual performance. In fact, Stepstone had a recent piece that illustrated fewer than 50% of top-quartile funds at Year 5 stay there by Year 10. 30% fall to second quartile. 13% slip to third. 9% fall from grace to the bottom quartile. But only 3.7% of bottom-quartile funds make it to the top quartile after its 10-year run (on a net TVPI basis).
I’ve enjoyed every single podcast episode I’ve recorded to date. And all the offline conversations that I’ve had because of the podcast itself. Nevertheless, it’s always fascinating when I learn something for the first time on the podcast while we’re recording. Excluding the longer lessons some of our guests have shared (I’m looking at you Evan, Charlotte, and much much more), below are the many Twitter-worthy (not calling it X) soundbites that have come up in the podcast so far.
“Entrepreneurship is like a gas. It’s hottest when it’s compressed.” — Chris Douvos
“I’m looking for well-rounded holes that are made up of jagged pieces that fit together nicely.” — Chris Douvos
“If you provide me exposure to the exact same pool of startups [as] another GP of mine, then unfortunately, you don’t have proprietary deal flow for me. You don’t enhance my network diversification.” — Jamie Rhode
“Sell when you can, not when you have to.” — Howard Lindzon
“When you think about investing in any fund, you’re really looking at three main components. It’s sourcing ability. Are you seeing the deals that fit within whatever business model you’re executing on? Do you have some acumen for picking? And then, the third is: what is your ability to win? Have you proven your ability to win, get into really interesting deals that might’ve been either oversubscribed or hard to get into? Were you able to do your pro rata into the next round because you added value? And we also look through the lens of: Does this person have some asymmetric edge on at least two of those three things?” — Samir Kaji
“85% of returns flow to 5% of the funds, and that those 5% of the funds are very sticky. So we call that the ‘Champions League Effect.’” — Jaap Vriesendorp
“The truth of the matter, when we look at the data, is that entry points matter much less than the exit points. Because venture is about outliers and outliers are created through IPOs, the exit window matters a lot. And to create a big enough exit window to let every vintage that we create in the fund of funds world to be a good vintage, we invest [in] pre-seed and seed funds – that invest in companies that need to go to the stock market maybe in 7-8 years. Then Series A and Series B equal ‘early stage.’ And everything later than that, we call ‘growth.’” — Jaap Vriesendorp
“[When] you’re generally looking at four to five hundred distinct companies, 10% of those companies generally drive most of the returns. You want to make sure that the company that drives the returns you are invested in with the manager where you size it appropriately relative to your overall fund of funds. So when we double click on our funds, the top 10 portfolio companies – not the funds, but portfolio companies, return sometimes multiples of our fund of funds.” — Aram Verdiyan
“If you’re overly concentrated, you better be damn good at your job ‘cause you just raised the bar too high.” — Beezer Clarkson
“[David Marquardt] said, ‘You know what? You’re a well-trained institutional investor. And your decision was precisely right and exactly wrong.’ And sometimes that happens. In this business, sometimes good decisions have bad outcomes and bad decisions have good outcomes.” — Chris Douvos
“Miller Motorcars doesn’t accept relative performance for least payments on your Lamborghini.” — Chris Douvos
“The biggest leverage on time you can get is identifying which questions are the need-to-haves versus nice-to-haves and knowing when enough work is enough.” — John Felix
“In venture, we don’t look at IRR at all because manipulating IRR is far too easy with the timing of capital calls, credit lines, and various other levers that can be pulled by the GP.” — Evan Finkel
“The average length of a VC fund is double that of a typical American marriage. So VC splits – divorce – is much more likely than getting hit by a bus.” — Raida Daouk
“Historically, if you look at the last 10 years of data, it would suggest that multiple [of the premium of a late stage valuation to seed stage valuation] should cover around 20-25 times. […] In 2021, that number hit 42 times. […] Last year, that number was around eight.” — Rick Zullo (circa 2024)
“The job and the role that goes most unseen by LPs and everybody outside of the firm is the role of the culture keeper.” — Ben Choi
“You can map out what your ideal process is, but it’s actually the depth of discussion that the internal team has with one another. […] You have to define what your vision for the firm is years out, in order to make sure that you’re setting those people up for success and that they have a runway and a growth path and that they feel empowered and they feel like they’re learning and they’re contributing as part of the brand. And so much of what happens there, it does tie back to culture […] There’s this amazing, amazing commercial that Michael Phelps did, […] and the tagline behind it was ‘It’s what you do in the dark that puts you in the light.’” — Lisa Cawley
“In venture, LPs are looking for GPs with loaded dice.” — Ben Choi
“If I hire someone, I don’t really want to hire right out of school. I want to hire someone with a little bit of professional experience. And I want someone who’s been yelled at. […] I don’t want to have to triple check work. I want to be able to build trust. Going and getting that professional experience somewhere, even if it’s at a startup or venture firm. Having someone have oversight on you and [push] you to do excellent work and [help] you understand why it matters… High quality output can help you gain so much trust.” — Jaclyn Freeman Hester
“LPs watch the movie, but don’t read the book.” — Ben Choi
“If it’s not documented, it’s not done.” — Lisa Cawley
“If somebody is so good that they can raise their own fund, that’s exactly who you want in your partnership. You want your partnership of equals that decide to get together, not just are so grateful to have a chance to be here, but they’re not that great.” — Ben Choi
“When you bring people in as partners, being generous around compensating them from funds they did not build can help create alignment because they’re not sitting there getting rich off of something that started five years ago and exits in ten years. So they’re kind of on an island because everybody else is in a different economic position and that can be very isolating.” — Jaclyn Freeman Hester
“Neutral references are worse than negative references.” — Kelli Fontaine
“Everybody uses year benchmarking, but that’s not the appropriate way to measure. We have one fund manager that takes five years to commit the capital to do initial investments versus a manager that does it all in a year. You’re gonna look very, very different. Ten years from now, 15 years from now, then you can start benchmarking against each other from that vintage.” — Kelli Fontaine
“We are not in the Monte Carlo simulation game at all; we’re basically an excel spreadsheet.” — Jeff Rinvelt
“A lot of those skills [to be a fund manager] are already baked in. The one that wasn’t baked in for a lot of these firms was the exit manager – the ones that help you sell. […] If you don’t have it, there should be somebody that it’s their job to look at exits. ” — Jeff Rinvelt
“Getting an LP is like pulling a weight with a string of thread. If you pull too hard, the string snaps. If you don’t pull hard enough, you don’t pull the weight at all. It’s this very careful balancing act of moving people along in a process.” — Dan Stolar
“Going to see accounts before budgets are set helps get your brand and your story in the mind of the budget setter. In the case of the US, budgets are set in January and July, depending on the fiscal year. In the case of Japan, budgets are set at the end of March, early April. To get into the budget for Tokyo, you gotta be working with the client in the fall to get them ready to do it for the next fiscal year. [For] Korea, the budgets are set in January, but they don’t really get executed on till the first of April. So there’s time in there where you can work on those things. The same thing is true with Europe. A lot of budgets are mid-year. So you develop some understanding of patterns. You need to give yourself, for better or worse if you’re raising money, two to three years of relationship-building with clients.” — David York
“Many pension plans, especially in America, put blinders on. ‘Don’t tell me what I’m paying my external managers. I really want to focus and make sure we’re not overpaying our internal people.’ And so then it becomes, you can’t ignore the external fees because the internal costs and external fees are related. If you pay great people internally, you can push back on the external fees. If you don’t pay great people internally, then you’re a price taker.” — Ashby Monk
“You need to realize that when the managers tell you that it’s only the net returns that matter. They’re really hoping you’ll just accept that as a logic that’s sound. What they’re hoping you don’t question them on is the difference between your gross return and your net return is an investment in their organization. And that is a capability that will compound in its value over time. And then they will wield that back against you and extract more fees from you, which is why the alternative investment industry in the world today is where most of the profits in the investment industry are captured and captured by GPs.” — Ashby Monk
“I often tell pensions you should pay people at the 49th percentile. So, just a bit less than average. So that the people going and working there also share the mission. They love the mission ‘cause that actually is, in my experience, the magic of the culture in these organizations that you don’t want to lose.” — Ashby Monk
“The thing about working with self-motivated people and driven people, on their worst day, they are pushing themselves very hard and your job is to reduce the stress in that conversation.” — Nakul Mandan
“I only put the regenerative part of a wealth pool into venture. […] That number – how much money you are putting into venture capital per year largely dictates which game you’re playing.” — Jay Rongjie Wang
“When investing in funds, you are investing in a blind pool of human potential.” — Adam Marchick
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.
What are the essential elements of a “good” VC fund strategy vs. “lucky”?
What elements can you control and what can you not?
How long does it take to develop “skill” and can you speed it up w/ (intentional) practice?
Anyone can shoot a three-pointer every once in a while.
Steph Curry is undeniably one of the best shooters of our time. If not, of all time. Even if you don’t watch ball, one can’t help but appreciate what a marksman Steph is. In case you haven’t, just look at the clip below of his shots during the 2024 Olympics.
From the 2024 Olympics
As the Under Armour commercial with Michael Phelps once put it, “it’s what you do in the dark that puts you in the light.” For Steph, it’s the metaphoric 10,000 hours taking, making, and missing shots. For the uninitiated, what might be most fascinating is that not all shots are created equal, specifically… not all misses are created equal.
There was a piece back in 2021 by Mark Medina where he wrote, “If the ball failed to drop through the middle of the rim, Curry and Payne simply counted that attempt as a missed shot.” Even if he missed, the difference between missing by a wide margin versus hitting the rim mattered. The difference between hitting the front of the rim versus the backboard or the back rim mattered. The former meant you were more likely to make the shot after the a bounce than the other. Not all misses are created equal.
Anyone can shoot a 3-pointer. With enough tries. But not everyone can shoot them as consistently as Steph can.
The same holds for investing. Many people, by sheer luck, can find themselves invested in a unicorn. But not everyone can do it repeatedly across vintages. It’s the difference between a single outperforming fund and an enduring firm.
The former isn’t bad. Quite good actually. But it also takes awareness and discipline to know that it may be a once-in-a-lifetime thing. The latter takes work. Lots of it. And the ability to compound excellence.
When one is off, how much are you off? What are the variables that led you to miss? What variables are within your control? And what aren’t? Of those that are, how consistent can you maintain control over those variables?
As such, let me break down a few things that you can control as a GP.
Deal Flow
Are you seeing enough deals? Are you seeing enough GREAT deals? Do you find yourself struggling in certain quarters to find great deals or do you find yourself struggling to choose among the surplus of amazing deals that are already in your inbox? Simply, are you struggling against starvation or indigestion? It’s important to be intellectually honest here, at least to yourself. I know there’s the game of smokes and mirrors that GPs play with LPs when fundraising, but as the Richard Feynman line goes, “The first principle is that you must not fool yourself—and you are the easiest person to fool.”
Value Add
Whereas deal flow is about what companies you see, value add is more about how you win deals. Why and how do you attract the world’s best entrepreneurs to work with you? In a world where the job of a VC is to sell money – in other words, is my dollar greener or is another VC’s dollar greener – you need to answer a simple question: Why does another VC fund need to exist?
What can you provide a founder that no other, or at least, very few other, investors can
While there are many investors out there who say “founders just like me” or “founders share their most vulnerable moments with me”, it’s extremely hard for an LP to underwrite. And what an LP cannot grasp their head around means you’ll disappear into obscurity. The file that sits in the back of the cabinet. You’ll exist, and an LP may even like you, but never enough for them to get to conviction. And to a founder, especially when they’ve previously “made it”, already, you will fall into obsolescence because your value-add will be a commodity at scale. Note the term “at scale.” Yes, you’ll still be able to win deals on personality with your immediate network, and opportunistically with founders that you occasionally click with. But can you do it for the three best deals that come to your desk every quarter for at least the next four years? If you’re building an institutional firm, for the next 20+ years. Even harder to do, when you’re considering thousands of firms are coming out of the woodwork every year. Also, an institutional LP sees at least a few hundred per year.
For starters, I recommend checking out Dave’s piece on what it means to help a company and how it impacts your brand and perception.
Portfolio Size
Deal flow is all about is your aperture wide enough. Are you capturing enough light? Portfolio size is all about how grainy the footage is. With the resolution you opt for, are you capturing enough of the details that could produce a high definition portfolio? In venture, a portfolio of five is on the smaller side. And unless you’re a proven picker, and are able to help your companies meaningfully or you’re in private equity, as a Fund I, you might want to consider a larger portfolio. It’s not uncommon to see portfolios at 30-40 in Fund I that scale down in subsequent funds once the GPs are able to recognize good from great from amazing.
I will also note, with too big of a portfolio, you end up under optimizing returns. As Jay Rongjie Wang once said, ““The reason why we diversify is to improve return per unit of risk taken.” At the same time, “bear in mind, every fund that you add to your portfolio, you’re reducing your upside as well. And that is something a lot of people don’t keep in mind.”
Moonfire Ventures did a study in 2023 and found that “the probability of returning less than 1x the fund decreases as the size of your portfolio grows, and gets close to zero when your portfolio exceeds 200 companies.” That said, “it’s almost impossible to 10x a fund with more than 110 companies in your portfolio.”
First off, how are you measuring your marks? Marc Andreessen explains the concept of marks far better than I can. So not to do the point injustice, I’m just going to link his piece here.
Separately, the earliest proxies of portfolio success happens to revolve around valuations and markups, but to make it more granular, “valuation” really comes down to two things:
Graduation rates
Pro rata / follow-on investments
Graduation rates
When your graduation rates between stages fall below 30%, do you know why? What kinds of founders in your portfolio fail to raise their following round? What kinds of founders graduate to the next stage but not the one after that? Are you deeply familiar with the top reasons founders in your portfolio close up shop or are unable to raise their next round? What are the greatest hesitations downstream investors have when they say no? Is it the same between the seed to Series A and the A to B?
Pro rata / follow-on investments
Of your greatest winners, are you owning enough that an exit here will be deeply meaningful for your portfolio returns. As downstream investors come in, naturally dilution occurs. But owning 5% of a unicorn on exit is 5X better than owning 1% of a unicorn. For a $10M fund, it’s the difference for a single investment 1X-ing your fund and 5X-ing it.
When you lose out on your follow-on investment opportunities, what are the most common reasons you didn’t capitalize? Capital constraints? Conviction or said uglier, buyer’s remorse? Overemphasis on metrics? Lack of information rights?
Then when your winners become more obvious in the late stages and pre-IPO stages, it’s helpful to revisit some of these earlier decisions to help you course-correct in the future.
I will note with the current market, not only are the deal sizes larger (i.e. single round unicorns, in other words, a unicorn is minted after just one round of financing), there are also more opportunities to exit the portfolio than ever before. While M&A is restricted by antitrust laws, and IPOs are limited by overall investor sentiment, there have been a lot of secondary options for early stage investors as well. But that’s likely a blogpost for another day.
In closing
To sum it all up… when you miss, how far do you miss?
Obviously, it’s impossible to control all the variables. You cannot control market dynamics. As Lord Toranaga says in the show Shogun when asked “How does it feel to shape the wind to your will?”, he says “I don’t control the wind. I only study it.” You can’t control the wind, but you can choose which sails to raise, when you raise them, and which direction they point to. Similarly, you also can’t completely control which portfolio companies hit their milestones and raise follow-on capital. For that matter, you also can’t control cofounder splits, founders losing motivation, companies running out of runway, lawsuits from competitors, and so on.
But there are a select few things that you can control and that will change the destiny of your fund. To extend the basketball analogy from the beginning a bit further, you can’t change how tall you are. But you can improve your shooting. You can choose to be a shooter or a passer. You can choose the types of shots you take — 3-pointers, mid-range, and/or dunks. In the venture world, it’s the same.
The choice. Or, things you can change easily:
Industry vertical
Stage
Valuation
Portfolio size
Check size
Follow-on investments
The drills. Or, things you can improve with practice:
Deal flow – both quantity and quality
The kinds of deals you pick
Value add – Does your value-add improve over time? As you grow your network? As you have more shots on goal?
The deals you win – Can you convey your value-add efficiently?
And then, the game itself. The things that are much harder to influence:
Graduation rates
Downstream dilution
Exit outcomes
The market and black swan events themselves
Venture is a game where the feedback cycles are long. To get better at a game, you need reps. And you need fast feedback loops. It’s foolhardy to wait till fund term and DPI to then evaluate your skill. It’s for that reason many investors fail. They fail slowly. While not as fast of a feedback loop as basketball and sports, where success is measured in minutes, if not seconds – where the small details matter – you don’t have to wait a decade to realize if you’re good at the game or not in venture. You have years. Two to three What kinds of companies resonate with the market? What kinds of founders and companies hit $10M ARR? In addition, what are the most common areas that founders need help with? And what kinds of companies are interesting to follow-on capital?
Do note there will always be outliers. StepStone recently came out with a report. Less than 50% of top quartile funds at Year 5 stay there by Year 10. And only 3.7% of bottom-quartile funds make it to the top over a decade. Early success is not always indicative of long-term success. But as a VC, even though we make bets on outliers, as a fund manager, do not bet that you will be the outlier. Stay consistent, especially if you’re looking to build an institutional firm.
One of my favorite Steph Curry clips is when he finds a dead spot on the court. He has such ball control mastery that he knows exactly when his technique fails and when there are forces beyond his control that fail him.
Huge thanks to Dave McClure for inspiring the topic of this post and also for the revisions.
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.
Folks with frequent flyer miles here know that I’m a big fan of Brandon Sanderson’s lessons on creative writing. So, when Brandon Sanderson shared his new course on YouTube, I had to check it out. And I’m glad I did. In it, there’s a story on a Hollywood pilot for a new sitcom.
A team in Hollywood would bring people in, and subsequently tell them that team would ask the test audience what they thought of the pilot episode after they watched it. People would then watch it. After, they would ask, “There was a commercial at break number one. What brand was this commercial for?” Why? They didn’t want people focusing on the commercials, but wanted to understand the efficacy of the commercial. According to Brandon, they used the same sitcom pilot for years, which they used as the constant to test the commercial itself.
As such, Brandon’s advice to writers was that you shouldn’t ask too many leading questions when asking for feedback. Otherwise you’d predispose your audience to the intentions of your script.
Interestingly enough, I wrote a piece last week on how I do references. In it, I also share some of the questions I use during diligence and reference calls. While the questions aren’t intended to deceive, they’re designed to get to the truth. For instance, instead of asking for a person’s weakness, you ask “If you were to hire someone under this person, what qualities would you look for?” If I were to ask a stranger about their friend’s weakness, 9 times out of 10, I’ll get a response that’s a strength in disguise. A stranger has no incentive to tell me negative things about someone they have known for a while.
But at the same time, my job as an investor, though only a minority investor, is to help their friend grow. And I can’t help them grow if I don’t know what are areas they need to grow in.
As such, the focus isn’t on weaknesses. But shifting the framing to areas where I can complement them. Areas that if they worked on them in the next two years will make them a more robust leader.
There’s also another exercise I’ve really enjoyed working on with founders and emerging managers. I’d host a dinner where most people don’t know each other and what the other people are building. I don’t give them time to introduce themselves, but I ask every single person to bring their deck. During the dinner, they’re required to give their deck to someone else at the table. Each person then has a max of two minutes to look at someone’s deck, with no other context. After two minutes, decks are put away. And each person is required to pitch the startup or the fund as if they were the founder.
It’s a self-awareness exercise. Too often, when we’re looking at our own pitch day in, day out, we tend to lose perspective. We tend to miss things that are obvious to others. Through the above exercise, each person is able to notice what someone with limited time and attention took away from their pitch and what the delta is between what the founder wanted to convey and what the other person ended up conveying.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Recently, I’ve had a lot of conversations with LPs and GPs on excellence. Can someone who has never seen and experienced excellence capable of recognizing it? The context here is that we’re seeing a lot of emerging managers come out of the woodwork. Many of which don’t come from the same classically celebrated institutions that the world is used to seeing. And even if they were, they were in a much later vintage. For instance, a Google employee who joined in 2024 is very different from a Google employee in 2003.
And there seem to be two schools of thought:
No. Only someone who is fortunate enough to be around excellent people in an excellent environment can recognize excellence in others. Because they know just how much one needs to do to get there. Excellence recognizes excellence. So there’s this defaulting to logos and brands that are known concentrations of excellence. Unicorns. Top institutions. Olympians. Delta Force. Green Beret. Three Michelin-starred restaurants.
Yes. But someone must constantly stretch their own definition of excellence and reset their standards each time they experience something more than their most excellent. The rose growing in concrete. The rate of iteration and growth matters for more. Or as Aram Verdiyan onceput it to me, “distance travelled.”
Quite possibly, a chicken and egg problem. Do excellent environments come first or people who are born excellent and subsequently create the environment around themselves?
It’s a question many investors try to answer. The lowest hanging fruit is the outsourcing of excellence recognition to know excellent institutions and known excellent investors. The ex-Sequoia spinout. Ex-KKR. Ex-Palantir. First engineer at Uber. Or hell, they’re backed by Benchmark. Or anchored by PRINCO.
It’s lazy thinking. The same is true for VC investors and LP investors. As emerging manager LPs (and pre-seed investors), we’re paid to do the work. Not paid to have others do the work for us. We’re paid to understand the first principles of excellent environments. To dig where no others are willing to dig.
To use an extreme example, a basketball court can make Kobe Bryant an A-player, but Thomas Keller look like a C-player. Similarly, a kitchen will make Thomas Keller an A-player, but Ariana Huffington a C-player. Environments matter.
When assessing environments and doing references, that’s something that you need to be aware of. What does the underlying environment need to have to make the person you’re diligencing an A-player? Is the game they have willingly chosen to play and knowledgeable enough to play have the optimal environment that will allow them to be an A-player? Is the institution they’re building themselves conducive to elicit the A out of the individual?
Ideally, is there evidence prior to the founding of their own firm that has allowed this player to shine? Why or why not?
Did they have a manager that pushed them to excel? Was there a culture that allowed them to shine? Were they given the trust and resources to thrive?
References
And so, that leads us to references. I want to preface with two comments first.
One, as an investor, you will NEVER get to 100% conviction on an investment. It’s one of the few superlatives I ever use. Yes, you will never. Unless you are the person themselves, you will never understand 100% about a person. And naturally, you will never get to 100% conviction because there will always be an asymmetry of information.
Two, so… your goal should not be to get to total symmetry of information, nor 100% conviction. Instead, your goal is to understand enough about an opportunity so that you can sufficiently de-risk the portfolio. What that means is that when you meet a fund manager (or a founder, for that matter) across 1-2 meetings, you write down all the risk factors you can think of about the investment. You can call it elephants in the room, or red or yellow flags. Tomato. Tomahto.
Then, rank them all. Yes, every single one. From most important to least important. Then, somewhere on that list — and yes, this is deeply subjective — you draw a line. A line that defines your comfort level with an investment. The minimum number of risks you can tolerate before making an investment decision. For some, say those investing in early stage venture or in Fund I or II managers, that minimum number will be pretty high. For others, those whose job is to stay rich, not get rich, that minimum tolerance will be quite low. And that’s okay.
There’s a great line my partner once told me. You like, because; you love, despite. In many ways, the art of investing in a risky asset class is understanding your tolerance. What are you willing to love, despite?
The purpose of diligence, thereinafter, is to de-risk as many of your outstanding questions till you are ready to pull the trigger.
In regards to references, before you go further in this blogpost, I would highly recommend Graham Duncan’s essay “What’s going on here, with this human?” My buddy, Sam, also a brilliant investor, was the person who first shared it with me. And I’m a firm believer that this essay should be in everyone’s reference starter pack. Whether you’re an LP diligencing GPs. Or a VC doing references on founders. Or a hiring manager looking to hire your next team member.
Okay, let’s get numbers out of the way. Depending on the volume of investments you have to make, the numbers will vary. The general consensus is that one or two is too little, especially if it’s a senior hire or a major investment. Kelli Fontaine’s40 reference calls may also be on the more extreme side of things. Anecdotally, it seems most investors I know make between five and ten reference calls. Again, not a hard nor fast rule.
That said, there is often no incentive for someone to tell a stranger bad things about someone who supported them for a long time. It’s why most LPs fail to get honest references because they haven’t established rapport and trust with a founder over time. Oftentimes, even in the moment. So, the general rule of thumb is that you need to keep making reference calls until you get a dissenting opinion. Sometimes, that’s the third call. Other times, is the 23rd call. If you’ve done all the reference calls, and you still haven’t heard from others why you shouldn’t invest, then you haven’t done enough (or done it right).
A self-proclaimed coffee snob once told me the best coffee shops are rated three out of five stars. “Barely any 2-4 stars. But a lot of 5-stars and a lot of 1-stars. The latter complaining about the baristas or owner being mean.” I’m not sure it’s the best analogy, but the way I think about references is I’m trying to get to the ultimate 3-star review. One that can highlight all the things that make that person great, but also understand the risks, the in’s and out’s, of working with said person.
For me, great references require trust and delivery.
Establishing trust and rapport. What you share with me will never find its way back to the person I am calling about.
Is the reference themselves legit? Is this person the best in the world at what they do?
How well does this reference know said person? Have they seen this person at both their highs and lows? At their best and at their worst.
The finer details, the possible risks, and how have they mitigated them in the past.
I will also note that off-list references are usually much more powerful than on-list references. Especially if they don’t know you’re doing diligence on the person you’re doing diligence on. But on-list references are useful to understand who the GP keeps around themselves. After all, you are the average of the people you hang out with most. As the one doing the reference checks, I try to get to a quick answer of whether I think the reference themselves is world-class or not.
While I don’t necessarily have a template or a default list of questions I ask every reference, I do have a few that I love revisiting to set the stage.
Also, the paradox of sharing the questions I ask is simply that I may never be able to use these questions again in the future. That said, references are defined by the follow-up questions. Rarely, if ever, on the initial question. There’s only so much you can glean from the pre-rehearsed version.
So, in good faith, here are a few:
Does the reference know them well?
If I told you this person was [X], how surprised would you be? Now there are two scenarios with what I say in [X]. The first is I pick a career that is the obvious “next step” if I were to only look at the resume. Oftentimes, if a person’s been an engineer their entire life, the next step would be being an engineering executive, rather than starting a fund. So, I often discount those who wouldn’t find it surprising. Those that say it is surprising, I ask why. The second scenario is where I pick a job that based on what I know about the GP in conversations is one I think best suits their skillset (that’s not running their own fund), and see how people react. The rationale as to why it’s surprising or not, again, is what’s interesting, not the initial “surprising/not surprising” answer itself.
If you were invited to this person’s wedding, which table do you think you’d be sitting at?
Have you ever met their spouse? How would you describe their spouse?
Understanding their strengths and weaknesses
Who’s the best person in the world at X? Pick a strength that you think the person you’re doing a reference on has. See what the reference says. Ask why the person they thought of first is the best person in the world at it. If the reference doesn’t mention the GP I’m diligencing, then I stop to consider why.
What are three adjectives you would use to describe your sibling? I’ve written about my rationale for this question before, so I won’t elaborate too much here. Simply, that when most people describe someone else, they describe the other person comparatively to themselves. If I say Sarah is smart, I believe Sarah is smarter than I am. Or… if I say Billy is curious, I believe Billy is more curious than I am.
If I said that this person joined a new company, knowing nothing about this new company, what would your first reaction be?
Congratulate this person on joining!
Do a quick Google or LinkedIn search about the company.
As an angel, consider investing in the company (again, knowing nothing else)
How would you rate this person with regards to X, out of 10? What would get this person to a 10? Out of curiosity, who’s a 10 in your mind?
If you were to hire someone under this person, what qualities would you look for?
If you were to reach out to this person, what do you typically reach out about?
I hate surprises. Is there something I should know now about this person so that I won’t be surprised later?
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.
“When investing in funds, you are investing in a blind pool of human potential.” – Adam Marchick
Over the past twenty years, Adam Marchick has had unique experiences as a founder, general partner (GP), and limited partner (LP). Most recently, Adam managed the venture capital portfolio at Emory’s endowment, a $2 billion portfolio within the $10 billion endowment. Prior to Emory, Adam spent ten years building two companies, the most recent being Alpine.AI, which was acquired by Headspace. Simultaneously, Adam was a Sequoia Scout and built an angel portfolio of over 25 companies. Adam was a direct investor at Menlo Ventures and Bain Capital Ventures, sourcing and supporting companies including Carbonite (IPO), Rent The Runway (IPO), Rapid7 (IPO), Archer (M&A), and AeroScout (M&A). He started his career in engineering and product roles at Facebook, Oracle, and startups.
[00:00] Intro [03:14] Who is Kathy Ku? [06:20] Lesson from Sheryl Sandberg [06:39] Lesson from Justin Osofsky [07:46] How Facebook became the proving grounds for Adam [09:26] The cultural pillars of great organizations [10:40] When to push forward and when to slow down [12:39] Adam’s first investment: Dell [14:20] What did Adam do on Day 1 when he first became an LP [17:00] Emory’s co-investment criteria [20:02] Private equity co-invests vs venture co-invests [21:15] Teaser into Akkadian’s strategy [23:03] Underwriting blind pools of human potential [29:03] Why does Adam look at 10 antiportfolio companies when doing diligence? [32:11] What excites and scares Adam about VC [35:36] Engineering serendipity [37:52] Where is voice technology going? [39:45] How does Adam think about maintaining relationships? [43:20] Thank you to Alchemist Accelerator for sponsoring! [44:20] If you enjoyed this season finale, it would mean a lot if you could share it with 1 other person who you think would love it!
“What’s so freeing is when you can bring your personality to work. It’s so much less cognitive load when you can be yourself.” – Sheryl Sandberg’s advice to Adam Marchick
“Take your work seriously, not yourself.” – Adam Marchick
“Be really transparent, and even document and share your co-investment criteria.” – Mike Dauber, Sunil Dhaliwal’s advice to Adam Marchick
“For an endowment doing co-invests, you should never squint.” – Adam Marchick
“When investing in funds, you are investing in a blind pool of human potential.” – Adam Marchick
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The thing about working with self-motivated people and driven people, on their worst day, they are pushing themselves very hard and your job is to reduce the stress in that conversation.”
It’s something Nakul Mandan from Audacious said in a Superclusters episode earlier in Season 4. And a line that’s been gnawing at me for the past few weeks. Particularly, “your job is to reduce the stress in that conversation.” So it got me thinking… Are the entrepreneurs I back stressed (enough)?
I know what you’re thinking. But before you come at me with pitchforks and torches, here me out. If you get to the end of this essay and still feel as strongly, feel free to take a swing at me.
First off, let me define some terms in the above question. An “entrepreneur” is someone who starts something that doesn’t exist in the world already. To me, that is a startup founder, a local restaurant, an emerging fund manager, and so on. I use this term pretty liberally. “Enough” is in moderation. A balance of feeling the pressure and urgency, but not enough to make one go insane. By definition, entrepreneurs — people who dare challenge the world and create something that hasn’t existed before — are ambitious. And ambitious, action-oriented doers are, to Nakul’s point, often hard on themselves. So everything in moderation. As a friend once told me, if you’re doing anything ambitious, a third of your days will be epic. A third will be okay. And a third will absolutely suck. As long as your days feel like that proportionally, you’re on the right track.
So… are the entrepreneurs I back stressed (enough)?
Let’s start with no. Are they the underdog still, pre-product-market fit, stagnating, losing market share, and/or in a crisis?
If not, carry on. It’s okay to not be stressed all the time. In fact, it’s probably not helpful to be stressed all the time.
If so — that they are the underdogs, stagnating or in a crisis — AND they’re not feeling stressed, I do wonder from time to time. And I’d be lying if some part of me didn’t feel buyer’s remorse. Because that means one of three things:
They’ve lost their ability to care. About the product. The market. The team. Or simply, their own ambition. That’s the worst.
Conversely, they don’t feel comfortable enough to be vulnerable with me. And that, in part, not to sugarcoat things, is because of me.
They never cared enough or were ambitious enough in the first place. And that’s something I have to take back to the drawing board so that I learn the next time around.
Nevertheless, regardless of which of the three, it warrants a conversation. A difficult one. One where I try to understand their current motivations, what’s changed. If their motivations still hold true, then I, in Danny Meyer’s words, add “constant, gentle pressure.” For those curious, Chapter 9 of his book. Nevertheless, my job is to give them the activation energy to hopefully get them back on track.
If things change, great. I eventually go back to the first question. Are the entrepreneurs stressed? If not, then I let them on a few things:
I’ll spend less time time with them to prioritize the rest of my portfolio.
If they have any of the money left, they can keep the money. FYI, if it wasn’t my personal angel money, but someone else’s capital (of which I’m a fiduciary), depending on how much they have left, it may lead to a different conclusion. But in general, I view it as a write-off.
Wish them the best of luck in their next chapter.
If they feel the fire burning again (for good reason), they should let me know. And I’m happy to have another conversation.
Now… what happens if the entrepreneurs are stressed. Then I try to figure out if it’s anxiety or stress. Let me define.
Anxiety is caused by things you cannot control. For instance, the market. Other people you cannot control. Or black swan events. Stress, on the other hand, is caused by things you can control. Your own mistakes. Mistakes made by people you hired. Volume of work that needs to be done. Procrastination. Mistakes that can be actively mitigated. For instance, missing the deadline for a quarterly report. Missing payroll due to insufficient funds. Layoffs. Bad performance. Media, publicity, and perception. Something Danny Meyer calls, “writing a great last chapter.” As Danny Meyer puts it, “the worst mistake is not to figure out some way to end up in a better place after having made a mistake.”
If it’s anxiety, my role is to calm the founders. Be the mental support they need. Help them see the bigger picture. Build contingency plans.
If it’s stress, my role is to help them build an action plan. Help get key decision-makers and doers in the same room. Get the founders in front of advisors who can help them think through key considerations and check their blind side (assuming it’s not me. Most of the time it isn’t.). Of course, you need to timebox “thinking” time. There’s a great saying. “There are no right choices; only choices we make right.”
And finally, help the entrepreneurs execute the plan. Sometimes, that requires getting my hands dirty. And that’s what I’m here for. To increase the metabolism of the organization. Or at the very minimum, leadership. Stress is often caused by indigestion of tasks that need to be done.
Alas, the job of an investor, given we’re not in the driver’s seat, that we don’t always have complete information, is to reduce the stress of the founder when we have that conversation. More often than not, ambitious founders are hard enough on themselves.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The first layer is setting up your own strategy. The second layer is portfolio construction. How do you do your portfolio construction based on the strategy you set out to do? And then manager selection comes last. Within the portfolio construction target, how do you pick managers that fit that ‘mandate?’” – Jay Rongjie Wang
Jay Rongjie Wang is the founding Chief Investment Officer of Primitiva Global, where she runs a family-backed Multi-asset Strategy. She also works extensively with emerging VC managers, and sits on the Selection Committee of Bridge Funding Global.
Jay’s background uniquely combines software engineering (at the world’s largest fintech platform) and institutional investing (at top funds including Fidelity and Sequoia), as well as general management (3x executive in tech startups). Jay has lived in 5 different countries across 9 major cities, giving her a global perspective.
Jay obtained her B.A and M.Sci in Physics from Cambridge University and M.B.A from INSEAD. In 2023 she was listed as an Entrepreneurial Pioneer Under 35 by Hurun Wealth.
[00:00] Intro [04:12] Life atop a Daoist mountain [10:27] Qigong and tai chi [12:21] What is dao? [19:18] The weapon that Jay specializes in [21:08] Why did Jay leave the Daoist temple? [24:24] The motivations behind Jay’s career shifts [30:05] The difference between underwriting a VC fund and a fund-of-funds [33:08] How does Jay get to know a fund manager? [36:31] The 3-layer process for building an allocation strategy [38:01] Picking the initial asset class [45:29] How much Jay allocates to venture [48:43] What does “reasonably diversified” mean? [49:15] Figuring out the portfolio construction model [54:59] At what point do you stop maximizing for portfolio returns? [56:57] How Jay calculates a 200X target return on direct investments [57:53] Data on returns as a function of portfolio size [1:01:42] The biggest challenge once you’ve picked your strategy [1:04:40] Selecting the right fund managers [1:14:17] The difference between guqin and piano [1:18:42] Intuition versus discipline [1:24:08] Post-credit scene [1:27:47] Thank you to Alchemist Accelerator for sponsoring! [1:28:48] If you enjoyed this episode, it would mean a lot if you could share it with one friend who’d also get a kick out of this!
“If you have the deal flow and you have the energy and have the skills to construct your own portfolio, then funds-of-funds obviously are more complimentary than necessary.” – Jay Rongjie Wang
“The first layer is setting up your own strategy. The second layer is portfolio construction. How do you do your portfolio construction based on the strategy you set out to do? And then manager selection comes last. Within the portfolio construction target, how do you pick managers that fit that ‘mandate?’” – Jay Rongjie Wang
“The later the stage you go, […] capital becomes more anonymous, and […] the more you converge to public market returns.” – Jay Rongjie Wang
“I only put the regenerative part of a wealth pool into venture. […] That number – how much money you are putting into venture capital per year largely dictates which game you’re playing.” – Jay Rongjie Wang
“Your average median of a fund-of-funds is higher than a venture capital fund, and the variance, the standard deviation, is lower. So it is possible for a VC fund to have 40%, 50%, or higher IRR. It’s much, much less likely for a fund-of-funds to achieve that, but also the likelihood of losing money is much, much lower for a fund-of-funds.” – Jay Rongjie Wang
“The reason why we diversify is to improve return per unit of risk taken.” – Jay Rongjie Wang
“Bear in mind, every fund that you add to your portfolio, you’re reducing your upside as well. And that is something a lot of people don’t keep in mind.” – Jay Rongjie Wang
“Once you have a strategy, the hardest thing for me is to stick to that strategy because you just meet those amazing managers, amazing funds all the time.” – Jay Rongjie Wang
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.
Undeniably, one of the most insightful books I read this year has been Setting the Table by Danny Meyer. Someone I’ve been a long time fan of. If you’re no stranger to this humble blog, you’ll notice his cameos throughout previouspieces I’ve written. I am also remarkably late to the game. The book came out in 2008. And to this day, is as timeless as it was over a decade and a half back. Thank you, Rishi and Arpan for gifting me a copy.
That book has led to blogposts like this and this. To finally cold email him (yay, he replied! Danny, if you’re reading this, thank you for making my day, hell, and a good portion of my year!). New ways on how I support GPs. More intentional ways to hire. Inspired me to take on two more writing projects and a new podcast series in 2025 (don’t worry, Superclusters isn’t going anywhere, but expanding). And I’m sure it’s only the tip of the iceberg.
And as one last fanboy moment for Danny, there’s a line he has on page 220. A line the late and great Stanley Marcus of Neiman Marcus fame once told him. “The road to success is paved with mistakes well handled.” A line I haven’t stopped thinking about since I read it.
There’s a saying in the entrepreneurial world that it takes between 10 and 15 miracles for a startup to succeed. Each miracle is a trial by fire. A right of passage. A test of character. I’ve always believed that the job of an investor is not to be helpful all the time, or share celebrations on social media, or facilitate just connections. Despite having done many of the above myself, those are all, in my mind, table stakes. Rather, the job of an investor is to be there for at least one of those critical points of failure and to be extremely valuable. To help an entrepreneur handle their mistake well, to borrow Stanley Marcus’ line.
“If I hire someone, I don’t really want to hire right out of school. I want to hire someone with a little bit of professional experience. And I want someone who’s been yelled at.”
While it makes for a great clickbait title, the lesson extends further. One only gets yelled at by making a mistake. One learns not by making mistakes, but the public embarrassment of that mistake. If someone learn of the negative aftermath of a mistake, one won’t get the feedback mechanism necessary to grow from that experience. To analogize it to elementary math, if my afterschool teacher didn’t slap me with a ruler every time I got 9+8 wrong, it would have taken me a lot longer to learn that lesson. If no one catches you accidentally making an inconsistent calculation on the balance sheet, you may never learn from that mistake.
All that to say, someone who’s been yelled at made the mistake, received the feedback mechanism to improve, and learned to handle it better next time.
So, in my long preamble, and not to bury the lead, 2025 will be the year of big mistakes. Maybe. Hopefully, well handled. 2024 was the year of laying the groundwork. A lot of which were made explicit via this blog. I’m not saying I haven’t made any mistakes. Yes, I’ve left the toilet seat up. I should have asked for more concrete examples during certain podcast interviews. Almost forgot to file my annual tax extension. Forgot to mention a sponsor at an event (luckily my co-host had my back). Made the rookie intern mistake at work. Twice. Different things, but nevertheless twice. But those mistakes will be small compared to the ones I’ll make next year.
Nevertheless, here are the hallmarks of 2024!
2024’s Most Popular
Timeless Content for the Weary Investor — Our society spends quite a bit of time focusing on results, outputs, and success. All of which are lagging indicators of the blood, sweat and tears people put in. So instead, earlier this year, I thought it’d be interesting to compile a list of content that some of the most successful investors (LPs and VCs alike) consume. What goes in their information diet? What are the inputs? Some results may surprise!
The Science of Selling – Early DPI Benchmarks — With the economy outside of AI hitting a standstill and hitting record low numbers in terms of liquidity, I’ve found a constant stream of new readers via this blogpost. Many of which I imagine to be fiduciaries and capital allocators. I do hope that one day there is more content on selling and exiting positions in a liquidity-constrained environment though. Although, I may just put out a blogpost on secondaries in the new year, inspired by a number of conversations I’ve had this year already.
How to Break into VC in 2024 — It may be obvious by now that there’s no one set path to get into venture. I’ve worked with colleagues who ranged in majors from history to food science to economics to computer engineering. Additionally, those who have been a founder, a banker, a consultant, a product manager, an artist, an athlete, an actress, a public relations specialist, and the list goes on. But if you were looking for the closest thing to a silver bullet, maybe this essay would be a great place to start.
Five Tactical Lessons After Hosting 100+ Fireside Chats — Surprisingly, this has stayed as a perennial blogpost. I realize even now looking back, how much I’ve learned since, but nevertheless a good starting point for those who want to interview others.
The Non-Obvious Emerging LP Playbook — The first blogpost I wrote on the topic of being an LP. Still my longest one to date. Since then, I’ve learned an LP comes by many a name. Capital allocator. Asset owner. And more specifically, the difference between multi-family offices and single family offices. Family businesses. Access versus asset class LPs. And more.
Non-obvious Hiring Questions I’ve Fallen in Love with — I’ve been lucky enough to spend quite a bit of time around talent magnets this year. And in the surplus of applications, they’re forced to quickly differentiate signal from noise. And these are some of the questions I’ve heard them use. And well, have also used myself when hiring these past two years.
All-Time Most Popular
This list hasn’t changed much this year. One can say I have yet to outdo myself. Which may be true. I admittedly, also haven’t shared these blogposts much on Twitter. In fact, over 70% of this year’s posts never touched LinkedIn or Twitter. When in the past, I invested a bit more time in expanding to new audiences. For any essay that did go a little viral this year, it was because of you, my readers. So thank you!
This year was the year of LP content. Also, the year where I stopped using as many headers in my blogposts. Interestingly enough. It wasn’t any conscious decision, but at some point I just slowed my pace down. Excluding this blogpost and a few others. I wonder if I’ll use less next year.
So, to share them chronologically, here are some of my personal favorites:
The Proliferation of LP Podcasts — I wrote this back in March at the beginning of Season 2 of Superclusters, and I still stand by this today. At the beginning of every content adoption curve, the question is: WHERE can I find this content? But as the content becomes fully adopted, in this case around being a capital allocator, the question will become: WHO do I want to / choose to listen to?
From Demo Day to First Meeting: My Demo Day Checklist — There are times we have to make fast decisions when faced with a volume of options. Going to Demo Days and choosing who to follow up with is just one of such cases. I’m happy this year I’ve codified that practice when going to VC accelerator Demo Days. And I imagine it’s only a matter of time, before we’re faced with the volume of YC Demo Days, but for funds.
The Power Law of Questions — As I’ve grown as an LP, I find myself being a lot more intentional with questions I ask fund managers. This blogpost serves as a record of questions I found myself asking quite often this year.
Emerging Manager Products versus Features — In the startup world, the concept of products and features have become quite prevalent. One is a standalone business. The other is more of a subclause than a clause, incapable of being a product offering in of and itself. As I spend time thinking about an asset class, where the simplest, and likely, most facetious way of describing it, is we sell money, this blogpost serves as “value-adds” that deserve their own fund versus ones that should be built within a larger shop.
Shoe Shopping — One of my posts where the title almost has nothing to do with the blogpost itself. But an observation of what differentiates VC funds beyond what they pitch the public.
! > ? > , > . — Another one of those blogposts where it’s hard to guess what it’s about from the title itself. Likely my worst essay title to date. Or best? A product of my gripe that most people don’t know how to ask for feedback. And good news! Some readers of this blog have reached out since asking for more directed feedback.
Three E’s of Fund Discipline — A lot of GPs focus on entry discipline. A lot of LPs in 2024 focus on exit discipline. Both are equally as important, but both often forget about the third kind of fund discipline. Executional discipline. I give examples of each in this essay, which hopefully can help as a reminder for what is needed out of a great fund manager. A separate job description from just being a good investor. In fact, you can be the latter without ever needing to raise or manage your own fund, and still make the Midas List.
With that, 2024 comes to a close. See you all in the new year!
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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.
