#unfiltered #94 Is Conviction Black and White?

flower, 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!


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 Superpower of Being Underestimated

underestimated, rejection, star

The Warriors went through one hell of a season. Even as someone who doesn’t live and breathe basketball, watching Stephen Curry this past season, especially during the finals with the Celtics was a thrill out of this world. He is undeniably one of the greats! Yet it’s fascinating to think that the world didn’t always see him as such. From being a 3-star recruit to the 256th-ranked player in 2006 to 7th pick in 2009, Curry’s gone a long way.

Though he recently won an Academy Award for Best Original Score for his music on Dune, Hans Zimmer‘s early music career was not easy. He had been thrown out of eight schools and only had two weeks of piano lessons. Yet today he is undeniably one of the greatest composers of our time.

Comment
byu/realhanszimmer from discussion
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Source: Hans Zimmer’s Reddit AMA

When Stan Lee first pitched Spider-Man, his publisher thought it was “the worst idea I have ever heard.” The publisher himself told one of the greatest storytellers: “First of all, people hate spiders, so you can’t call a book Spider-Man. Secondly he can’t be a teenager—teenagers can only be sidekicks. And third, he can’t have personal problems if he’s supposed to be a superhero—don’t you know who a superhero is?'” The rest… is history.

In the making of Star Wars, George Lucas was rejected time and time again – from Disney to United Artists to Universal. And the one bet that 20th Century Fox took on him was for only a budget of $8M, that eventually became a $10M budget, when at the time, the best blockbuster films all had budgets of $20-30M. Yet, today Star Wars stands as one of the greatest cultural assets of the 20th and 21st century.

In the world of startups, the world’s most valuable companies are worth more than four times and raised half as much as the world’s most funded companies. Funding, in many ways, is a proxy for investor optimism in the early days that this company will be the next big thing. But investors, like any other person, can be wrong. In fact, startup investors are often wrong more often than they’re right. But it also goes to say the world’s best companies are non-obvious, in the non-consensus. In other words, underestimated.

Source: Founder Collective

As the above graphic shows, even if one picks right, we still grossly underestimate the potential of outliers. After all, humans are terrible at tracking nonlinearities:

  • In 2012, Canva was rejected by over 100 Silicon Valley investors. Now it is a growing $40 billion business of gargantuan proportions.
  • The Post-it note was an result of a failed experiment to create stronger adhesives. But Dr. Spencer Silver, its inventor, kept at it, which led to his nickname as “Mr. Persistent” because he wouldn’t give up. Today, Post-it notes are sold in more than 100 countries, and over 50 billion are produced every year.
  • Google, one of the most recognizable names today, struggled to raise capital and find customers in the early days. Who needed another search engine? For 1.5 years, every search company approached by Larry and Sergey to consider Google’s tech turned them down. The pair funded Google on their credit cards and couldn’t even afford to hire a designer so regressed to minimalism.
  • Tope Awotona, founder of Calendly, started three failed businesses and emptied his 401k to fund Calendly. Yet despite his hustle and persistence, most VCs he talked to turned him down. Despite starting in 2013, it wasn’t till 2021 that Calendly had their A-round. Calendly took much longer to get the attention of external funding than many of its counterparts. The company is now one of the most popular scheduling tools and worth $3B.

But even when people got it right, they still underestimated the upside.

  • Even when Kleiner eventually backed Google, legendary investor John Doerr couldn’t believe it when Larry Page believed that Google could get revenues of $10B.
  • When Bessemer invested in Shopify, Bessemer thought that the best possible outcome for Shopify was a 3% chance of the company exiting at $400M. As of the time of this essay, it’s worth over 100 times more with a market cap of $43B.
  • If you invested in Amazon on the first day in 1998 at $5, most people would have sold at $85 in 1999 – a 17x in less than two years. But if they held to today, they would have made a multiple north of 600x. That said, selling itself is more of an art than a science.

… And the list goes on.

As Warren Buffett says, “the rearview mirror is always clearer than the windshield.” Our fallacy with estimation is painfully obvious in hindsight, but dubitably unclear in foresight.

Early on in my venture career, an investor once told me a profound statement. One that I still remember to this day. The best ideas – and often the leaders of tomorrowoften seem crazy at first. And because they’re crazy, they’re nonobvious. They’re in the non-consensus.

As Steve Jobs says, “the ones who are crazy enough to think they can change the world, are the ones who do.” The world’s most transformative individuals and businesses take on many more headwinds than those optimizing for local maxima. But history shows us that those that dream big consistently outperform those optimizing for marginal improvement. While there is nothing wrong with the latter, I hope the above anecdotes serve as a reminder rejection is not a sign of failure. Rather, it’s a sign that most people have yet to see what you see.

Your job is to teach them to see what you see. After all, the only difference between a hallucination and a vision is that other people can see a vision.

Photo by Aziz Acharki on Unsplash


Edit: Added in Stan Lee’s story.


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Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.